Deutsche Bank analyst Henry Allen outlined four reasons why risk assets saw limited gains despite a drop in oil prices following last week's U.S.-Iran interim agreement. First, the Federal Reserve's hawkish pivot pushed up real yields, with the U.S. 10-year real yield closing at 2.22%, its highest in over a year, counteracting the geopolitical relief. Second, markets had already priced the conflict as temporary, limiting upside once a deal was reached. Third, valuations were stretched after a historic two-month rally that saw the S&P 500 surge 16%, a feat seen only four times since World War II and only once outside a recession context, a few months before the 1987 Black Monday crash. Fourth, Strait of Hormuz traffic remains a fraction of pre-conflict levels and Brent crude is still roughly 30% above year-start levels.
Deutsche Bank AktiengesellschaftArticle discusses Fed hawkish pivot pushing up real yields, which is a monetary driver affecting Deutsche Bank's interest rate exposure, but impact is mixed as higher yields can benefit bank net interest margins while also weighing on risk assets.