Iran Deal Points to Steeper Yield Curves: 3-Minutes MLIV

Summary

Mark Cudmore analyzes the fallout from the Iran nuclear deal on oil, yields, and currencies. He sees a setup for a dollar-yen pop if the BOJ sounds insufficiently hawkish, persistent oil-driven inflation leading to steeper yield curves, and deep weakness in Hong Kong stocks tied to a struggling Chinese consumer.

• BOJ press conference setup favors a dollar-yen rally if the deputy governor fails to deliver a hawkish message.
• Lower oil prices have not pulled global yields down because Brent is still well above pre-conflict averages and US stockpiles need refilling.
• Oil's supply-side inflation impulse will allow central banks to ease hawkishness at the front end while keeping long-end yields sticky, causing curve steepening.
• Hong Kong stocks are underperforming dramatically, signaling significant negativity around China's consumer and a missing wealth effect.
• A potential Iran deal encourages risk-on positioning and carry trades, adding pressure on the yen.