- US-Iran direct talks in focus, as the two-week ceasefire is seen being extended
- Markets are in anticipation mode as the probability of another failed meeting is rather high
- Focus shifts to US retail sales and Warsh’s Senate testimony
- The Q&A session could offer some clues on Warsh’s current monetary policy stance
Countdown to another round of US-Iran direct talks is almost over
Investor attention remains firmly on developments in the Middle East, as, after denials and mixed rhetoric, another key meeting between American and Iranian officials is set to take place tomorrow, Wednesday. There have been conflicting reports about who will lead the US team, but the latest information suggests that Vice President Vance, coupled with Steve Witkoff and Jared Kushner, will be present, thus increasing the chance of an agreement.
Notably, the two-week ceasefire expires today, but an extension is expected. Pakistan has already suggested a two-week extension to the ceasefire to accommodate talks but also allow for sufficient time if Wednesday’s meeting does not yield an agreement.
Talks will not be easy as there are specific sticking points ranging from Iran’s nuclear capabilities, reparations for damages in the current conflict, guarantees that Iran’s sovereignty over the Strait of Hormuz will be respected, and the gradual removal of sanctions imposed on Iran. Notably, Iranian Parliament Speaker Ghalibaf demanded the end of the US blockade for negotiations to commence, highlighting the fragility of the current situation.
Markets in anticipation mode
Following Friday’s exuberant reaction, yesterday’s performance was less impressive as equity indices, gold, and most currencies, excluding the US dollar, edged gently higher, reacting to the initial disappointment following the weekend’s events. Asian equity indices are in the green today, while US equity index futures also point to a positive opening later today.
Notably, WTI oil prices continue around the $90 level, awaiting developments in Pakistan. While oil prices are expected to drop further upon a peace deal reopening the Hormuz, oil supply normalization could take months, thus keeping oil prices elevated and above their pre-February 27 trading range.
Interestingly, gold remains directionless, with the 50-day simple moving average (SMA) acting as a floor in the past six sessions. A risk-on rally, weakening the dollar and pushing oil prices lower, should initially boost gold, before investors shift their focus to the inflation outlook and central bank actions.
US retail sales and Warsh’s testimony today
Following the mixed UK labour market data, which defied expectations for significant downside surprises but failed to boost the pound, US retail sales for March will be published at 12:30 GMT, followed by Warsh’s confirmation hearing at the Senate Banking Committee at 10:00 ET (14:00 GMT).
The retail sales report will show consumer appetite trends during a traditionally strong sales period ahead of Easter, highlighting any damage done to the domestic economy from increased energy and gasoline prices. A weak report could encourage certain doves to join member Miran in voting for a rate cut at next week’s Fed meeting.
More importantly, at 14:00 GMT, we will finally hear from the horse’s mouth. Fed Chair nominee Warsh is expected to be grilled by Senators on his monetary policy stance, and strategy to revamp the Fed. Notably, a vote is not scheduled for today. Unsurprisingly, his speech has been leaked to certain news sites.
Warsh is expected to highlight that (a) the Fed’s independence stems from inside the institution and politicians’ comments have no weight, (b) the Fed should be only focused on monetary policy and avoid tipping its toes in fiscal policy, and (c) failure to achieve its price stability pillar is predominantly down due to Fed mistakes.
One cannot avoid noticing that the gist of these comments is a clear criticism of Chair Powell’s actions since taking office in 2018. More importantly, while raising the importance of price stability, Warsh’s opening statement holds little information about his view on the current Fed monetary policy, making it difficult to judge if Warsh is the outright dove Trump wants. Hence, the Q&A session will be crucial, particularly if he is asked about the current situation and forced to respond.