Summary of Key Points
The temporary ceasefire in the US-Iran conflict has caused severe fluctuations in global markets: Oil prices plummeted due to the disappearance of the "war premium," while gold rebounded as concerns about inflation eased. The already complex decision-making process regarding the Federal Reserve's interest rate hikes in July has become even more unpredictable, with significant divisions in the market. Investors are simultaneously preparing for a hike and hedging against a possible cut.
1. Oil Prices: A Wild Ride
The conflict's extension to the Red Sea and the Strait of Hormuz raised fears of disrupted oil supply, driving oil prices skyrocket—Brent crude has surged by 30% this month, breaking through $100 per barrel last week. However, once the ceasefire was announced over the weekend, the market quickly eliminated the extra price premium associated with the potential war: Brent crude opened down more than 7%, briefly falling below $90; WTI also dropped by 5.5%, and European natural gas prices fell by nearly 8%.
Analysts note that the market is somewhat "fatigued" after five months of continuous conflict. Without concrete evidence of full resumption of shipping through the strait, there's no certainty that the conflict is truly over, which led to a slight rebound in oil prices (Brent around $92).
2. Gold Takes a Breath
As oil prices tumbled, gold prices surged—spot gold opened up nearly 40%, approaching $4100 per ounce, with silver rising even more sharply (over 2.8%). The logic is simple: Lower oil prices reduce inflation concerns, lowering the pressure on the Federal Reserve to raise rates; this in turn weakens the dollar, and since gold and the dollar move in opposite directions, gold prices rise.
However, there's no reason to be overly optimistic. Gold has already fallen by a fifth from its historical high of $5600 and is now hovering around $4000. If the conflict escalates again, gold could fall below its support level of $3950. Additionally, the probability of a Fed hike this year remains high at 92%, so gains are likely limited in the short term.
3. The Federal Reserve's Decision: A "Schrödinger's Cat" Situation
This week's Fed meeting is considered one of the most unpredictable in recent years due to the rapidly changing circumstances:
- Initially, inflation declined in June (the largest drop since April 2020), leading many to believe that there would be no hike in July (with only a 10% probability).
- Subsequently, factors such as rising oil prices, Trump's tariffs, and the AI boom boosted market expectations for a hike (current probabilities: 63.7% for no change in July, 36.3% for a 25-basis-point hike, and 80% for a hike in September).
- The weekend's drop in oil prices provided some support for the "no-hike" camp, but the Fed is looking at June's inflation data, not recent price fluctuations. Moreover, the full impact of tariffs and AI on inflation has yet to be fully assessed.
What adds to the confusion is Chairman Powell's new approach: He abandoned the previous practice of providing clear interest rate guidance, stating that each meeting will result in "real-time decisions." During congressional testimony, he only mentioned a "zero-tolerance" policy for inflation without specifying future actions. Internal divisions within the Fed are evident, with hawkish officials (from Dallas and Cleveland) advocating for a hike and dovish officials (from New York) preferring to wait until September.
4. Investors in a Dilemma
Policy uncertainty has led investors to adopt a "two-pronged" strategy: One-third of Derivative Path's clients are preparing for a hike by adjusting their portfolios, while the rest are hedging against a possible rate cut. This indicates that investors no longer try to predict the Fed's actions but instead prepare for both outcomes, given that experts believe the chances of a hike and no hike are equally likely.
In Conclusion
The core factor driving these market fluctuations is "uncertainty"—repeated conflicts, volatile oil prices, and ambiguous Fed policies. For ordinary investors concerned about their financial well-being, it's important to note that lower oil prices may provide temporary relief from rising costs. However, if the Fed does raise rates, mortgage and auto loan interest rates are likely to increase. Although gold has rebounded, it's not advisable to rush into buying it at current levels, as the risks associated with the conflict and potential rate hikes remain. The next few days will be crucial, as the Fed's decision will have a direct impact on global markets.