BNY’s Geoff Yu reports that the U.S. and Iran have agreed to halt mutual attacks and resume talks on the Strait of Hormuz, allowing shipping to move more freely. Markets reacted cautiously, with Brent, WTI and Omani crude prices higher as tensions eased. The bank also notes that normalizing energy markets are reducing inflation sensitivity to Gulf developments.

Hormuz talks ease supply fears

"The U.S. and Iran have agreed to halt attacks on each other ahead of renewed talks this week on the Strait of Hormuz and related issues, after several days of retaliatory strikes threatened a fragile interim truce. A U.S. official said technical discussions will continue on the memorandum of understanding reached this month, with both sides stepping back for now and shipping allowed to move more freely. The confrontation began after an Iranian strike on a container ship triggered U.S. retaliation, followed by further exchanges over vessel attacks."

"Markets reacted cautiously, with Brent crude rising and U.S. equity futures gaining as tensions eased slightly. Brent +0.903% to 72.64, WTI +1.228% to 70.08, Omani crude +3.847% to 66.69, Dubai crude -0.575% to 79.214."

"While oil-driven inflation pressures have eased, a new wave of supply-side constraints linked to the global artificial intelligence investment cycle is beginning to emerge, raising the risk that inflation may prove more persistent than markets currently expect."

"The conflict’s impact on inflation is likely at its lowest ebb, but a new wave of supply constraints is already emerging and is likely to persist well beyond current forecast horizons. South Korea’s ₩1.350qn (roughly $1tn) public-private investment program for its semiconductor sector underscores the extraordinary scale of capital expenditure required to sustain the global artificial intelligence buildout."

"Any relief for central banks may therefore prove short-lived, and this week’s Sintra forum presents a timely opportunity for Fed Chair Kevin Warsh and his peers to reinforce a tough but credible message that the fight against inflation is far from over."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)