Asian Pacific equities fall sharply

US stock index futures fell sharply overnight after President Trump indicated that the US military operation against Iran was likely to last another two to three weeks. This was in line with the timeline recently put out by the administration, but hopes had risen this week that Mr Trump was ready to call an immediate end to the war, claiming that all US aims had been met.

The President ran through these this morning, and chief amongst them was the assurance that Iran was no longer a global threat. To that end, Mr Trump claimed that Iran’s navy and air force had been obliterated, that its ability to fire missiles and drones against its neighbours had been significantly degraded and that its nuclear threat had been eliminated.

He added that while regime change hadn’t been an aim, he had also achieved this, as all the old leaders were dead and had been replaced by more reasonable and less radical individuals. Mr Trump promised an intense bombardment to conclude the war but insisted that he would only accept a ceasefire once the Strait of Hormuz was “open, free, and clear.”

This contrasted with earlier reporting that he had been willing to end the military campaign even if the Strait remained closed, creating considerable uncertainty around policy direction and contributing to volatility across markets. In this regard, he called on countries that benefited from the Strait to join in the effort to unblock it. He also said that the US had chosen not to hit Iran’s oil facilities but may target its electricity supply in the coming weeks.

Overall, it was an upbeat performance which pleased his fans and enraged his opponents. Today marks the final trading day of a shortened week with a truncated session on Good Friday. Today sees the release of weekly Unemployment Claims, while the latest Non-Farm Payroll report comes out tomorrow, despite the market holiday.

The overnight selloff across US stock indices has been quite sharp, but not particularly deep. It hasn’t made much of a dent in the gains made earlier this week, and all the majors continue to look relatively oversold, according to their respective daily MACDs.

Source: TN Trader

Despite this, markets are heading into a long weekend. Could they reduce their exposure to fears of negative events, or will they view the President’s address as an accurate guide to what may happen over the next few weeks?

European equities opened sharply lower on Thursday on rekindled fears of an escalation in the US-Iran war, which weighed on investor sentiment. This followed an address from President Trump in the early hours of this morning, stating that the US attacks on Iran will increase in severity and look likely to continue for another two-to-three weeks.

In contrast to earlier comments, Mr Trump said that there could be no ceasefire until the Strait of Hormuz was “open, free, and clear” to all shipping. In this regard, he called on countries that counted on oil and other goods passing through the Strait to take action to reopen it. That would include most of Europe and the UK, in addition to many countries in the Asia-Pacific region.

Today’s selloff put a dent in gains made so far this week. All the major European indices rallied sharply off lows hit early on Monday. These gains were compounded on Tuesday and Wednesday.

Source: TN Trader

The push higher came after President Trump suggested that he could end the war within weeks, with or without a peace deal or the reopening of the Strait of Hormuz. While he repeated that timeline this morning, he now insists that the Strait is opened before any ceasefire will be considered.

Investors are also reacting to reports that the Trump administration is preparing new tariffs on pharmaceutical companies that have not reached agreements to guarantee low drug prices in the United States.

The US dollar shot up overnight and held onto these gains throughout Thursday morning. The cash Dollar Index pushed steadily higher and hit 100.00 as the afternoon approached. The rally came as crude oil added to overnight gains. US Treasury yields rose sharply as traders factored back in the likelihood of rising inflation with oil staying higher for longer.

The moves came after President Trump’s address, where he outlined the expected timeline for the war with Iran and the conditions that must be met before he would consider a ceasefire. Chief amongst these is that the Strait of Hormuz must be reopened, and that traffic can pass through safely.

Mr Trump said that the US objectives were nearing completion but signalled that military operations would intensify in the coming weeks, supporting safe-haven demand for the currency.

Source: TN Trader

Gold fell sharply overnight, giving back all of Wednesday’s gains and a fair chunk of Tuesday’s as well. Just ahead of President Trump’s address on the war with Iran, gold briefly touched a two-week high of $4,800. But it dropped sharply over the next few hours, coming within a few dollars of $4,550 as Europe opened for business. President Trump warned that Iran could be hit extremely hard over the next two to three weeks.

He also said that there would be no ceasefire until the Strait of Hormuz was ‘open, free and clear’. This reduced hopes for near-term de-escalation, and investors hoovered up US dollars on a renewed flight to safety. This weighed on gold, although it has managed to poke its nose back above $4,600.

Source: TN Trader

Rising US Treasury yields also contributed to gold’s decline by encouraging flows away from non-yielding assets. Attention is also turning towards Friday’s Non-Farm Payroll report, although the precious metals' sensitivity to Middle East developments is likely to dominate near-term price action.

It was a similar story for silver. On Wednesday evening, silver also hit a two-week high when it briefly pushed above $76 per ounce. But it got slapped down as President Trump outlined the likely timeline for the US war with Iran, along with the conditions required for a ceasefire.

Investors had been pricing in the likelihood of an early end to hostilities, so the President’s comments weren’t received well. This saw crude oil push up, along with the US dollar. Traders rushed to price back in the possibility of future interest rate rises, given that crude oil was likely to stay higher for longer.

Silver is now retesting a band of support which starts around $70 and stretches down to $68. If it were to put in a protracted break below here, then that would increase the risk of a deeper drop back towards $60 per ounce.

Source: TN Trader

Oil prices jumped sharply in volatile trade after President Trump warned that the US would intensify military attacks against Iran over the next two to three weeks. The front-month Brent contract was still trading below resistance at $110, but front-month WTI once again broke above its own resistance level of $100 per barrel.

Source: TN Trader

There was also a shift in the futures curves of both contracts. This saw the price of oil for delivery within the next few weeks trade at a premium over spot, before dropping back significantly over the summer. The obvious takeaway from this is that investors expect the oil market to tighten further over the next few weeks, before loosening up six-to-eight weeks hence.

Also, the premium for Brent over WTI has come in substantially, and this could be on expectations that, following comments from Mr Trump, Europe may end up increasing purchases of US-produced product. That may be the case in the short-term, but much depends, yet again, on how quickly the Strait of Hormuz can be made safe for seaborne cargoes.

Last night, Bitcoin pushed back above $69,000, having dropped below $65,000 on Sunday night. It pulled back to $66,250 following President Trump’s address in the early hours of this morning, but has steadied since then.

Mr Trump triggered a rally in crude oil and the US dollar, and a corresponding selloff across risk assets, as his comments failed to signal an immediate end to US military activity across the Middle East.

Instead, he repeated earlier messages from his administration in stating that the US would continue hostilities for another two or three weeks. Technically, Bitcoin remains stuck in a trading range which has been building since early February, just after it fell to $60,000, a four-month low.

Since then, Bitcoin has spent most of its time oscillating between $64,000 and $73,000. This has meant that it has kept its value even as other risk assets have struggled due to the ongoing hostilities across the Middle East.

The VIX jumped around 6% overnight as market volatility increased following President Donald Trump’s latest comments on the Iran conflict. The move reflects the shift back toward risk-off positioning after optimism earlier in the week briefly supported global equities.

The spike highlights how sensitive markets remain to developments around the Middle East conflict. The question now is whether President Trump’s comments have cleared the air ahead of the Easter weekend.

The bulls held the baton throughout the first half of this week. But their dominance may be over as geopolitical uncertainty returns to the forefront. With a long weekend approaching, many investors may choose to remain on the sidelines, particularly ahead of Friday’s Non-Farm Payroll release.

Yesterday’s ISM Manufacturing PMI and ADP Payroll updates were both mildly encouraging. But attention remains firmly on geopolitics and the upcoming Payroll report.