An odd peace optimism

The week starts on a surprisingly positive note despite the uncertainty surrounding the US/Iran peace talks, which took several twists over the weekend. On Friday, the talks were postponed (likely due to Israel’s renewed attack on Lebanon). On Saturday, Iran announced that it would close the Strait of Hormuz again. Yet senior US and Iranian officials still met at Switzerland’s Bürgenstock resort on Sunday, to kick off the 60-day negotiation period. They said the talks went well. Meanwhile, US President Trump continued to post threats on social media. And here we are, Monday morning.

US crude kicked off the week with a small jump above $78pb but rapidly retraced its gains. US and Japanese yields moved higher, though that didn’t prevent the Nikkei from advancing to a fresh high thanks to:

• Strong appetite for technology stocks, which also pushed the Korean Kospi and Taiwan's Taiex higher.
• A softer Japanese yen making the Japanese stocks less expensive for foreign investors.

The USD/JPY spiked to nearly 161.70 this morning, moving above what is widely seen as the pain threshold for Japanese officials. Finance Minister Katayama said authorities stood ready to take action against excessive currency moves at any time, but we have yet to see any intervention. CFTC data confirms that the market remains heavily crowded with speculative short yen positions, meaning that if the Bank of Japan (BoJ) intervenes, we could see a sharp move lower that clears part of those positions. However, it would not necessarily change the medium-term selling pressure on the yen. Even last week’s BoJ rate hike – and expectations of another one later this year – were not enough to bring yen bulls back to the market.