So far, so calm

Given the ugly weekend news regarding the US and Iran's mutual attacks, I was expecting the week to start on a sour note. But not at all. The two countries announced that they would stop fighting, and the sun is shining again.

Although traffic through the Strait of Hormuz has been affected since the attacks began last week, the impact on oil prices remains relatively contained. Last week's news that some key markets have even turned oversupplied thanks to the release of strategic reserves and oil tankers quietly making their way out of Hormuz has certainly helped investors react more moderately to the latest escalation than they would have just a few weeks ago. As such, US crude didn’t surpass $70.60pb during the initial bout of unease in Asia and is consolidating around the $70pb mark at the time of writing. Brent crude is also trading in a tight range around $73pb.

Bond yields are slightly higher on Middle East uncertainty, while the Japanese 10-year yield is pushing toward the 2.65% mark as stronger-than-expected retail sales data fuel expectations of a more hawkish Bank of Japan (BoJ). The strong data is partly the result of fiscal stimulus, which the BoJ must balance against the need to tame inflationary pressures. Alas, yen traders are not convinced that the BoJ will normalize policy quickly enough to relieve pressure on the Japanese currency. The USDJPY is gently pushing above 161.80 this morning. If it isn't rising faster, it's because yen shorts expect the Japanese authorities to step in at some point. But they have been much more patient this time than in previous months.