First Greece and now Iran

In mid-morning trading, the FTSE 100 is little changed, following on from strong gains yesterday. 

Oil barrels
Source: Bloomberg

Modest losses are the order of the day in European indices, as investors struggle to find reasons to push markets higher a day after the Greek deal was signed. Rumblings of discontent can be heard from Athens, but the measures are still expected to pass. Eurozone leaders will be hoping that the anniversary of Bastille Day does not inspire any outburst of popular revolt that might derail the fragile agreement.

Oil is in full retreat once again this morning as the signing of a deal with Iran brings the prospect of fresh supply heading to a market that is already awash with surplus output. With Iran’s oil fields operating well below full capacity the worrying thought for oil bulls is that the ongoing oversupply situation will only intensify as the year goes on and output increases.

Iran has never featured particularly highly on the list of market concerns, but the deal, coming so soon after Greece’s apparent reconciliation with its creditors, should provide further fuel to the global equity bounce.

Continuing falls in food and clothing have kept a lid on CPI growth in the UK, and with oil markets looking ripe for fresh falls the prospect of more months of negative inflation are also in sight, which will complicate matters for the Bank of England. The rationale for a rate rise is still looking flimsy, especially given the Federal Reserve’s unwillingness to move on the subject.

While US retail sales will be in focus this afternoon, the key question will be whether indices can build on their gains from yesterday. Ahead of the open, we expect the Dow Jones to start at 17,970, down seven points from yesterday’s close. 

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