- Muted market movements as investors prepare for an action-packed week; oil prices hover above $95
- Iran proposes a peace plan, as US-Iran talks continue, but the face-to-face meeting is still missing
- Quiet calendar today ahead of several central bank meetings, data prints and earnings announcements
- Warsh moves closer to taking Fed office as the judicial probe against Powell is dropped
Busy week ahead
The last week of April commences with investors’ plates being extremely full. The Middle East conflict remains unresolved, with the chances of renewed hostilities remaining elevated, there is a plethora of key central bank meetings and economic data releases ahead, while both Wednesday and Thursday will bring pivotal company earnings announcements that could lay the groundwork for another potent rally in equities.
Understandably, following a risk-on session on Friday, with the dollar rally pausing and both the S&P 500 and Nasdaq 100 indices posting fresh all-time highs – despite the mixed newsflow and oil hovering above $95 – investors appear to be in waiting mode today. The drop in bitcoin is worrying, although understandable given the importance of the $80k level.
Are we close to a breakthrough in the US-Iran talks?
Despite the lack of face-to-face meetings between US and Iranian officials, there have been intense behind-the-scenes discussions on the key issues. The latest development, partly alluded to by US President Trump’s positive tone in the weekend’s commentary, is that Iran has shared with the US a three-part plan: (a) the conflict ends in both Iran and Lebanon, with guarantees it won’t restart whenever the US and/or Israel feel like it, (b) the Strait of Hormuz reopens but is managed based on a new legal framework, recognizing Iran’s rights, but also giving Oman a critical role as a counterweight, and (c) discussions on Iran’s nuclear capabilities continue, aiming for a long-term agreement.
The key here is that each step has to be agreed and implemented before continuing to the next point, which could happen fairly quickly if there is the necessary will from both sides, especially as there have been reports of progress made on the nuclear topic, with the US appearing ready to accept some sort of ban being implemented to enriched uranium for the next ten years. Notably, the turning-the-tide event would be the much-talked-about face-to-face meeting in Pakistan, but we might have to wait a bit longer for this to happen.
That said, most investment houses are now forecasting elevated oil prices, and thus persistent inflationary pressures throughout the year, confirming a long-standing view that any resolution and reopening of the Strait of Hormuz will not mean a swift normalization of oil supplies, further complicating central banks’ strategy.
Central meetings and data in the spotlight
Today’s quiet calendar feels like the calm before the storm. Five central banks, including the Fed and the ECB, will meet this week, starting with the BoJ tomorrow, while Alphabet, Microsoft, Amazon, Meta and Apple will announce their results on Wednesday and Thursday.
Despite a buildup of hawkish expectations ahead of the US-Israel-Iran conflict, the BoJ is expected to stand pat on Tuesday, with all eyes on the overall rhetoric. Considering the yen’s inability to benefit from the recent dollar weakness, the lack of a hawkish tilt or even a nudge about a rate hike in June could trigger a move above the 160 level.
Consequently, verbal interventions are no longer effective, thus increasing the pressure for actual intervention. Unless, of course, the Japanese Finance Ministry’s tolerance and reaction function have changed under PM Takaichi, which means that a move above 162 has potentially become the new threshold.
Warsh closer to taking office
Following great speculation, Wednesday’s Fed meeting could indeed be Powell’s last gathering as Chairman. Following news that the Department of Justice has dropped the judicial probe against Powell for the overspending in the Fed HQ’s renovation, Senator Tillis has dropped his objection, opening the path for the full Senate vote that is expected to approve nominee Warsh.