Geopolitical Release Valve Taking Pressure Off Resilient Economy

The US-Iran interim peace deal is shaky; but if it holds, it will end the US blockade of Iranian ports and reopen the Strait of Hormuz to commercial shipping. Now comes a 60-day negotiating period to hammer out a permanent agreement, centered on restricting Iran's nuclear program. The price of Brent crude oil extended its sharp decline following the peace deal announcement, with markets pricing in the return of Iranian barrels and the normalization of Persian Gulf shipping lanes (chart).

Meanwhile, the 10-year US Treasury yield fell from 4.67% on May 19 to 4.46% on Thursday, a sign that the market believes inflation will be contained over the longer term (chart). The 2-year Treasury yield steadied at around 4.19% on Thursday after climbing to this highest level in more than a year on Wednesday following Fed Chair Kevin Warsh's surprisingly hawkish comments at the June FOMC meeting.