US Stocks Edge Higher Despite Increasing Tensions – Dow up 0.2%
US equity markets finished modestly higher overnight, although sentiment remained cautious as investors continued to monitor developments in the Middle East and the increasing risk of renewed hostilities. President Trump’s warning that the current ceasefire agreement is “on life support” reignited concerns around potential energy supply disruptions and the inflationary impact of elevated oil prices, keeping traders on edge throughout the session.
The Dow Jones gained 0.19% to close at 49,704, while the S&P 500 also added 0.19% to finish at 7,412. The Nasdaq underperformed slightly but still edged 0.10% higher to close at 26,274, as technology stocks remained relatively resilient despite higher bond yields.
US Treasury yields pushed higher across the curve as markets reassessed the outlook for Federal Reserve policy ahead of tonight’s key inflation release. The US 2-year yield rose 6.9 basis points to 3.954%, while the benchmark 10-year yield climbed 5.9 basis points to 4.414%. The stronger yield environment also helped support the US dollar, with the USD Index rising 0.05% to 97.95.
Energy markets again remained a major focus as traders continued to monitor updates on the Gulf, with crude oil prices extending recent gains as the Strait of Hormuz remained largely closed, fuelling ongoing concerns around global supply constraints. Brent crude rose 3.15% to settle at $104.50 per barrel, while WTI crude gained 3.20% to finish at $98.45 per barrel.
Gold prices also moved higher in volatile trade, supported by geopolitical uncertainty and inflation concerns, with the precious metal rising 0.44% to close at $4,736.17 an ounce.
Precious Metals Move Back into Focus
Strangely, the major precious metal markets have been relatively quiet over the past couple of months despite the high levels of geopolitical concern brought about by the conflict in the Middle East and the subsequent surge in oil prices. Intra-day volatility has still been high, but both gold and silver have largely been trading in line with dollar moves rather than as haven products, and have remained in relatively restricted ranges. Certainly, the huge moves north, and subsequent corrections, that both saw in Q1 will have had some impact on this behaviour, but traders are starting to pay more attention again to both products, with silver breaking out to fresh multi-month highs in trading yesterday and now gold threatening to do the same. If we see gold drive through the recent high near $4,765 in the coming sessions, we could see it break much higher, especially if supported by weaker US data later today, with the next topside target now around the $5,000 level.
US Inflation Data in Focus Today
Geopolitical updates will continue to dominate investor focus today. However, on the macroeconomic front, with little else on the calendar for most of the day, attention now turns squarely toward tonight’s US CPI inflation data. The data is expected to be pivotal for near-term Federal Reserve expectations, especially given last week’s stronger-than-expected jobs numbers. Another sticky inflation print could see markets further scale back interest rate cut expectations, potentially pushing any easing hopes later into the year or removing them from the outlook altogether. The market is expecting to see the headline month-on-month number fall from last month’s 0.9% increase to a 0.6% increase this month, with the crucial year-on-year number rising to a 3.7% increase. Core data is expected to show a 0.3% monthly increase and the annual figure is expected to come in at 2.7%. Confirmation of Kevin Warsh’s nomination as the next Fed Chair is also expected to come through during the session. However, this is only likely to impact markets if it is not confirmed.
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