Written by Key US data today
Under normal conditions, investors would be all over the incoming data releases. Following Monday’s stronger ISM Manufacturing PMI report – with the prices paid subindex jumping to the highest level since mid-2022 mostly due to the recent tariff shenanigans – the focus will shift to the ADP employment report and the ISM Services PMI figures.
The traditional negative correlation between the ADP and the nonfarm payroll print was confirmed last month, as the below-expectations 22k print in the former was followed by the first triple-digit print since April 2025 in the latter.
Interestingly, Fedspeak is very light today, but investors are probably still digesting New York Fed President Williams’ dovish comment that “if inflation ebbs, further reductions in rates would be warranted”, when the world is metaphorically on fire.
The reason is, of course, developments in the Middle East, as the tit-for-tat persists. US and Israeli forces are carrying on their military operation in Iran and its proxies, while Iran continues to mostly target US bases in Arab countries. It looks like that commentary from both US President Trump and Israeli PM Netanyahu for a prolonged conflict is being confirmed. Meanwhile, there are unverified reports that the son of Ali Khamenei, Mojtaba – a hardliner and always presumed to yield considerable power within the Iranian regime – has been elected as the new spiritual leader.
Risk markets lose ground
Non-US equity markets appear to bear the brunt of the current risk-off sentiment. The DAX 40 index is down 6% this week, with Asian equity indices following suit. Interestingly, despite their relatively more rational performance, US equity indices have mostly erased their 2026 gains, with the Nasdaq 100 index being underwater by 2% this year.
While this equity performance makes sense considering concerns about an inflation surge due to the jump in oil prices and a considerable loss of growth momentum, particularly for the Eurozone, gold has been behaving quite oddly.
While one would have expected a solid performance from gold, despite the dollar rally against most FX pairs, Tuesday’s price range reached $380, with the massive decline triggering buying interest only after printing below the $5,000 mark. It looks like the previous game plan of going “long gold” and forgetting about the position has run its course. More importantly, if under the current crisis gold cannot challenge its recent all-time high, who can expect a similar move under normal conditions?
Oil rallies despite Trump’s guarantee proposal
Speculation about the next phase of the Israel-US-Iran conflict is rife, with investors hoping for a fast resolution. A complete regime change is out of the picture at this stage, with oil’s performance suggesting that hostilities are likely to continue.
Following Monday’s sizeable red candle, WTI oil is currently trading at the highest level since June 2025, a tad below the busy $77.07-$77.11 area. This move comes despite a proposal from President Trump that “the US Development Finance Corporation will provide, at a very reasonable price, political risk insurance and guarantees to all maritime trade”. Ship owners do not appear ready to risk their precious ships and cargo under current conditions.
Dollar rally stalls
The dollar rally appears to have paused, potentially slightly opening the door to a small risk-on reaction today if the newsflow from the Middle East remains unsurprising. It has been, so far, the strongest weekly performance for the dollar since mid-November 2024, when Trump secured his second presidential term.
Meanwhile, two traditional safe haven currencies are in focus. Helped by fresh verbal interventions, the yen is trying to put a stop in the dollar/yen rally that quickly wiped out the yen gains since the elections, while BoJ Governor Ueda poured cold water on rate hike expectations by essentially highlighting the need for strong wage increases up the upcoming Shunto negotiations to justify the next rate hikes. At the same time, the Swiss franc remains near its multi-decade high against both the euro and the dollar, with the SNB signaling that it may become active in the market.
By XM.com
