- Geopolitical risks remain elevated, with US-Iran talks and the ceasefire in focus
- Markets reassess Friday’s exuberance as the Strait of Hormuz closes again
- Dollar strengthens, oil rises, but moves are relatively measured; gold struggles again
- Attention shifts to Warsh’s hearing, data releases, and Tesla earnings this week
Middle East conflict still in the spotlight
Friday’s exuberance following reports about the Strait of Hormuz being wide open for ships proved too good to be true. In less than 24 hours, Hormuz closed again, resulting in Sunday’s events when US marines attacked and took control of an Iranian ship. Notably, a small number of ships managed to get through Hormuz in this short time window, but this was just a drop in the ocean compared to the pre-February 28 flow.
The next round of direct negotiations, scheduled to be held today in Pakistan, has been put at risk. Iran has not confirmed its participation, angered after Sunday’s events, but the US negotiating team, led by Vice President JD Vance, is apparently en route to the South Asian country, and ready for the next step in this difficult relationship. Iran’s nuclear programme remains the main sticking point, with Friday’s rumoured $20bn offer in exchange for enriched Iran uranium not gaining much traction.
Notably, the two-week ceasefire, which commenced on April 8, expires on Tuesday, April 21. A total breakdown of communication between the US and Iran would increase the chances of a restart of hostilities, with US President Trump most likely employing his usual pompous rhetoric, advertising US military superiority.
It feels like the US and Iran are in a contest of ‘who blinks first’, and based on recent history, Trump could be set to lose this contest as well, especially as another energy price rally could further anger US voters during the traditional driving season. Hence, another extension to the current ceasefire, to give more space for negotiations, could be eventually announced. But there is a sizeable probability of such an extension only being announced after another round of military attacks.
Markets in reassessment mode
Upon Friday’s newsflow about the (temporary) reopening of the Strait of Hormuz, the market reacted potently. Oil prices free-fell, while the S&P 500 and the Nasdaq 100 indices posted fresh all-time highs, and bitcoin climbed to $78k, the highest level since early February, almost 30% above its recent trough.
However, the picture is quite different today. The US dollar is the best performing currency, with both the aussie and kiwi underperforming the most. Gold is trading around $4,800 and the 50-day simple moving average (SMA), once again failing to decisively rally towards the $5,000 region.
Notably, oil prices have opened higher today, hovering around the $90 region, and along with the performance of risk assets, this points to a decent degree of optimism among investors about the short-term outlook. Concerns of a possible restart of hostilities would push oil prices above $100, but this is not the case at the moment.
Busy week, especially for the Fed
Despite the relatively quiet data calendar from the US, though Tuesday’s March retail sales are exceptionally important, there is a plethora of data releases from both the UK and the eurozone that could prove market-moving, just 10 days before the next round of central bank meetings.
More importantly, with the usual Fed blackout period in place, the focus has shifted to Warsh’s confirmation hearing at the Senate Banking Committee set to take place tomorrow at 10:00 ET (14:00 GMT). Interestingly though, Republican Senator Tillis appears determined to block Warsh’s nomination from reaching the Senate floor, as he remains angered about the judicial probe against current Fed Chair Powell. Hence, unless the DoJ ceases this probe, Powell could remain in office for the foreseeable future, increasing the possibility of him chairing the mid-June meeting.
Finally, the current earnings round continues, with Tesla scheduled to report on Wednesday.