Markets rally as Iran talks progress and UK leadership looms

The diplomatic momentum follows a period of extreme volatility, triggered by President Trump’s recent threats of military action and Iran’s move to restrict the Strait of Hormuz. While shipping traffic through the critical waterway remains inconsistent—with 55 vessels recorded on Saturday compared to 32 the previous day—Tehran has proposed a new administrative mechanism to oversee the strait, potentially involving transit fees. This shift in tone helped Asian equities recover and allowed Wall Street futures to trim earlier losses.

Despite the easing of geopolitical tensions, investors remain focused on the Federal Reserve’s tightening cycle. Markets currently price in a 75% probability of a rate hike by September, pushing 2-year Treasury yields to a 2025 high of 4.2276%. Simultaneously, political instability in the United Kingdom is drawing scrutiny as reports circulate regarding Prime Minister Keir Starmer’s potential resignation. Should Starmer step aside for Andy Burnham, investors fear a departure from current fiscal discipline, potentially leading to increased government borrowing and a cabinet reshuffle that could see Finance Minister Rachel Reeves replaced.