Middle East War updates: Iran says Strait of Hormuz main focus of talks to end war with US

Here’s a brief recap of the key developments in the Middle East war that occurred over the weekend, which are expected to have a significant impact on markets in the upcoming week.

Iran’s Foreign Ministry spokesman Esmaeil Baqaei said on Sunday that the Strait of Hormuz is the main focus of Iran’s negotiations to end the war with the United States (US).
Baqaei added that the latest US proposal to Iran to end the war was almost identical to previous proposals, adding that Washington continues to focus on the nuclear file.
Iranian parliament speaker Mohammad Bagher Ghalibaf said that Tehran is not backing down from its conditions for opening the critical waterway, denouncing recent alleged US proposals as “unilateral demands,”
“The Strait of Hormuz will not be opened until our seven conditions—based on the Islamabad Memorandum—are met,” semi-official Fars news agency reported.
The head of Yemen’s governing body Rashad al-Alimi has ‌announced the start of military operations to retake the remaining territory held by the Houthis in the country.

Análisis de TMGM: noticias de mercados financieros, calendario económico e información del mercado

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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