Markets Volatile on Potential Ceasefire Extension – Nasdaq up 0.9%
US equity markets moved higher overnight, with technology stocks leading the gains after reports emerged that the United States and Iran had agreed to extend the current ceasefire arrangement, helping improve overall investor sentiment despite ongoing uncertainty surrounding the region. The Nasdaq outperformed, climbing 0.91% to close at 26,917, while the S&P 500 rose 0.58% to finish at 7,563. The Dow Jones was comparatively subdued, edging just 0.05% higher to close at 50,668.
Oil markets experienced another volatile session as traders continued to react to developments in the Middle East. Brent crude eased back 1.13% to settle at USD $93.22 per barrel after earlier gains, while WTI managed to finish marginally positive, rising 0.25% to USD $88.90.
Currency and bond markets both softened following the release of US Core PCE inflation data, which came in slightly below market expectations and reinforced hopes that inflation pressures may continue to moderate. The US Dollar Index fell 0.22% to 98.99, while US Treasury yields moved lower across the curve. The 2-year Treasury yield declined 1.2 basis points to 4.020%, while the benchmark 10-year yield dropped 3.5 basis points to 4.447%.
Gold prices recovered strongly into the close after falling sharply earlier in the trading session, still trading largely in line with dollar moves rather than geopolitical uncertainty. Gold finished the day up 0.86% at USD $4,495.30 an ounce.
Strait of Hormuz is Key for Markets Now
Markets experienced more volatility yesterday as updates on the situation in the Middle East swung from more aggressive, with President Trump touting the possibility of bombing Oman, to a new ceasefire extension being agreed upon by the end of the day. President Trump is yet to formally agree to the ceasefire terms, with many market participants questioning the definition of a ceasefire for both sides, as there seems to have been a substantial amount of ‘fire’ going on in the region in the past week — and so traders are expecting a few more twists and turns on the newswires today. Many are now trying to look through the smoke (literally) and mirrors of recent updates to ascertain the way forward for markets, and key to everything is the resumption of oil traffic through the Strait of Hormuz. It does feel that now investors need some concrete evidence that the Strait will actually open fully for traffic in the coming months, or the market reaction could be more painful and sustained as we hit another new month with the Strait closed.
Volatile Day to Close Out the Trading Week
Attention now turns to another potentially volatile day ahead as markets continue to monitor developments in the Middle East. There are, however, some key data updates due today, which could also provide some further trading opportunities as the day progresses. The initial focus in the Asian session will be on Japanese markets, with the key Tokyo Core CPI data (exp 1.5%) due out early in the day. German inflation data (exp +0.1% m/m) will come into focus in the London session, with the preliminary CPI numbers due out as usual on a state-by-state basis during the day. We are also set to hear from Bank of England Governor Andrew Bailey when he speaks at an event in Iceland. The New York session sees the release of the latest Canadian GDP (exp +0.1% m/m) data, and we hear from Fed members Bowman, Paulson, Daly, and Mann, but once again, news updates on the Gulf are likely to dominate sentiment into the weekend.
Explore all upcoming market events in the Economic Calendar.
