summary:
- The Trump administration announced that Israel and Lebanon agreed to implement a ceasefire and establish security zones, on the condition of a complete cessation of Hezbollah fire and the evacuation of its members from the southern Litani sector; The previous ceasefire that was agreed upon last month did not hold
- Trump suggested a deal with Iran could be reached “over the weekend” while reports suggested he privately told aides he would not resume all-out war unless US forces were killed.
- The US House of Representatives passed a war powers resolution to prevent further strikes on Iran, the first such vote in the conflict; Analysts described it as largely symbolic
- Asian stocks fell on Thursday morning, with sharp declines in both Seoul and Tokyo as renewed tensions with Iran turned risk aversion. Winning decreased sharply
- USD/JPY drifted below the 160 level; Major movements in the currency market were otherwise weak
- Chinese analysts said that the People’s Bank of China’s liquidity will remain stable and abundant in June despite the central bank skipping open market operations for the second day.
- The New World screwworm, a parasitic fly deadly to warm-blooded animals, has been found in a calf in Texas, alarming the US cattle herd.
Oil prices fell on Wednesday, as a wave of contradictory signals on the US-Iran conflict left markets unable to commit to a direction, with Trump’s weekend deal hinting at doing enough to shake off what had been a very risk-off session.
The dominant thread of the day was the collision of escalation and diplomacy that became the defining rhythm of this conflict. Iran bombed Kuwait International Airport the day before, wounding dozens and prompting the United States to launch military strikes near the Strait of Hormuz. Against this background, the Trump administration announced that Israel and Lebanon agreed to implement a ceasefire and establish security zones in southern Lebanon, on the condition of a complete cessation of Hezbollah’s fire and the complete evacuation of its members from the southern Litani Strip. This was the second ceasefire agreement of its kind in as many months. The first one didn’t hold up. Tehran has repeatedly linked any agreement with Washington to the end of the fighting on the Lebanese front, making this announcement of diplomatic importance even if its durability remains an open question.
Trump increased the noise in the afternoon in the United States, indicating that the agreement with Iran could be achieved over the weekend. He also reportedly privately told aides that he would not resume all-out war unless US forces were killed, a threshold that markets interpreted as confirmation that the administration was tolerating continued skirmishes rather than seeking renewed escalation. The US House of Representatives approved a war powers resolution to prevent further Iranian strikes, the first such vote since the conflict began in late February. The White House rejected it and analysts widely described it as a performance with no impact.
Asian markets opened on Thursday amid risk aversion. Seoul stocks fell sharply and the Korean won was sold off, while the Nikkei also fell, after a weak advance from Wall Street. Major currency movements were limited elsewhere, with USD/JPY falling a few pips below 160 with no conviction in either direction.
In China, analysts sought to allay domestic market concerns, noting that liquidity conditions will remain stable and abundant through June despite the People’s Bank of China skipping open market operations again today, a communications practice aimed at preventing the absence of intervention from being seen as a tightening.
Aside from geopolitics, the US Department of Agriculture confirmed the discovery of the New World screwworm in a Texas calf. The parasitic fly, which eats warm-blooded animals alive, was eliminated from the United States decades ago. Its reappearance raises serious questions about biosecurity and potential exposure to American cattle herds at a time when beef prices are already near record levels.
Michael Bullock, Governor of the Reserve Bank of Australia, Sarah Hunter, Assistant Governor (Economic), and Christopher Kent, Assistant Governor (Financial Markets) are all scheduled to speak in the Australian Parliament today. None of them will be dovish.
- Scheduled at 0500 GMT/0100 EST
Bitcoin continued to fall, aggressively, and only found a bounce below $62,000:
