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Like one family bound for Acadia National Park and another bound for Yosemite, consumers and financial markets entered Memorial Day weekend in opposite directions. A reading of consumer confidence tracked by the University of Michigan fell to a record low on Friday, while the Dow Jones Industrial Average closed at a record high.
This morning, at least, there’s enough cautious optimism to fuel a road trip for everyone. The United States and Iran said over the weekend that peace talks had led to a possible deal, something that would ease inflationary shocks unleashed by the nearly three-month conflict. International benchmark Brent crude is down 5.8% this morning at $97.47 per barrel, on track for its lowest close in a month.
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Under pressure
President Donald Trump said Saturday that the United States, Iran and other countries have “largely negotiated” a memorandum of understanding for a Persian Gulf peace deal that would reopen the Strait of Hormuz. While it is not the first time the White House has suggested the conflict is close to a resolution, Iran’s semi-official Tasnim news agency confirmed the talks on Sunday and warned that sticking points, such as the unfreezing of Iranian assets, could block a deal.
Overall, it’s a big development at a time when experts warn that energy markets and consumers are near their breaking points. Fatih Birol, head of the International Energy Agency, said last week that oil markets could reach a dangerous “red zone” in July or August if the two sides fail to make progress on reopening the Strait, through which a quarter of the world’s maritime oil trade flows. Fourteen million barrels of oil a day have disappeared from the market since the conflict began on February 28, he said, and production will not recover for at least a year. Analysts at Wood Mackenzie warned of a price of $200 per barrel for oil by the end of the year. Meanwhile, American consumers, who now pay an average of $4.51 per gallon to fill their gas tank, “seem worried that inflation will rise and proliferate beyond fuel prices, even in the long run,” said Joanne Hsu, director of the University of Michigan Survey. The prospect of a deal has meant a good day for global stocks:
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With crude oil prices falling, import-dependent Asian markets were in full swing on Monday. The Japanese Nikkei rose 2.9% and exceeded 65,000 points for the first time.
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Futures contracts for the S&P 500, which is currently on an eight-week winning streak, rose 0.9% this morning.