No end to Iran war in sight as Federal Reserve leaves interest rate unchanged

Bryn Jones, head of fixed income at Rathbones Asset Management, said: “Trump is suggesting the US will hit Iran hard after more missile exchanges in the Middle East, plus there are rumours that China has allegedly shipped 800 manned missile systems capable of shooting down US planes.

“China relies heavily on energy from the Middle East and, arguably, is looking to have some influence in the conflict in varying ways. Add in years of grievances where both China and Iran see themselves as ancient civilisations that have been exploited by the West for the last 200 years.

“Sadly, there seems there’s no end to this conflict in sight.

“Iran is also suffering a severe economic shock. Data is unclear and has to be taken with pinch of salt, but according to the latest report by the Statistical Centre of Iran, via an Iranian news service, Iranian inflation is running at close to 66 per cent.

“Youth unemployment among individuals aged 15 to 24 climbed to 23.4 per cent. Prominent economist and Sharif University of Technology professor, Masoud Nili, suggested that Iran’s economy has moved beyond chronic inflation and is rapidly approaching “hyperinflation territory.”

“It’s also looking like a public health crisis is building with a near 50 per cent increase in people visiting public health system as the affordability of private healthcare is now beyond the means of many.

“As a result, Gilt yields did an about turn and practically gave back most of the ceasefire rally.

“Of course, not only this but it’s now the start of the depths of summer where liquidity disappears seemingly like rain at his time in the south east.

“Where are yields going? Could be in both directions. Hopefully, the summer illiquidity will throw up some decent trading opportunities, but having the nimble toes of Pele is going to be required.

“The Fed decision had some uncertainly around it, but it was not a 50/50 coin flip, with a 30 per cent hike priced into it.

“In the end, the Fed held steady with three dissenters voting for a hike. One suspects that the lower inflation data of late kept more from joining the dissenting crew.

“Warsh’s vagueness is causing some consternation in the market, making the Fed’s next moves hard to forecast with no forward guidance from Warsh himself.

“So, we basically have the data to look at going forward, but of course that has been skewed by commodity inflation from oil, the demand and employment led World Cup, throw in AI spend and tariff inflation pressure fading and the data is not a reliable indicator.

“Next hike now priced in for October, at 96 per cent chance, with September meeting giving 67 per cent chance.

“US Treasury reaction at front end was muted. Yields at the longer end continued to rise on concerns of more entrenched inflation fears.

“The 2’s10’s, often a good indication of how steep the US curve is, steepened back into the 40’s. This had been as low at 24bp in June but around 70bp into the February before the war began.

“The curve is often looked at as if it moves to inversion, it implies a possible recession ahead, although not all inverted curves forecast recessions. Cures tend to steepen when investors worry about either fiscal policy concern or implied inflation threats.

“All in all, the 30-year was kicked about a bit up to a rather hefty 5.23 per cent. Currently, a 14bp rise from Tuesday close.

“This is the highest 30-year yield since 2007. None of this will please Trump and Miran when getting yields lower on $31trn of debt is the aim of their new world order.”