Iranian navy talks up possible safe transit through Strait of Hormuz as US threats recede

In a statement, the Iranian navy says that "with the end of threats from aggressors and in light of new procedures, safe and stable transit through the Strait of Hormuz will be possible". With that, we're seeing oil prices crater further on the session and risk trades rally to fresh highs on the day. The navy also expressed gratitude to ship vessels in the Gulf region for their "cooperation in transiting the Strait of Hormuz according to Iranian regulations". The way that said message is being communicated makes it sound like the Iran-established traffic separation scheme will be ended and a new protocol will be established. Or at least that seems to be how things look to be translated at first glance. This has been what markets were hoping to happen for a few weeks now. And finally, we're starting to see it all culminate in a likely agreement between both sides. Pakistan is also out saying that they are trying to mediate an agreement so as to allow for a "permanent end to the war". WTI crude has plunged by nearly 12% to $90.30 now and I reckon we're likely to see oil prices fall back towards the $80-90 range over the next few months. I wouldn't expect a complete meltdown as it will take time for traffic flows to resume in the strait and also for production levels to restart. Elsewhere, US futures are racing higher with S&P 500 futures posting gains of 1% and Nasdaq futures up 1.6%. Fresh record highs are incoming once more as the bond market also stops the rot. 10-year Treasury yields are down 8 bps to 4.335% and 30-year yields in the US are down 6 bps to 4.92% currently. So far, the headlines today point to a very optimistic signal. Now, it is to look at whether shipping data will eventually back all of this up. And if so, how quickly will we see a pick up in traffic flow along the strait. That will be key to determine how fast things should normalise in the energy market and the spillover towards the world economy. This article was written by Justin Low at investinglive.com.