Key events14m agoOil on track for one of its biggest monthly drops ever25m agoIntroduction: Asian stocks rise and oil price slips amid hopes of US-Iran peace dealShow key events onlyPlease turn on JavaScript to use this featureMohit Kumar, of the broker Jefferies, explains that a US-Iran deal could have a greater impact on investors’ expectations for interest rate movements this year than in the stock market.
double quotation markIn terms of market reactions if a deal is agreed upon, we should see another leg higher in risky assets and lower in rates. However, positioning suggest that the rates market should see a greater reaction than equities.
For equities, we are still bullish, but believe that the easy part of the rally is behind us. S&P positioning has reached just above 5, while Eurostoxx is at +2.2. Positioning is not extended yet, but beyond the relief reaction of a deal, we do not see a massive move higher from these levels. European equities can get a boost higher in the near term simply because positioning is much less crowded than in the US.
For rates, positioning is on the short side, with [US Treasuries] positioning just below -4 and Bunds close to -3. The recent rally in rates has led to some short covering in both US and Europe, but we still see more room to go. Our view remains that the front end of Europe, UK and the US are still mispriced. For the ECB, we can see one hike (in June), simply because they have to justify their inflation credibility. However, we do not see a series of rates hikes and maintain our long position at the front end of the curve.
