Asian-Pacific indices mildly positive

US stock index futures were lower in early trade on Monday following a notably strong session at the end of last week. On Friday, the Dow added 1.8%, while the S&P 500, NASDAQ and Russell 2000 rallied 1.2%, 1.5% and 2.1% respectively. These gains topped off an extraordinary week, led by the tech-heavy NASDAQ, which soared 6.8%. The Russell, S&P and Dow added 5.6%, 4.5% and 3.2% respectively.

Source: TN Trader

Investors had been pricing in a quick conclusion to the war across the Persian Gulf. President Trump said the war with Iran “should be ending pretty soon,” while also confirming that Israel and Lebanon agreed to a 10-day ceasefire. Tehran had made it clear that Israel must halt attacks on Lebanon as a key condition for US–Iran negotiations to begin.

On Friday afternoon, the stock market rally was given an extra lift after Mr Trump stated that Iran had reopened the Strait of Hormuz. That story, as tenuous as it was, unravelled within a day. Tensions between Washington and Tehran escalated over the weekend following the seizure of an Iranian-flagged cargo ship in the Gulf of Oman.

The move followed Iran’s decision not to participate in another round of peace talks planned in Pakistan. President Trump has renewed his threat that the US could target Iranian infrastructure, including power plants and bridges, if a deal is not reached before the ceasefire expires this week.

Given all this, it’s perhaps surprising that, by mid-morning in Europe, US stock index futures have only given back around half their gains from Friday. This looks like a market which doesn’t want to go down. No doubt, US investors feel insulated from anything happening elsewhere in the world. Perhaps they’re right, to a degree.

With 10% of the S&P 500 constituents having released first quarter results, FactSet reports that 88% of corporations have beaten expectations for earnings per share, while 84% have exceeded forecasts on revenues. That’s far from being a shoddy start.

European stock indices appear somewhat less resilient than those across the Atlantic. While the pullback across US futures this morning has been relatively modest, the Euro Stoxx 50, German DAX and French CAC were all down 1% or more in early trade.

Source: TN Trader

Of course, Europe and the UK are, like many countries across the Asia-Pacific regions, dependent on imports for much of their energy, fertilizers and other key chemicals, and a significantly large slug of this came through the Strait of Hormuz. This remains closed despite President Trump’s statement to the contrary made on Friday.

Today’s selloff follows news that a US Navy guided missile destroyer disabled an Iranian-flagged cargo ship over the weekend. Marines went on board and seized the vessel. This followed reports that Iran fired on commercial vessels attempting to transit the Strait of Hormuz earlier on Sunday.

Given the fractious nature of dealings between the US and Iran, perhaps it was too soon to start factoring in an end to hostilities. But the situation remains fluid and can change very quickly. European investors appear to have far less confidence in an end to hostilities when compared to those in the US.

The US dollar rallied when FX markets reopened on Sunday night. This saw the cash Dollar Index gap up to 98.20 as investors sought out some relative safety by increasing their exposure to the greenback.

Source: TN Trader

This followed news that, far from being reopened as claimed by President Trump on Friday afternoon, the Strait of Hormuz remained closed. Worse than that, and despite the ongoing temporary ceasefire, there were skirmishes between the US and Iran in the Strait over the weekend.

Tehran signalled that the Strait of Hormuz would reopen but reversed course after Washington refused to lift the US blockade on Iranian ports in the region.

In other news, there is currently a 60% probability of no change in the US Fed Funds rate by year-end. San Francisco Fed President Mary Daly said that monetary policy remains slightly restrictive above the neutral rate and that one or two cuts in 2026 were possible before the oil price shock. Brent and WTI crude oil rebounded overnight as the Strait of Hormuz remains closed and as the ceasefire deadline approaches.

On Friday afternoon, gold hit a fresh four-week high when it traded at $4,886, having started the week below $4,650. But it has pulled back since then and has spent most of the European session so far below the key $4,800 level.

Source: TN Trader

According to the CME’s FedWatch Tool, the probability of a 25-basis point rate cut before year-end is around 32%, having dropped from 37% at the end of last week. Investors were pricing in the fact that the Strait of Hormuz remains closed to shipping, and that there were skirmishes between the US and Iran in the region over the weekend, despite the ongoing ceasefire.

As mentioned before, neither gold nor silver are acting as safe havens. Quite the opposite, as this role now belongs to the US dollar, for now. And when dollar buyers come in on a ‘flight to safety’, that puts downside pressure on precious metals.

Silver briefly traded above $83.00 on Friday afternoon, hitting its highest level in over a month. This came as the US dollar drifted lower and as investors increased their exposure to risk assets after President Trump stated that Iran was reopening the Strait of Hormuz.

Source: TN Trader

Unfortunately, Iran closed the Strait of Hormuz again in retaliation for the ongoing US blockade of its ports in the region.  The closure triggered a sharp increase in oil prices, and higher energy costs lifted global inflation expectations and reduced the attractiveness of non-yielding assets such as silver.

The stronger US Dollar also weighed on sentiment after safe-haven demand increased following Tehran’s refusal to resume negotiations. Although Iran had previously announced the Strait would reopen fully to commercial vessels following the Lebanon ceasefire agreement, the renewed closure reversed that optimism and kept pressure on silver through both inflation and currency channels.

Crude oil prices surged after renewed attacks on commercial vessels in the Strait of Hormuz increased fears of supply disruptions and raised the risk of a broader escalation in hostilities between the US and Iran.

On Friday afternoon, both front-month Brent and WTI fell to their lowest levels in close to six weeks following reports that Iran had reopened the Strait of Hormuz. But while Tehran briefly declared the Strait fully open following a ceasefire agreement between Israel and Lebanon, it later reversed course after the US refused to lift its blockade on Iranian ports in the region.

Source: TN Trader

Iran now says the Strait will remain closed until restrictions on its ports are removed. Uncertainty also remains over whether negotiations in Islamabad will proceed after Iran said it would not attend talks while the blockade remains in place.

Bitcoin prices were a touch firmer in early trade on Monday, having hit their highest levels since early February on Friday afternoon. Risk assets had a strong session at the end of last week. They got an extra lift after President Trump declared that Iran had reopened the Strait of Hormuz. But it only took a few hours of the weekend for evidence to emerge that this was far from the truth.

Cryptos were the first to respond, pulling back sharply from Friday’s close on Saturday and Sunday. But the expected stock market selloff as the market reopened was far more muted than many anticipated. This has given Bitcoin an opportunity to recover a small proportion of its weekend losses.

Overall, it remains relatively bullish from a technical perspective, although the daily MACD shows signs of flattening out, suggesting a decline in upside momentum. $70,000 remains a key level of support, while $80,000 marks resistance.

Volatility has started to edge higher again after weekend developments in the Gulf disrupted the strong equity rally seen last week. US and European stock index futures indicate a partial sell-off at the start of the week as markets reassess the recent surge across US equities. Has it gone too far, too fast?

It is a relatively quiet start to the week on the data front, although attention will shift to US Retail Sales tomorrow, along with testimony from Fed Reserve Chairman-Designate Kevin Warsh to the Senate. Corporate earnings will also remain a major focus, with UnitedHealth, Tesla, IBM, Boeing, Caterpillar, Intel and American Express among the key companies reporting.