SK Hynix lands in New York

The spike in oil prices remained contained this week, even though traffic through the Strait of Hormuz came to a near halt again. The ceasefire is in jeopardy, but the technical talks between the US and Iran aimed at finding peace in this complex Middle East geopolitical landscape will continue. The latter – along with the supply glut in some key markets – helped keep oil prices in check. US crude eased 4% yesterday, pulling back after testing its 200-day moving average in previous sessions, and is consolidating near the $72.50pb level this morning.

Global yields are moving lower on relief that the latest spike in energy prices won't reverse the recent pullback. The Japanese 10-year yield fell more than 10bp today to below 2.80%, despite a rise in June producer price inflation to above 7% — showing just how strongly energy prices are driving market moves right now. Meanwhile, Japanese Finance Minister Katayama said the government is willing to encourage pension funds to invest more in domestic assets — exactly the kind of news global investors hate to hear. A sizeable repatriation of funds by major Japanese investors, such as pension funds, is precisely what could trigger a reverse carry trade in yen positions, threatening global risk appetite.

But not today. The USDJPY is sharply lower, trading around 161.50, supported by the strong PPI reading but also by a broad-based pullback in the US dollar following easing oil prices and fading concerns over further escalation in the Middle East. Those concerns could return at any time.