Written by Trump says Iran war will be over soon
The US dollar pulled back against all its major peers on Monday, and it remains on the back foot today, after US President Trump said in an interview to CBS that the war in Iran is nearly over as the US is “very far ahead” of the initial four- to five-week estimated time frame.
Oil prices fell sharply, with WTI crude hitting an intraday low of $81.30 per barrel, while Treasury yields opened with a negative gap today after spiking higher yesterday. Hopes of de-escalation eased inflation concerns and thereby prompted investors to add some basis points worth of Fed rate cuts back on the table. According to Fed funds futures, they are now penciling in 43bps worth of rate cuts, up from around 35 bps early on Monday.
Having said that though, peace is not set in stone. The US President also warned that the attacks could intensify if Iran continues to keep the Strait of Hormuz closed, thereby distorting global oil supply. Iran’s Revolutionary Guards responded by saying that they will not permit even “one liter of oil” to pass through Hormuz if the US and Israel do not back down, adding that they are the ones who will determine when this war ends.
All this suggests that truce hopes could collapse relatively easily and thus, market moves may reverse again very soon.
US CPI and PCE inflation data awaited
Besides developments in the Middle East, investors will also keep an eye on the economic agenda. Following Friday’s disappointing jobs report for February, attention is likely to fall on the US CPI data for the month, due out tomorrow, and Friday’s PCE figures. Indications of sticky inflation amid a still-raging war could prompt traders to push back their rate cut bets again, thereby helping the US dollar to resume its prevailing upward trajectory.
Wall Street rallies on truce hopes, gold rebounds
On Wall Street, all three of its main indices rebounded, with the tech-heavy Nasdaq gaining the most. The positive sentiment rolled over into the Asian session today, with China’s Shenzhen Component Index gaining around 2% and South Korea’s KOSPI rising more than 5%. US stock futures are also in the green, suggesting a positive open later in the day.
The stock market seems to be Trump’s kryptonite and thus, even if the war does not end in the coming days, more severe bleeding on Wall Street may eventually force him to draw the curtain on this conflict. After all, perhaps the latest retreat was one of the reasons he said that the war appears “very complete.”
With market participants reviving their rate cut bets, gold rebounded after finding support near the psychological area of $5,000 again. Even if the dollar resumes its prevailing uprise on renewed inflation fears amid escalation in the Middle East, the war may start having a diminishing impact on the greenback when investors are satisfied with the rate path they projected based on the circumstances. This is when gold may wear its safe-haven suit again. A break above $5,200 could signal the upside exit out of the sideways range that’s been in place since March 3 and may encourage the bulls to aim for the record high of $5,598, hit on January 29.
Yen and aussie benefit from economic data
Elsewhere, the yen took advantage of the dollar’s weakness and may have also benefited from Japan’s upward revision to Q4 GDP growth. Dollar/yen dropped to around $157.30, easing intervention concerns somewhat, while there is a nearly 50% chance of a BoJ rate hike in April. The aussie got an extra shot in the arm from China’s improving trade data.
by XM.com
