Weekend Updates to Flip Markets Today – Brent up 8% on the Open
US equity markets closed out last week on a strong note, with all three major indices posting solid gains as optimism grew around potential peace developments in the Middle East and the reopening of the Strait of Hormuz. The Dow Jones rallied 1.79% to finish at 49,447, while the S&P 500 rose 1.20% to 7,126 and the Nasdaq gained 1.52% to close at 24,468, both extending to fresh record levels. Despite the positive finish on Friday, the outlook for the new week has flipped following weekend developments, with the Strait of Hormuz now closed again. In currency markets, the US dollar was largely unchanged on Friday, edging just 0.01% higher to 98.23, holding near multi-month lows. Bond markets saw a move lower in yields, with the US 2-year yield falling 6.6 basis points to 3.708%, while the 10-year yield declined 6.3 basis points to 4.248%. Commodity markets were particularly volatile, with oil prices sharply lower on easing supply concerns tied to the temporary reopening of the Strait. Brent crude dropped 9.07% to settle at $90.38, while WTI fell 11.45% to $83.85. Gold, meanwhile, moved against the broader risk tone again, rising 0.84% to $4,830.34.
Investors Fear that the Gulf Ceasefire Will End and Hit Markets Hard
Investor fears that the ceasefire between the US and Iran will come to a close on Tuesday have increased rapidly over the last couple of days, and concerns are growing that we could see a resumption and a possible increase in hostilities in the days ahead, with President Trump again making threats against Iranian infrastructure. Markets went into the weekend in a buoyant mood as both sides talked up chances of peace in the region and the Strait of Hormuz reopened to traffic. However, Iran has once again closed the Strait of Hormuz as clashes continued in Lebanon between Israel and Hezbollah, and the US seized an Iranian-linked ship in the Strait. Traders are now expecting most of last week’s positive moves to unwind in the coming sessions and days unless we see another sharp turnaround in rhetoric from both sides. Oil prices have already retraced much of Friday’s losses, and traders are expecting more ‘risk off’ moves as we progress through the day.
Quiet Calendar, but Busy Day Ahead for Traders
Traders are expecting another busy day at their desks after updates from the Middle East over the weekend have seen sentiment turn on its head. The Asian session has opened on the back foot as oil prices have shot back up with the Strait of Hormuz closed again, and traders are expecting more volatility as the session progresses. There will be a brief focus on fundamentals midway through the session today, with Chinese Loan Prime Rate updates due. Both the 1-year and the 5-year rates are expected to remain steady at 3.00% and 3.50%, respectively, and any moves would be a shock. There is little of note in the London session on the calendar today; however, Canadian markets will be in focus just after the New York open, with key inflation data due out. The headline CPI (exp +1.1% m/m) and Median CPI (exp +2.4% y/y) will be in focus, and traders are expecting moves in the loonie on the back of any significant deviations. We also hear from ECB President Christine Lagarde later in the day, but again, most market participants are expecting updates on the conflict in the Middle East to dominate.
