US stock index futures were modestly higher in early trade this morning. All the majors were building on yesterday’s positive tech-led session, which saw the NASDAQ add 2% and the S&P 500 close just 11 points below its all-time closing high from 27th January.
But the US futures pulled back from their best levels after the Washington Post reported that the US was sending thousands of additional troops to the Middle East, no doubt to put extra pressure on Tehran to make a deal. This runs the risk of enraging the Iranian regime, even as it threatens and humiliates it, and thereby increases the likelihood that hostilities may continue for longer than previously forecast.
Source: TN Trader
Of course, the ceasefire deadline is less than a week away now. But as investors have seen repeatedly, deadlines can be extended, as ‘Trump Always Chicken Out’, although in this case it would seem expedient.
Aside from this morning’s activity, investor sentiment has been supported by expectations that further peace negotiations between the US and Iran look likely to take place, ideally before the (first) ceasefire deadline expires next Tuesday.
President Trump has said that Iran had reached out and wanted to make a deal. As far as financial markets are concerned, investors have priced in the expectation that the war will be over soon, and that’s certainly what the
Brent crude oil forwards continue to predict, with futures prices up to year-end significantly below the current spot rate. But key to all this is not just an end to the war, but the complete reopening of the Strait of Hormuz, which remains under Iranian control. The US continues to block shipping to and from Iranian ports in the region.
Yesterday, the Chinese-linked tanker, Rich Starry, turned back before entering the Strait. But there are reports that Iranian-linked vessels have sailed through unimpeded. Investors are also watching first quarter earnings releases.
This earnings season could prove critical in determining the near-term direction of global stock indices. If US corporations meet their lofty targets, while expressing confidence through their forward guidance, then that would go a long way to support the current bull market. If not, beware.
Technically, the rebound off the lows hit at the end of March is looking a bit overcooked. It has taken the S&P around a fortnight to recoup all the losses made over the previous five weeks. But that’s not to say the rally hasn’t got further to go. The January highs around the 7,000 level may prove key here as there may be some resistance and profit-taking here, even as the bulls look to capitalise on the index breaking yet another significant level.
