MFS: The reopening of the Strait of Hormuz and its impact on financial markets
Benoit Anne, Head of Market Insights at MFS Investment Management, comments on the provisional agreement between the US and Iran and its impact on the financial markets:
With the announcement of the US and Iran reaching an agreement to reopen the Strait of Hormuz and halt the war, we are seeing a sharp reversal of the War-led market moves. First and foremost, the oil price has now corrected lower, with Brent back to where it was in early March, just a touch above $80. In the process, front-end rates are moving lower, signaling some downward repricing of future policy pricing. That may mean that yield curves may start steepening again.
Meanwhile, the US dollar looks toppish and we would favor exposure to other currencies, in particular selected EM markets. Finally, risk appetite for growth assets is firmly back, creating a tail wind for equity markets. European equities, which were identified as the most vulnerable to the impact of the geopolitical crisis, are now positioned to stage a healthy bounce.
Looking ahead, we remain of the view that global diversification should be a core pilar of the investment process, not only from a risk management standpoint but also for the sake of taking advantage of the investment opportunities that are arising across the globe.