6:00, a slight tremor

Source: Wall Street Intelligence Circle

At Monday’s open, global markets experienced a slight tremor:

Oil prices surged; US crude opened nearly 2% higher, while Brent crude opened up 3%;

The US Dollar Index also gapped higher, probing the 101 level;

Meanwhile, gold, US stock futures, and US treasuries all fell in tandem, with the 10-year US Treasury yield rising to around 4.48%.

First, the spike in oil prices was entirely a stress reaction to the “lack of substantial progress at the Switzerland talks on Sunday” and the potential escalation of tensions in the Strait. According to Bloomberg, negotiations are still ongoing, so overall moves in oil are measured. It’s expected that around the US stock market open, Trump will be releasing a significant amount of information.

Iranian media (Fars News Agency) reported that Iran had suspended talks because of Trump’s latest threats, but Bloomberg, citing informed sources, said that the negotiations are still underway. The talks began at 2:45 PM local time, and the Swiss side will keep the venue available until Monday morning (which is this afternoon to evening in East Asia), so negotiations can continue if necessary.

According to Fox, Trump stated that the US might take over the Strait of Hormuz and charge a toll if necessary. Trump also noted he once told Iranian leaders directly that if they block the Strait of Hormuz, “you won’t even be able to return to Iran,” using profanity.

Second, the strengthening dollar simultaneously weighed on gold, US stock futures, and US treasuries because the market ramped up bets on Federal Reserve rate hikes last Friday. This week’s major event is Thursday’s release of the US Core PCE Price Index for May, the Fed’s preferred inflation gauge. The market expects both month-on-month and year-on-year increases, so there will be a wave of pre-positioning before its release.

The real trend today may not have started yet; the open feels more like a “sentiment test.” The true direction of the market will not be decided by the Asian session, but by the ultimate outcome of the Swiss negotiations (whether it’s a joint statement, an extension, or a collapse), Trump’s forthcoming statements, whether there are new threats at the Strait of Hormuz, and news flow before and during the US session. The real battle of institutional funds will begin with the European session, or even in the run-up to the US market open. Thus, the Monday open looks more like “a small tremor.”