Written by Unusual calm ahead of Iran deadline
Risk sentiment was knocked back on Monday after President Trump, far from sounding conciliatory, doubled down on his ultimatum to Iran, threatening to take out the entire country in ‘one night’ unless Tehran reopens the Strait of Hormuz. His latest warning follows Sunday’s post on Truth Social when he set Iran a deadline to restore access to ships along the vital passageway by Tuesday, 20:00 ET, or he will ‘decimate’ its bridges and power plants.
The most concerning part as the deadline approaches is that both sides have so far rejected each other’s demands for the terms of a ceasefire deal. With all communication still being conducted via Pakistan, Washington and Tehran seem too far apart for any ceasefire agreement before there can even be any direct talks between the two for ending the conflict.
Not all hope is lost, however, as despite all the rhetoric, negotiations are ongoing, with Trump saying that they are “going well”. Realistically, though, another TACO moment for Trump is more likely than Iran backing down and this is probably what’s preventing markets from going into meltdown.
Stocks show some resilience amid AI optimism
US futures are slightly lower today, reversing some of Monday’s modest gains, while European stocks are mixed. Nevertheless, the S&P 500 and Nasdaq 100 have managed to notch up four consecutive days of gains, which is impressive when considering the current geopolitical climate and the prevailing heightened uncertainty around energy disruptions.
Away from the Iran war headlines, it’s easy to forget that there’s an AI boom that’s ongoing, which continues to boost corporate earnings. Samsung Electronics is a reminder of this as the company issued earnings guidance for the first quarter that was sharply above forecasts. Strong demand for AI chips is expected to lift Samsung’s revenue by 70% from a year ago, sending its shares up more than 5% this week and offering some support to equity markets amidst all the worries about stagflation.
Dollar softer after ISM PMI, yen remains in danger zone
Yesterday’s ISM services PMI didn’t do the stagflation fears or the US dollar any favours, as the services price gauge hit the highest since 2022 while the headline index fell more than expected in March.
Meanwhile, signs that the Middle East conflict has already started to dampen economic activity in the euro area were confirmed today in the final S&P Global PMI readings for March. However, the services sector seems to have been hit harder as the manufacturing PMI edged up to a 45-month high, prompting a slight upward revision to the composite PMI. In contrast, the UK’s composite PMI was revised sharply lower.
Yet, sterling is one of today’s better performers against the US dollar, climbing to around $1.3275, while the euro traded slightly higher at $1.1567.
The yen strengthened somewhat after an auction for 30-year Japanese debt passed without any episodes. Although demand was less than Japan’s last bond sale, there was relief that the bid-to-cover ratio was a relatively healthy 3.12. Still, the dollar has been holding firm above the 159-yen level for the past four days, keeping intervention risks well and truly on the table.
Oil prices stay elevated amid anxiety ahead of deadline
US inflation data will come into the spotlight later in the week, with the core PCE price index for February due Thursday, followed by the March CPI report on Friday. Ahead of the inflation readings, durable goods orders will be watched later today.
But the main focus will really be on whether the US and Iran will come to any sort of agreement for at least a temporary halt to the fighting. WTI oil futures are advancing for a third straight session, reaching the highest since the March 9 spike to almost $120. However, Brent crude has turned slightly lower, slipping below $110, suggesting some hope that Trump will decide against bombing civilian infrastructure in Iran, which could amount to war crimes.
But primarily, it is the fact that Iran is individually negotiating with different countries to allow for vessels to pass through the Strait of Hormuz that’s keeping a lid on oil prices, as even a small amount of oil shipments being permitted to sail safely would go some way in easing the oil supply disruptions.
By XM.com
