US Markets Higher as Fed Cut Hopes Increase – S&P up 1%
US stocks drove higher in trading yesterday on the back of a combination of increased Fed rate cut hopes and a failed strike from Iran in the Middle East on US bases. Fed Vice-Chair Michelle Bowman advised that we could see a cut as early as July, and US indices reacted strongly: the Dow up 0.89%, the S&P up 0.96%, and the Nasdaq up 0.94%. Both Treasury yields and the dollar dropped—the 2-year yields down 4.4 basis points to 3.863%, the 10-year yield off 2.8 basis points to 4.348%—while the DXY ultimately fell 0.72% to 98.38, having initially spiked earlier in the day. Oil prices were smashed after news hit the market that Iran attempted (and failed) to hit US bases in Qatar, and then President Trump advised that Iran and Israel had agreed to a tentative ceasefire. Brent was down 8.86% to $70.22, and WTI down 8.88% to $67.30. Gold traded in a wider range but ultimately closed up just 0.06% at $3,68.46 an ounce.
Oil to Remain Volatile in Days Ahead
Oil prices were smashed in trading yesterday after Iran took no action to disrupt oil and gas traffic in the Strait of Hormuz and instead attacked a US military base in Qatar. Strange times in markets when an attack on a US military base from another nation is seen as a positive, but at the moment we have to trade what we see. Oil prices had spiked earlier in the day after US strikes over the weekend, but a long market was completely turned later in the day as the retaliatory strike was considered a positive, and then talk of a ceasefire hit the newswires. WTI hit a peak at $78.40 and is now trading under $66, which is obviously a huge range in just 24 hours, so traders are expecting to see more moves in the coming hours and days. However, most do not expect any kind of trend to be set until we get a bit of clarity on the situation in the Middle East—and as the last couple of days have proven, that may take some time.
Another Busy Day Ahead for Traders
Traders are bracing for another busy day ahead today as geopolitical updates continue to rock markets, and they look ahead at some key data releases and central bank updates. The Asian session looks set to start on the front foot today after a strong session on Wall Street, and although there is little on the event calendar, traders are expecting to see substantial moves in the session. The European session will see a strong focus on UK markets today with Bank of England Governor Andrew Bailey due to speak in front of the House of Lords, although euro traders will also be paying close attention to the German Ifo Business Climate data release. The New York session looks busy today even before we look for any fresh updates from President Trump. The initial focus will be north of the border for Canadian CPI numbers (exp. +0.5% m/m), before moving down to Washington for Fed Chair Jerome Powell’s testimony on the Monetary Policy Report in front of the House Financial Services Committee. We also have Consumer Confidence data and the Richmond Manufacturing Index numbers out of the US today, but expect comments from the Fed Chair to dominate, along with any fresh geopolitical updates.
