Markets are recovering, but peace remains to be seen.

The market anticipates, geopolitics chases

The start of the week on financial markets began with a very sharp move: investors began pricing in a reduction in geopolitical risk in the Middle East even before the normalization of trade flows was truly visible. The key news was the preliminary agreement between the United States and Iran, also brokered by Pakistan, with a formal signing expected on June 19th in Switzerland. The key issue is not only diplomatic, but economic: the reopening of the Strait of Hormuz, after months of blockade and tension, could reduce pressure on energy prices and thus also ease the risk of further monetary tightening.

The market, as often happens, didn't wait for physical evidence of normalization. It anticipated it. Wall Street saw a strong recovery on Monday: the Dow Jones rose 0.92% to 51,671 points, the S&P 500 rose 1.65% to 7,554 points, and the Nasdaq rose 3.07% to 26,684 points. The technology sector led the rally, with semiconductors rising more than 5%. In Europe, the move was more modest, with the STOXX 600 rising 0.19%, while the MSCI global index gained 1.71%.

US-Iran deal: nuclear issue remains open

Political communication, however, remains confusing. Trump had claimed the agreement would be signed as early as Sunday, while Tehran disputed the timing and maintained a more cautious approach. The agreement now appears closer to a preliminary memorandum than a final agreement: a de-escalation framework, with an extended ceasefire, the gradual reopening of Hormuz, subsequent negotiations on sanctions, and a separate discussion of the nuclear issue.

In the circulated draft, Iran would commit to never producing or acquiring a nuclear weapon. This is a politically important step, but it alone is not enough to resolve the issue. Three crucial elements remain unclear: the fate of the enriched uranium, the return of international inspectors, and the verification mechanism. Without these details, the market can celebrate the reduction in tensions, but it cannot yet consider the strategic risk resolved. Israel has also reacted with irritation, primarily because it is not a direct party to the agreement and fears that an overly lenient agreement could strengthen Tehran instead of limiting it.

Oil down, rates down: the real fuel of the rally

The most immediate channel of transmission to the markets was oil. Brent fell below $84 a barrel, and WTI lost nearly 5%, hitting its lowest levels since March. Although the reopening of Hormuz may take weeks to return to full operational normality—including insurance, shipping logistics, security, and the restoration of routes—investors immediately began to price in a future with less energy pressure.

This dynamic had a direct impact on interest rates. The 10-year US Treasury yield fell to 4.42% intraday, before stabilizing around 4.47%. In Germany, the 2-year yield fell 4 basis points to 2.57%. The message is clear: if oil stops rising, the risk of inflation decreases; if inflation risk decreases, central banks have less need to tighten monetary policy. The dollar also weakened: the Dollar Index fell to 99.60, while the euro rose to $1.1597, reaching $1.1622, its highest since June 5.

Gold, on the other hand, maintained a more cautious reading. The yellow metal rose above $4,300 an ounce, supported by falling expected real yields and the idea that easing isn't yet solid enough to eliminate demand for protection.

China weak and Japan more restrictive

Outside the Middle East, macroeconomic data told a less reassuring story. In China, retail sales fell 0.6% in May, the first decline since December 2022. This figure is significant because it points to still-fragile domestic demand, despite industrial production growing 4.5%. China's problem therefore remains the divergence between a still-strong manufacturing base, also fueled by global demand linked to artificial intelligence, and a weak domestic consumer. Fixed investment fell 4.1% in the first five months of the year, and the real estate sector continues to weigh heavily, with investment declining 16.2%.

Japan, on the other hand, confirmed a change in its monetary regime: the Bank of Japan raised interest rates from 0.75% to 1%, the highest level since 1995. The decision comes despite the recent decline in oil prices, as Tokyo fears that the energy shock of recent months has already begun to affect domestic prices. It's a symbolic step: after decades of extremely low interest rates, Japan too is firmly entering a phase where inflation can no longer be ignored.

Technology under regulatory pressure

This week's other news concerns the digital sector. Florida has sued TikTok, accusing the platform of violating state child protection laws, which prohibit access to social media for anyone under the age of 14 and require parental consent for anyone under the age of 16. In the United Kingdom, the government announced a ban on social media for anyone under the age of 16, with additional restrictions for certain features deemed harmful to minors.

For markets, the issue is broader than a single platform. After years in which the growth of the digital economy was almost entirely measured in users, usage time, and advertising, regulation is becoming a structural variable. It doesn't just concern TikTok, but the entire model of large social media platforms.

A truce bought in advance

Less oil, less inflation, less pressure on interest rates, and more room for equities and technology. But the story isn't over yet. Hormuz won't return to normal overnight, Israel remains opposed to parts of the agreement, Iran's nuclear program requires concrete verification, and China continues to show weak consumer spending. The recovery in the indices is therefore understandable, but fragile: the markets have bought the possibility of a truce, but not yet the certainty of peace.