Morning Bid: Peace now or maybe later?

• The 60-day MoU includes toll-free traffic through Hormuz while complex issues like Iran's nuclear program are negotiated, but cancelled talks suggest implementation challenges ahead
• Oil market volatility expected: potential upward pressure if Iran maintains Hormuz control post-60 days, or downward pressure if Iranian oil returns amid ramped Gulf production creating a glut
• Fed Chair Kevin Warsh's debut meeting showed hawkish tilt with half of members signaling potential rate hikes, though stock declines were tempered by prospects of lower energy prices from the Middle East deal

Market Summary: U.S.-Iran Peace Deal Creates Oil Price Uncertainty

Key Developments

The U.S. and Iran reached a memorandum of understanding to end hostilities and reopen the Strait of Hormuz, sparking significant market volatility. Global equities rallied initially, while Brent crude fell below $80 per barrel on expectations of resumed oil flows through the critical waterway.

However, peace talks scheduled in Switzerland were cancelled, raising doubts about the deal's durability and creating uncertainty for future oil prices.

Deal Terms and Timeline

The MoU, signed by President Trump and Iranian President Pezeshkian on Wednesday, outlines a 60-day period of toll-free traffic through Hormuz while complex issues like Iran's nuclear program are negotiated. The preliminary nature of the agreement suggests significant volatility ahead.

Market Implications

Oil Markets: Two competing scenarios emerge:

• Bearish: If the deal holds, Iranian oil returning alongside Gulf producers ramping up production could create an oil glut, pressuring prices downward
• Bullish: Iran potentially maintaining some Hormuz control post-60 days could support higher prices; shippers remain cautious about returning to the waterway

Federal Reserve: Kevin Warsh's debut meeting maintained rates at 3.50-3.75%, but messaging showed a hawkish tilt with nearly half of members expecting future hikes. The policy statement was notably brief at 130 words, signaling less forward guidance ahead. Markets initially fell but recovered on lower inflation expectations from potential oil supply increases.

Other Central Banks: Bank of Japan raised rates to 1% (31-year high); Bank of England held at 3.75% with inflation expected to exceed 3.25% in Q4.

Next Week: May U.S. PCE data releases Thursday, though Middle East developments will likely drive Fed policy more than the data itself.