Asian-Pacific markets rally

US stock index futures soared higher in early trade on Wednesday, building on gains made across Wall Street yesterday. Investors were already in a buoyant mood due to an exceptionally strong first-quarter earnings season, where, with over 63% of S&P 500 constituents having reported, year-on-year earnings growth stood at over 27% while revenues were up more than 10% annually.

Advanced Micro Devices (AMD) added to the positive sentiment after it reported a strong set of numbers after the close, along with unexpectedly positive guidance for the second quarter. The stock was up 18% in after-hours trade. The news helped to lift Super Micro Computer by 16%, and Micron Technology tacked on 6%. Both AMD and Micron Tech are now up 112% since the end of March.

It has been said that investors have been looking past the US/Iran war on the assumption that it wouldn’t last for long. It is now in its tenth week, and the Strait of Hormuz remains closed to most shipping, while the US Navy continues to blockade Iranian ports in the region.

But traders have now added a ‘peace dividend’ to US stock indices. This follows reports that the US and Iran are ‘closing in’ on a one-page memo to end the war.

The news led to an $8 drop in the price of a barrel of oil, while helping to lift the S&P 500, NASDAQ and Russell 2000 to fresh all-time intra-day highs. Only the Dow, despite a near 1% rally this morning, remains adrift from its own all-time highs from early February.

Source: TN Trader

As things stand, it’s unclear what will be in the memo. Will it include an agreement to end Iran’s nuclear ambitions? And what will become of the Strait of Hormuz?

If Iran’s Islamic Revolutionary Guard Corps are left in control of the route, does that mean that the Trump administration will agree that Tehran can levy a charge on shipping passing through international waters?

These questions are of great importance. But for now, investors just want to party on.

Attention now turns to earnings reports from major companies such as Walt Disney, CVS Health, Kraft Heinz, Marriott and Uber. Today also sees the release of the latest ADP employment report, which could help shape expectations ahead of Friday’s Non-Farm Payrolls release.

European stock indices have soared this morning, with all the major indices, along with the UK’s FTSE 100, up well over 2% as midday approached. The gains were built on yesterday’s rebound, which followed a sharp selloff on Monday.

In early trade, European indices were simply reacting to a positive close across Wall Street last night and some early strength in US stock index futures. But prices then surged as news broke that the Us and Iran were close to agreeing on a one-page memo to end the war. It should be no surprise that this is even better news for the UK and Europe than it is for the US.

Source: TN Trader

If it leads to the reopening of the Strait of Hormuz, then that will remove a significant chunk of uncertainty from financial markets. The news has certainly had a dramatic effect on the price of oil, which has dropped close to $9 a barrel (near 9%) this morning.  

As in the US, corporate developments have also underpinned markets. Novo Nordisk raised its annual profit guidance after strong demand for its weight-loss drugs, while Pandora shares jumped 9% after beating sales expectations despite tariff pressures and rising silver costs. If only we had a tech sector on this side of the pond.

The US dollar dropped sharply this morning, adding to losses made yesterday. It dropped against all the majors as investors rushed to unwind their ‘flight to safety’ trades. This move was triggered by a report from Axios, which said that the US and Iran were closing in on a one-page memo to end the war.

While there have been no further details released so far, this is perhaps the clearest indication that the war may be coming to an end as it enters its tenth week.

The cash Dollar Index crashed below 98.00 to retest support around 97.50. The GBP/USD pushed back above resistance at 1.3600, and it will be interesting to see if it can build on this region and make further gains, or if sellers come in to push sterling back down again.

Source: TN Trader

The Japanese yen rallied further on fears of another round of intervention from the Japanese authorities. Earlier this week, Finance Minister Satsuki Katayama warned traders from speculating on a weaker yen.

Late last night, gold briefly dropped below $4,550. But it found some support here and made steady upside progress throughout the Asian-Pacific session. As the UK moved towards lunchtime, spot gold was back above $4,700. The move was closely correlated to the downside move in the US dollar.

Source: TN Trader

Investors began to cut their long-side dollar positions as it became apparent that the Trump administration was winding down its operations to escort shipping through the Strait of Hormuz. This was seen as de-escalating tensions between the US and Iran and thereby extending the fragile ceasefire.

Gold got an extra boost, while the dollar sold off further, following reports that the US and Iran were close to agreeing on a one-page memo to end their war. Risk appetite returned as oil prices fell by around 9%.

It’s unclear what may be in the agreement, especially concerning the reopening of the Strait of Hormuz. But investors seem confident that, ten weeks into the war, an end to hostilities may be in sight. But it’s worth noting that investors see a 20% probability of a Federal Reserve rate hike by year-end. This could limit the upside in gold should the dollar resume its rally.

Silver also rebounded, breaking above $77.50 after two days of losses. Silver has faced sustained downside pressure during the conflict due to rising energy costs, upside inflationary pressures and an increase in the US dollar. Today’s sharp pullback in oil prices has provided some relief, though the outlook remains sensitive to both central bank policy and geopolitical developments.

Source: TN Trader

Crude oil prices were lower in early trade on Wednesday on a slight improvement in relations between the US and Iran. Fears had grown that the fragile ceasefire between the two warring countries was about to break down after the US Navy escorted shipping through the Strait of Hormuz.

But the Trump administration called an end to the operation, which calmed tensions. Then crude suddenly plunged following reports from Axios that the US and Iran were closing in on a one-page memo to end the war.

Source: TN Trader

The front-month Brent contract (July) fell to its lowest level since the 24th of April. This saw it drop towards $98 per barrel and fall into a region which had acted as resistance between 8th March and 7th April. This move triggered a wave of ‘risk-on’ trading across financial markets as investors added on a ‘peace dividend’ across the board.

There have been no further details concerning what may be included in the memo. But hopes are high that the Strait of Hormuz may soon be reopened, and preferably without Tehran insisting on a toll for shipping passing through.

Surging energy costs have already begun to create demand destruction globally. And even if the Strait reopens, normalisation in shipping and trade flows could take months. Oil inventories are not critically low, but uneven distribution and declining buffers continue to raise concerns about localised shortages.

Soon after the European open, Bitcoin briefly hit $82,000, its best level since the end of January. It has pulled back a touch since then but remains in positive territory and is on course to record seven consecutive days of back-to-back gains. Bitcoin is up around 9% over the last week, and 26% since the end of March.

It has shown exceptional resilience throughout the US/Iran war, exhibiting steady, low volatility upside progress, which has only helped to encourage fresh buying on increased positive sentiment. Having said that, there’s a possibility that some profit-taking now emerges. There should be some mild support at $80,000, with more around $75,000. But it’s worth noting that the daily MACD is not particularly overbought at current levels.

Investors have gone into full ‘risk on’ mode following this morning’s positive news, suggesting that the US and Iran are close to agreeing on a peace deal. Risk assets are benefiting from the current backdrop, with tech leading gains and equities extending their rally.

The US dollar remains under pressure, supporting metals, while the oil price has plunged, with front-month contracts for both Brent and WTI significantly below $100. But the sharp move in US tech stocks, following a 15% surge in April, raises questions about sustainability, particularly if macro risks re-emerge.