Asian Pacific equities rebound

US stock index futures added to Tuesday’s gains in early trade this morning. Yesterday, all the US majors recorded their best one-day session since last May, which was when stock markets were recovering after Trump’s Trade Tariff Temper Tantrum. Last night, the Dow ended up 2.5% while the S&P 500 added 2.9%.

Source: TN Trader

The NASDAQ and Russell 2000 surged 3.8% and 3.4%, respectively. It was quite a performance given that the S&P traded at a near-eight-month low of 6,312 in the early hours of yesterday morning, although the index has not got back to levels seen this time last week.

The rebound came late afternoon, triggered when President Trump suggested US forces could be out of Iran in two-to-three weeks, with or without a peace deal. There were also reports that Iranian President Masoud Pezeshkian was open to ending the war with guarantees, reinforcing hopes that tensions could ease despite the absence of any formal agreement.

President Trump insisted that the US had achieved its war aims, as noted earlier. But as far as the UK, much of Europe and Asian Pacific countries are concerned, Mr Trump has said that reopening the Strait of Hormuz is not his problem, and that should be sorted out by those who use it.

There’s no doubt that yesterday’s rebound has been impressive and helped along by a pullback in oil prices. But the situation is muddied due to end of quarter position-squaring.

It’s also challenging to express just what investors are pricing in, and what they’re not. For a start, investors are obviously desperate to add to their exposure at lower levels, calculating that hostilities are effectively over.

They don’t believe there will be US military boots on the ground, and any attempt to seize Kharg Island is now unlikely. But this could be a miscalculation, and the war may take longer to conclude than many are currently forecasting.

In addition, investors may not be factoring in the economic damage already done. Energy infrastructure around the Gulf has been damaged. Production has been halted, and will take time to restart, and the Strait of Hormuz remains effectively closed. Stock indices were due for a rebound. But the test will be how resilient the current rally turns out to be.

Today brings earnings updates from Conagra Brands, Lamb Weston and Cal-Maine Foods. Key economic releases include Retail Sales, the ADP Employment Change and the ISM Manufacturing PMI, all of which could help shape expectations at the start of the new quarter.

European stock indices began the new trading month and second quarter on the front foot. They were helped along by a strong performance across US and Asian Pacific indices, with US stock index futures building on Tuesday’s gains.

As noted earlier, yesterday’s rebound followed remarks from President Trump suggesting that US forces could leave Iran within weeks, with or without a peace deal. The news boosted sentiment, and risk assets bounced on the last trading day of a difficult month and quarter.

Chart-wise, the UK’s FTSE 100 has performed particularly well, and is now trading back at levels last seen a fortnight ago. It is now retesting a band of resistance around 10,400-10,450.

Source: TN Trader

The US dollar was, along with crude oil, the biggest ‘casualty’ of President Trump’s ‘peace dividend’. The idea that the US military could be out of the Middle East in the next two-to-three weeks saw the dollar dump against all the other majors. The move continued this morning as the cash Dollar Index extended its losses for a second consecutive session.

Yesterday morning, it got as high as 100.46, its best level since May last year. The Dollar Index had been a major beneficiary of Middle Eastern hostilities. This time last month, it soared as investors bought up dollars in a ‘flight to safety’, spurning previous havens such as precious metals, US Treasuries and currencies such as the Japanese yen and Swiss franc.

Source: TN Trader

It finally looked as if the Index had broken decisively above long-term resistance at 100.00, thereby signalling that the US dollar may have finally put in a bottom after a dismal twelve months. But it now looks as if the dollar bulls will have to sit on their towels and hope for a different signal to indicate that it’s safe to go back in the water.

President Trump’s remarks reinforced expectations that US strategic objectives had largely been achieved and contributed to a shift in risk sentiment across global markets. But this could all unravel as quickly as it began. Traders will be paying close attention as Mr Trump addresses the world about the war at 01:00 GMT Thursday morning.

Gold has had a positive week so far. It has built on gains made at the end of last week when it pushed back above resistance (previously mild support) around $4,400. Last week’s price action told quite a story: it began with gold plunging to $4,100 to hit a four-month low.

At that stage, it looked as if a retest of $4,000 was a near-certainty. But buyers came in and, despite some very choppy sessions, gold finally dug in above support at $4,400. This morning, it came within a few dollars of $4,750, hitting its best levels in close to a fortnight.

The daily MACD looks constructive from a bullish perspective as it is curling up from oversold levels. But it now faces some resistance as it approaches $4,800. And while the sudden drop in the US dollar is undoubtedly helpful for the bulls, would-be buyers should consider just how headline-driven risk assets are currently, especially ahead of President Trump’s expected address early tomorrow morning.

Source: TN Trader

Silver has also had a strong week so far. The bulk of its gains came yesterday as it flew up above $75.50, helped by US dollar weakness. Earlier this morning, it pulled back but found some moderate support around $74.00. Investors now expect the war in the Middle East, or at least the US’s contribution, to come to an end within the next three weeks. But what that may mean for the region is very hard to tell.

Source: TN Trader

There has been significant damage to energy infrastructure around the Gulf States, and production had to cease in places as storage facilities were overflowing due to the Strait of Hormuz being blocked by Iran.

This could take a long time to restore, even assuming that the Strait is reopened, which President Trump says has nothing to do with the US. Despite recent weakness, silver could still find support if easing tensions contribute to lower oil prices and reduce expectations of central bank tightening.

West Texas Intermediate and Brent crude dropped more than 4% after President Trump said US forces could leave the Middle East within weeks, with or without a deal with Iran. Mr Trump said that the US had achieved its war aims by destroying Iran’s nuclear facilities and by swapping out the old, nasty regime for a nice new shiny one. By all accounts, Iran’s navy no longer exists, while its air force and defence systems were destroyed last summer.

Despite this, the Strait of Hormuz remains effectively blocked, thereby cutting off a fifth of global supply of oil, liquified natural gas, helium and chemicals for fertilisers such as nitrogen and phosphates.

The US President said that this is not his problem, and that those who rely on the Strait should deal with its closure themselves. While this is all very positive for risk assets, and good news for as far as the price of oil and inflation are concerned, the Middle East will remain a serious problem whether the US is there or not.

Meanwhile, front-month Brent has backed away from resistance at around $110 per barrel, while front-month WTI is back, just in a trading range of $100 to $90 that has been building for the past three weeks. Oil prices are down from where they were at the start of the week. But they remain elevated.

Source: TN Trader

The CBOE Volatility Index has dropped sharply this week, with the front-month VIX pulling back from over 28 to 24 this morning. It may not look like much, but that’s a 14% decline since Sunday night. Sentiment improved across global risk assets following expectations that the US could soon withdraw from the Iran conflict.

April has begun with a burst of bullish sentiment as hopes grow that the US could exit the Iran conflict within weeks. This has given global stock indices a lift while volatility has pulled back. Focus will now turn to President Trump’s national address scheduled for 01:00 GMT Thursday morning, which should provide clarity on geopolitical developments.