Written by Markets see lack of Iran progress as good news
President Trump’s indefinite ceasefire with Iran may have brought some calm to the region, but with the indirect talks conducted via Pakistan yet to yield any meaningful results, there’s still no end in sight to the war. However, markets have been surprisingly relaxed about the lack of progress, even as the Strait of Hormuz remains shut, keeping oil prices elevated.
The fact that the Trump administration needs Congress’s approval to resume its attacks on Iran, as the 60-day window since the start of the war lapsed on May 1, is likely why many investors think the ceasefire will hold until some kind of a deal has been reached. Defence Secretary Pete Hegseth is arguing that the clock pauses when there is a ceasefire, hence, the US could still legally attack Iran without authorization from Congress.
But with Trump telling Congress on Friday that the hostilities have “terminated” and efforts at agreeing on a deal are ongoing, markets are holding on to the optimistic view that there won’t be any further escalation in the two-month-old conflict. Moreover, Trump just announced that the US military will begin escorting ‘neutral’ ships stranded in the Gulf through the Strait of Hormuz, potentially easing some of the supply disruptions.
Oil stays volatile amid conflicting headlines
WTI futures dipped below $100 a barrel at the start of trading today, while Brent crude slipped to a 10-day low of $105.55. But they’ve since reversed higher, as Iran has warned that US intervention in the Strait of Hormuz would amount to a violation of the ceasefire.
There are also mixed messages from Trump about how the latest negotiations are going, posting on Truth Social yesterday that the discussions are “very positive” after earlier questioning whether Iran’s latest plan that he will be reviewing soon will be “acceptable”.
The doubts have spurred a 5% rebound in oil prices from the intra-day lows, although FX and equity markets remain steady.
Quiet start to the week
It’s a mixed picture across European and Asian stock markets, with trading subdued due to UK, Japanese and Chinese markets being closed for a bank holiday. US futures are little changed, except for the Nasdaq, which continues to outperform amid the resurgent AI trade.
AI stocks have been pretty much the driving force behind the latest rally in equities, and apart from some other sectors such as defence and energy that stand to directly benefit from the Middle East conflict, other sectors haven’t fared as well.
Expectations of higher interest rates and stagflation fears have been holding back more traditional stocks, which is why the Dow Jones has not matched the S&P 500 and Nasdaq in notching up new record highs post the Iran war.
More AI earnings on the way
The tech-heavy Nasdaq in particular has been on a roll since the end of March, as renewed optimism about AI demand has turbo-charged AI-related stocks, with some Asian stocks joining in the rally. But European shares have been mostly left out in the cold as the energy crisis has started to bite.
Investors have also punished those companies whose earnings guidance haven’t kept pace with their AI spending plans, and it’s mainly been smaller rivals that have stolen the limelight this earnings season. It could be a similar theme this week as Palantir (Monday), AMD (Tuesday) and Arm Holdings (Wednesday) announce their results, along with Walt Disney and Uber, both due on Wednesday.
Dollar unfazed by hawkish Fed, yen on intervention watch
Towards the end of the week, the focus will shift to the US economy and monetary policy when the April jobs report is released on Friday. The Fed’s hawkish tilt hasn’t spooked markets yet, and last week’s uptick in the core PCE price index also didn’t cause much alarm either.
But traders are likely being complacent about the risks to inflation as well as the hawkish Fed rhetoric that’s followed last Wednesday’s FOMC decision. Minneapolis Fed President Neel Kashkari, who dissented against the Fed’s easing bias in the statement, repeated on Sunday that he does not support rate cuts.
The US dollar is edging slightly higher against a basket of currencies on Monday, although technically, it retains a slightly bearish bias in the short term, even as Powell’s refusal to quit the board after his term as chair ends next week threatens to undermine Kevin Warsh’s leadership.
The yen meanwhile is struggling to extend Thursday’s gains when intervention by the Japanese government jolted it away from the 160 range against the greenback. However, despite the dollar staying supported above 155.50 yen, there are suspicions that the Japanese government remains active in the FX market, as every time the dollar rises slightly above 157 yen, it’s followed by a sharp spike lower.
By XM.com
