Risk-on momentum fades as US-Iran ceasefire wobbles
·4 min
The episode opens by describing the market reaction to a two-week ceasefire between the US and Iran, with equities and gold rallying while the US dollar and oil dropped. However, the euphoria was short-lived as Israel launched a massive attack in Lebanon just hours after the agreement, indicating dissatisfaction with the ceasefire. Iran further complicated matters by demanding tolls from ships in the Strait of Hormuz, despite publishing a map to avoid mines, leading to US threats of resumed hostilities. Investors remain wary, causing oil to bounce off lows and hover near $100, with a sustainable drop to $80 requiring a safe reopening of the strait without tolls or mines. The US dollar gained strength in late sessions, influenced by Fed meeting minutes showing some appetite for rate hikes if inflation accelerates, though most participants favor cuts for the labor market. EURUSD failed to break resistance near moving averages, and dollar-yen stayed above 1.58 as markets price only a 53% chance of a Bank of Japan rate hike. Gold erased its gains, stuck in a tight range with the 100-day SMA as a floor, needing positive Middle East news to challenge its decline. Headline risk from the conflict is the main market driver, but upcoming economic data will provide insights. Today's US Q4 GDP and PCE reports are backward-looking, while tomorrow's Chinese CPI and PPI data, along with the US CPI report and Michigan Consumer Sentiment Survey, will gauge inflation and consumer impacts. Additionally, a $22 billion 30-year US Treasury auction today tests investor appetite for long-term debt, following an unimpressive 10-year auction yesterday.
