Live Markets: Back to the before?
LIVE MARKETS-Back to the before? Adds new blog entry
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BACK TO THE BEFORE?
The U.S. and Iran have a deal! Or at least a deal to make a deal.
So, everything can go back to how it was now, right? Not quite, according to Commerzbank chief economist Jörg Krämer.
Oil prices may have fallen sharply, but "will remain well above pre-war levels for a long time," he said in a note.
Based on the concessions the U.S. seems to be making, Iran would have a lot to lose if the conflict were to continue — "which argues against a resurgence of the war and a renewed closure of the Strait of Hormuz," Krämer said, noting that this suggests the average oil price in the coming months will be lower than previously expected.
But, he noted, shipping traffic through the Strait of Hormuz will likely take some time to return to pre-war levels, commercial inventories are expected to keep falling — and will then need to be replenished, driving up demand — and not all countries with spare capacity will use it to bump production.
"We must not become overconfident; it will likely take until the middle of next year for the oil price to return to its pre-war level of just under $70," he said.
And while it is good news for the economy that traffic can flow through the Strait of Hormuz again, the oil price spike is still set to weigh on economic growth in the euro zone this year, Krämer said.
The risk of an oil-price-driven recession may have eased, but "recovery will come later."
Similarly, Krämer said that "the conclusion remains that inflation should not decline significantly until after the turn of the year," with Commerzbank expecting euro zone inflation to hover around the 3% mark in the coming months.
And for the European Central Bank, the deal has reduced the need for another hike. But further policy tightening is still on the cards, Krämer said, pointing to surveys that for example show companies passing on higher costs to consumers and an expected pick-up in core inflation.
(Sophie Kiderlin)
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