00:00Well, global stock markets are posting fresh record highs as investors switch between optimism and pessimism over a possible U
00:08.S.-Iran peace deal.
00:10Strong corporate earnings and lower oil prices are both boosting sentiment.
00:14Iran has confirmed it's evaluating a U.S. proposal for a deal that would reopen the vital Strait of Hormuz
00:21shipping route.
00:23Fiona Sincato is an analyst with Citi Index in London.
00:26Fiona, lovely to chat to you.
00:28How much of this rally is based on solid data and how much of it is based on hope?
00:35So there is definitely a mix going on here.
00:38So we are sort of moving towards the end of U.S. earnings season.
00:43And it has, in fact, been a very strong earnings season.
00:47We're seeing earnings growth of around 25 to 27 percent, which is the strongest that we've seen since around Q4
00:54of 2021.
00:55Also, data coming out of the U.S. remains solid.
00:59So that's also encouraging.
01:01So on the back of those strong fundamentals, we are also seeing this optimism that a deal will be agreed
01:11soon between the U.S. and Iran.
01:13And that's adding to this euphoria, which is helping stocks reach record levels.
01:18All right. So we've got a bit of both. Optimism about a possible Iran peace deal and then also strong
01:23A.I.-related earnings.
01:24Which one matters more for the markets right now?
01:28Well, because we're coming towards the end of earnings season, that's provided a really solid distraction for the markets.
01:35Whilst there has been sort of these sort of to-ing and fro-ings between the U.S. and Iran
01:40over whether there is going to be a deal or no deal.
01:43So I think for going forward, what matters most is actually the U.S. and Iran, because that still hasn't
01:51actually crossed the line,
01:52which means that it is potentially still a risk and things could still go wrong there.
01:58And if that does happen, then that does mean we could still see an unwinding of this sort of positive
02:03sentiment that we've seen.
02:05Whereas with the A.I. trade, we've had a lot of the earnings.
02:08We've obviously still got NVIDIA to come.
02:10But I do feel that that's sort of been very much a support as far as the markets have been
02:14concerned so far.
02:16We know the oil price is, I think, is still hovering around $100 a barrel.
02:19Still elevated, but way off the $120 we saw earlier this week.
02:24If it pushed up that high again, do you think that could derail the equity rally?
02:30I think it depends how long it goes up towards that level for, because we did see not so long
02:36ago that oil prices did actually spike again.
02:39And the market reaction was actually fairly sanguine.
02:43So, you know, I do think that it would need to be a prolonged move of oil prices above the
02:50sort of $110, $120 level in order for the market to get nervous again.
02:55But as you said, you know, we have seen oil come down to around $100 a barrel.
02:59We're not expecting it to fall back towards that $60 a barrel any time soon.
03:04But if we do see progress with the deal, then we could see it fall lower.
03:09Fiona, where do you see it going from here?
03:11Could we see more records being broken, or do you think the market's going to sort of stabilize at some
03:16point?
03:18I mean, I think there is a potential for there to be more gains to be had.
03:23As I said, we've got that solid earnings season that we're sort of coming towards the end of.
03:27The data has been strong.
03:29And then if we do see the end to this war with a deal signed between the U.S.
03:35and most importantly, the Strait of Hormuz reopened, then that could accelerate further gains.
03:39I think where we could start to see some concerns coming through is when inflation data does start to come
03:46through higher.
03:46And that will happen at some point.
03:49Obviously, we have seen a slight creep up in inflation already.
03:52But I think as we head towards Q3 and we see those higher oil prices feed into the real economy,
03:59that's when we're going to start to see those numbers move higher on inflation,
04:02which could just unnerve the market a little bit then.
04:04Yeah, I was going to ask you about the inflation rate, because what we know about this crisis in the
04:08Strait of Hormuz is
04:09even if it opens tomorrow, the lag is going to last a very long time,
04:15even affecting fertilizer delivery, which is going to affect crops, which is going to affect the price of food.
04:20How long do you think we could be in for?
04:24So, I mean, it depends, again, how quickly the Strait of Hormuz does reopen
04:28and how quickly we see vessels returning to flow through there.
04:32But I think, you know, it's fair to say that even if it does open tomorrow,
04:35it will take a good couple of months for things to normalize.
04:39Now, in some way, that's not so bad,
04:41because we may see that central banks are going to take that transitionary approach to this inflation hit
04:47and not move as far as rates are concerned.
04:50I mean, the Federal Reserve, for example, we're not expecting them to hike rates, for example, at the moment,
04:55but definitely not cut rates either.
04:58So, you know, as long as we sort of do see an end to the war and the reopening of
05:03that Strait soon,
05:04I think we could potentially miss a very, very hard hit as far as rates are concerned.
05:10But we will still have a couple of uncomfortable months as far as inflation is concerned
05:15as we head towards Q3 and Q4.
05:18Thanks for breaking all of that down for us.
05:20That's Fiona Sincotta of Citi Index.
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