Positive Sentiment Drives Markets to Record Levels on Friday – Nasdaq up 1.7%
US equity markets finished mixed but overall stronger on Friday, with technology stocks again leading the charge as both the S&P 500 and Nasdaq closed at fresh record highs. The Nasdaq outperformed with a sharp 1.71% rally to finish at 26,247, while the S&P 500 gained 0.84% to close at 7,398. The Dow Jones was little changed on the session but still edged 0.02% higher to end at 49,609. Market sentiment was initially supported by stronger-than-expected US employment data, which reinforced confidence in the resilience of the US labour market and broader economy. However, despite the solid economic data, traders continued to focus heavily on geopolitical developments in the Gulf region, with hopes for a potential peace agreement weighing on both treasury yields and the US dollar into the close. The US Dollar Index fell 0.22% to 97.84, while bond markets also rallied modestly. US 2-year treasury yields declined 2.7 basis points to 3.885%, with the benchmark 10-year yield falling 3.2 basis points to 4.354%. Commodity markets remained volatile throughout the day as traders balanced geopolitical risks against broader macroeconomic themes. Oil prices finished higher despite choppy trading conditions, with Brent crude rising 1.23% to settle at $101.29 per barrel, while WTI crude added 0.64% to close at $95.42. Gold also strengthened on the weaker US dollar, climbing 0.63% to $4,715.25 an ounce.
Oil Gaps on Open as Peace Hopes Fall
Oil prices had fallen over the course of last week’s trading as investors started to look hopefully at comments from both the US and Iran that a peace deal could be forthcoming and a reopening of the Strait of Hormuz likely in the short term. Those hopes had increased by Friday, with a proposal from the US being reviewed by Iran. However, a counterproposal and a consequent sharp rejection from President Trump have seen oil gap higher on the open this morning, with WTI jumping nearly 3% to trade above $98 a barrel again and Brent pushing over 3% to trade back above $104. Traders are now expecting to see both benchmarks push higher in the coming session and, if we see a further escalation of rhetoric and, more importantly, an escalation in hostilities in the Gulf — which have still been continuing despite the ‘ceasefire’ — then we could see both pushing back towards recent highs in short order. The optimists out there will be hoping this is more tactics from President Trump, but for now they have to trade the information in front of them, and that is pointing towards higher prices again.
Quiet Calendar Day to Kick off Trading Week – Middle East to Dominate Moves
Geopolitical focus turns to the start of the Asian session today after reports emerged shortly before the market open that President Trump has rejected Iran’s counteroffer to the US peace proposal submitted on Friday. The latest headlines are expected to keep geopolitical tensions firmly in focus and could lead to heightened volatility across risk assets early this week. We have seen some gapping on the FX open — the first market in play for the day — with the dollar appreciating against most of the majors as peace hopes have taken a knock. The focus will move to fundamentals later in the session, however briefly, with key Chinese data due out midway through the day. CPI (exp +0.9% y/y) and PPI (exp +1.7% y/y) numbers will be closely monitored in local markets and could add to overall sentiment as the day progresses. There is little of note on the economic calendar in both the London and New York sessions today, but traders are expecting more updates on the Middle East to hit the newswires and keep volatility elevated.
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