LONDON — Global shares dipped on Friday after U.S. and Iranian negotiators called off peace talks, while the risk of official Japanese intervention simmered as the yen traded on the brink of a 40-year low.
The U.S. dollar headed towards its strongest weekly gain in a month, mostly at the expense of the yen, which has fallen for five out of the last six weeks to trade close to its weakest since late 1986, prompting a volley of warnings from officials in Tokyo that intervention is an option.
The MSCI All-World index was down 0.15 per cent, having retreated after U.S. Vice President JD Vance pulled out of a planned trip to meet Iranian negotiators in Switzerland on Friday.
European stocks fell 0.12 per cent, paring earlier gains, while U.S. stock futures fell between 0.1 per cent and 0.2 per cent. The U.S. stock market was closed on Friday for the Juneteenth holiday.
Oil prices edged below US$80 a barrel after Israel and Hezbollah agreed to a ceasefire in Lebanon on Friday, according to a U.S. official, after an escalation in fighting there jeopardized the chances of an interim agreement on ending the war in Iran turning into a lasting Middle East peace deal.
Tankers have started sailing through the Strait of Hormuz, which the war effectively closed, after the U.S. lifted its blockade on Iran on Thursday.
“We concede that there will be a number of ships eager to leave the Gulf’s warm waters, and we think crude will struggle to find its footing amid a flurry of ‘open for business’ headlines, and yet we question the durability of the deal,” said analysts at RBC Capital Markets in a note to clients.
“In the event that the deal holds … the Hormuz reopening trajectory could resemble something similar to the Red Sea, where shipping traffic remains over 50 per cent below pre-crisis levels despite the Houthis signing a deal in May 2025 to end hostilities.”
U.S. dollar strength
The U.S. dollar index traded around 13-month highs, fuelled by a firm pledge from new U.S. Federal Reserve Chair Kevin Warsh to tackle inflation and ensure price stability. That has prompted traders to assume there will be at least one rate hike this year, compared with a negligible possibility a couple of weeks ago.
The shift in tone from the Fed has hit Treasuries hard. Two-year yields are nearly 10 basis points higher than they were this time last week, while benchmark 10-year yields have fallen three basis points to 4.451 per cent.
That reflects investors pricing in the chances of near-term rate rises, while gaining some confidence that these could prove short-lived given the drop in the oil price.
The cash U.S. bonds market was also closed on Friday.
Yen on the back-foot
With the U.S. dollar in the ascendant, the yen stayed on the back-foot to trade around 161.3, leaving the U.S. currency at its strongest since last July, and well beyond the 160-threshold that most see as a trigger for Japanese intervention.
The pound was up 0.1 per cent at $1.321, after a 0.7 per cent drop the previous day as the Bank of England kept interest rates on hold in a 7-2 vote. Labour mayor Andy Burnham won a parliamentary election in the north of England on Friday, removing a key obstacle to a leadership challenge against Prime Minister Keir Starmer.
Multiple British cabinet members will tell Starmer on Friday to set out a timetable for his departure, the Times reported.
By Amanda Cooper
(Editing by Shri Navaratnam, Helen Popper and Nia Williams)
