- Trump warns Iran of ‘hell’ if Strait of Hormuz isn’t opened by Tuesday
- But ceasefire hopes still alive on reports of US-Iran negotiations
- Oil prices ease from highs, dollar softer, gold edges up
- US futures steady after upbeat NFP report, PMI and inflation data eyed
Hope and fear continue to drive markets
It’s another Monday with weekend developments in the Middle East and President Trump’s running commentary setting the tone, even as most markets are closed for Easter Monday, while Chinese markets are shut for Tomb-Sweeping Day. But despite the thin liquidity, there is unusual calm as hopes of an Iran ceasefire deal are keeping nerves steady following Trump’s latest outburst on Truth Social.
Trump’s growing frustration with Iran’s defiance was laid bare on Sunday after he threatened to bomb the country’s power plants and bridges, warning that they’ll be “living in hell” if they don’t open the Strait of Hormuz by Tuesday 20:00 ET. With Iran not only maintaining a chokehold on the Strait but continuing to fire missiles and drones on its neighbouring countries that are allied with the United States, investors are becoming increasingly sceptical that the war will end within weeks.
Renewed ceasefire push as Trump to speak again
Still, amid the nightmarish headlines, it’s not all fears as Axios is reporting that regional powers are mediating talks between the US and Iran with the aim of reaching a 45-day ceasefire, during which time a permanent end to the war would be negotiated. The renewed effort comes as a truce by tomorrow’s deadline, which was extended by a day, looks very unlikely.
Trump is due to give another press conference later today at 17:00 GMT where he will probably update Americans on the war and on the rescue of two US pilots, whose fighter jets were shot down in Iran. Fox News is reporting that Trump has said a deal with Tehran is possible by Monday, but investors are not holding their breath.
Oil prices retreat from highs
What’s likely aiding sentiment more than the fresh peace prospects is signs that Iran is slowly allowing more traffic to flow through the Strait of Hormuz. According to Bloomberg, 16 ships have crossed the vital oil passageway since Saturday, while French and Japanese vessels were among those that managed to pass through the Strait last week.
Iran’s willingness to gradually loosen its grip on Hormuz is certainly encouraging, especially as a total reopening is not probable while ceasefire negotiations are ongoing, as it holds discussions with Oman on establishing a toll-based system to enable the “smooth flow” of transit.
In the meantime, OPEC+ agreed on Sunday to raise oil output by 206,000 barrels a day at its monthly meeting. The decision is largely symbolic as the blockade of Hormuz means that about 15% of the world’s oil supply continues to be cut off, while the ongoing conflict in Ukraine means that Russian supply also remains disrupted amid damage to its oil infrastructure.
Hence, there is only modest relief in oil prices today. WTI futures have eased below $110 after spiking above $115 at the start of the week’s trading, and Brent crude is also off its highs to settle around $108.
Strong NFP unable to prop up dollar, more US data on tap
The US dollar is drifting lower after also spiking up earlier in the session, helping gold to claw higher and rechallenge the $4,700 level.
Should President Trump announce a ceasefire later today or in the coming days, the dollar could hand back a significant chunk of its recent safe-haven-led gains, even as the latest data suggests the US economy remains resilient.
Fed funds futures are once again pricing in a few basis points of rate hikes by year-end following Friday’s solid jobs report. The US labour market rebound by 178k jobs in March, although the February figure was revised lower to -133k. But the unemployment rate unexpectedly dropped to 4.3%, underscoring the small recovery.
More US data is on the way this week, starting with the ISM manufacturing PMI today and culminating with the March CPI report on Friday.
Yen can’t catch a break, US futures turn positive
The Australian dollar is leading the gains against the greenback, with the euro and pound also up a decent amount. But the yen is lagging, rebounding only marginally to around 159.40 per dollar, as concerns mount about the impact of the energy shock on the Japanese economy.
A jump in Japan’s 10-year government bond yield to above 2.4% to the highest since 1997 is not doing much to support the yen, but rather, it is adding to stagflation worries. There were fresh remarks on Friday by Finance Minister Satsuki Katayama when she warned that FX volatility has “increased significantly”, so investors are on standby for possible intervention.
In equities, most European markets remain shut, but Wall Street futures are marginally positive today, signalling that traders are clinging onto hopes of some sort of de-escalation in the Middle East, as well as have good reason to stay optimistic about the US economy.