Summary
US strikes on Iran triggered missile retaliation and a fragile ceasefire. Markets reacted cautiously with oil settling near $68, while geopolitical tensions remain elevated and uncertainties persist.
Key points
Over the weekend, the United States launched airstrikes on three key Iranian nuclear sites, Iran responded on Monday by launching missiles at the US’s Al Udeid Air Base in Qatar. The missiles were shot down and resulted in no casualties – Trump thanked Iran ‘for giving us early notice’. Following these developments, on Monday, a ceasefire between Israel and Iran was announced, but as of now, it remains unclear if it will hold. The weakened Iranian regime faces growing pressure.
Market reactions have been cautious. On Monday, global equities fell and oil prices surged above $80 amid US strikes. Gold, the US dollar, and US bond yields showed little change compared to the previous week. After the ceasefire, markets reversed course: oil dropped to around $68, and global stocks rose. While geopolitical risks and the defence topic remain key, as highlighted also by the recent NATO leaders' decision to raise defence spending to 5% of GDP, moving ahead we expect market focus to shift to the US, as the tariff pause ends on July 9.
The oil market has stabilised following the disruption caused by the Israel-Iran conflict, but many issues remain unresolved. We keep our oil price target at $63-68 for Brent. As mentioned in our previous update on the conflict, risks of higher oil prices are mainly related to possible disruption of the Strait of Hormuz, which seems less likely at this stage.
With heightened geopolitical risks, we favour a well-diversified allocation, including hedges and exposure to commodities. While we continue to follow developments, we do not currently see reasons for a structural change in our economic outlook and reaffirm the views in our Mid-Year Investment Outlook.
Read more
