Asia Pacific markets end mixed

US stock indices posted steep losses on Thursday in a move which saw the NASDAQ 100 hit lows last seen in early September. This came as President Trump’s original deadline before launching extensive attacks on Iran’s key energy infrastructure came close to expiry.

That deadline was set for today and included the demand that Iran reopen the Strait of Hormuz, a vital chokepoint for around 20% of global supplies of crude oil and liquefied natural gas.

It is also a prime route for chemicals involved in the manufacture of fertilisers, and helium, so vital in chip manufacture, amongst other things.  But Mr Trump announced a ten-day extension to the deadline, just as US exchanges closed last night.

The news saw a sharp spike higher in stock indices while crude oil prices backed off from highs earlier in the day. The president insisted that there had been good progress in peace negotiations, so he was pushing back his deadline to 6th April.

But the moves started to unwind overnight as Tehran said that it was not engaged in direct talks. US stock index futures pulled back from overnight highs to trade in negative territory in early European trade.

Source: TN Trader

Financial markets remain headline driven. Investors are being buffeted by US claims that progress is being made to end hostilities, while Iran denies that any serious negotiations are taking place.

The Trump administration delivered a 15-point proposal, including the immediate reopening of the Strait of Hormuz. Iran responded, insisting that the US and Israel cease all attacks on their country, while recognising its authority over the Strait. It seems obvious that neither side is close to accepting the other’s conditions for peace, so for now the war continues.

The Strait of Hormuz remains key. The US, together with Canada, is relatively immune to the closure. But the damage done to the Gulf States is serious. Europe and the UK are also seriously exposed, given that they import most of their energy and fertiliser chemicals, with much of it passing through the Strait of Hormuz.

As the Iranian regime faces an existential crisis, it’s difficult to imagine a scenario in which they would willingly surrender control over this vital chokepoint. Yet stranger things have happened, and many analysts are on the alert for a breakthrough leading to an end to the war.

This could result in a sharp and possibly protracted rally across risk assets as investors rush to take advantage of the selloff. But risks remain to the downside here. The Trump administration may be desperate to find an offramp, given the damage done to financial markets, and ahead of midterm elections in November. But that could result in an end to hostilities with what’s left of the Iranian regime still in place.

European stock indices were sharply lower this morning, as US stock index futures gave back overnight gains to trade in negative territory. This comes despite President Trump extending the pause on making strikes against Iranian energy infrastructure, pushing today’s deadline out to 6th April.

Moves are headline driven. But the simple fact is that sentiment is likely to stay negative for as long as the Strait of Hormuz remains unsafe for shipping and controlled by Iran.

The Euro Stoxx 50, German DAX and French CAC were all down over 1% in early trade, with Europe and the UK heavily exposed to the closure of the Strait. Higher oil prices affect every country negatively, except Russia. But while the US may suffer from higher prices, it doesn’t run much risk from a lack of supply. The same can’t be said of either Europe or the UK.

Source: TN Trader

Meanwhile, analysts have priced out any chance of rate cuts for the foreseeable future and are busy factoring in rate hikes instead, perhaps quite aggressive ones. So, what was a tailwind at the beginning of this year is now a significant headwind. And that fear will only build for as long as the Strait of Hormuz remains closed.

The US dollar pushed up overnight, finding support as it continues to attract ‘flight to safety’ inflows. The cash Dollar Index edged up towards key resistance around 100.00 - a level it has repeatedly failed to break above, despite its bullish run.

Oil prices spiked lower last night but have resumed their climb this morning as there’s no sign of the Strait of Hormuz being safe for shipping anytime soon. It appears that there are no direct talks taking place between Washington and Tehran, although demands have been made through intermediaries.

The US dollar is finding support as investors price out rate cut expectations from the Federal Reserve, with many now forecasting no change in rates this year, while the probability of a rate hike has risen significantly. The big question now is if other countries will raise rates more aggressively than the Fed, which may put a dent in the greenback’s rally.

The USD/JPY is bumping up against 160.00, a level which has previously been associated with talk of intervention from Japan’s Ministry of Finance. However, concerns that higher oil prices could weaken Japan’s trade balance and complicate the Bank of Japan’s policy normalisation efforts may intervene at current levels, ineffective and costly.

Source: TN Trader

On Wednesday, gold briefly topped $4,600 per ounce, having dropped below $4,100 on Monday morning. But it has been unable to maintain its upside momentum, pulling back to $4,350 yesterday.

It rallied overnight, coming within sight of $4,500, but has dropped again, and looks as if it is struggling to find solid support. This appears to be one of those times when there’s an inverse correlation between gold and the US dollar.

Source: TN Trader

Investors are now anticipating rate hikes this year to curb inflation, rather than rate cuts as priced in this time last month. This is supporting the dollar for now, and gold is finding it difficult to make upside progress as inflation fears accelerate.

It’s a similar story for silver. It slumped to $61 per ounce on Monday before rallying sharply to top $74.50 in the early hours of Wednesday. It appears to have found some support around $67 recently, but it has been unable to hold on to any gains made this week on its rally attempts. Like everything else, much depends on what happens with the Strait of Hormuz.

Source: TN Trader

If precious metals really are correlating negatively to the US dollar, then getting the Strait reopened to shipping would be a major ‘risk-on’ event, which should see a significant pullback in the greenback, which should boost both gold and silver prices. But the longer the conflict continues, the greater the risk that oil prices remain elevated, thereby pushing inflation expectations higher.

Higher inflation expectations reduce the likelihood that global central banks will ease policy conditions, and this looks likely to weigh on demand for non-yielding assets such as silver and gold.

Oil prices slumped last night after President Trump paused planned strikes on Iran’s energy infrastructure for 10 days, to give peace negotiations time to make further progress. Front-month WTI dropped below $89 per barrel briefly, but then quickly rebounded. Iran has rejected the Trump administration’s 15-point plan to end hostilities.

Source: TN Trader

Instead, it has outlined five conditions for ending the conflict, including recognition of its authority over the Strait of Hormuz. For as long as Iran controls the Strait and effectively blocks this key chokehold to shipping in and out of the Persian Gulf, Asian Pacific countries, Europe, the UK and others run the risk of running out of supplies of oil, gas and chemicals for fertilisers.

The Pentagon is considering deploying up to 10,000 additional troops to the region to preserve strategic flexibility if talks collapse. Front-month WTI is back in a trading range which has established itself over the past fortnight, roughly between $90 and $100. It is currently pushing up towards resistance at the top end.

On Wednesday afternoon, bitcoin was retesting a mild level of resistance around $72,000. It was unable to push through this area, and it subsequently began a steady decline, which has taken it back to lows seen at the beginning of this week. This is a disappointment for the bulls, who were seeing early signs that cryptos had decoupled from other risk assets and were finally marching to the beat of their own drum.

That may still be the case. It could be that bitcoin et al are simply consolidating after a strong run since early February, which saw bitcoin rally to four-month lows around $60,000. The daily MACD has risen steadily as well, recovering from oversold conditions. It is now flattening out at neutral levels.

Unfortunately, it’s difficult to see whether this is simply a pause ahead of a continuation of this recent rally or a sign that there may be a retest of the February lows.

The VIX remained elevated even after President Trump extended the pause on attacks against Iranian energy infrastructure to April 6. There is continued uncertainty around the trajectory of negotiations, and investors are understandably nervous heading into the weekend. Sentiment is currently in ‘risk-off’ mode. But this could change quickly should there be any indication that peace was about to break out.

Despite headlines suggesting progress in negotiations, markets reacted cautiously as conflicting messaging between Washington and Tehran continues to shape sentiment. The Nasdaq remained under pressure after heavy losses earlier in the week, while the US Dollar continues edging toward the 100 level as reserve currency demand strengthens even as the psychological barrier proves difficult to break.

Oil remains the key signal heading into the weekend, particularly as reports suggest the Pentagon is considering deploying up to 10,000 additional troops to the Middle East and Ukraine’s President Zelenskyy seeks Saudi support as US aid priorities shift.