The market mood is not as bad as it was when we returned from the weekend. However, it is not as hyped up as what it was made out to be when US president Trump claimed “very productive” talks with Iran on Monday. Amid the mixed messages from both sides, we’re pretty much caught somewhere in between.
While Washington is talking up negotiations and its 15-point proposal, top officials in Tehran are adamant that they are not in direct or indirect contact with the US. However, Pakistani and Egyptian sources are claiming to try and mediate the situation with the former saying that Iran has received the peace proposal by the US and have not made a firm decision on that just yet.
Looking past all the noise, the fact of the matter remains that Iran still holds significant leverage if there were a need to negotiate anything at the moment. They are staying in control of the Strait of Hormuz. And that is the most important detail in all of this.
Sure, it is more than likely that we will be moving on to a new phase of the war. However, that doesn’t mean that there will be material de-escalation and a return to normality on shipments through the strait. It all remains up in the air for now.
While equities might be showing some enthusiasm and hopes for a deal, the oil market is more guarded. WTI crude is nudging back above $90 now after keeping near the lows for the week yesterday. And we’re slowly seeing prices eat back into the drop from Monday, which was when Trump dropped the bombshell of “very productive” talks on markets.
As for major currencies, the dollar is also continuing to bounce back on the week. EUR/USD is slipping back below 1.1600 with AUD/USD also falling back below 0.7000 in trading yesterday. The dollar rebound sees it almost erase losses from the Monday drop, pretty much hinting at a reset in market sentiment.
The bond market is also reflecting a somewhat similar stance to the above. 10-year yields in the US are slowly nudging back up to 4.35% now, keeping off the lows this week of 4.31%. Yields are still well above what they were for most of last week and just off the Monday highs of around 4.44%.
As for the stock market, Wall Street might seem like it is holding up well this week. However, it is barely hanging in there when you look at the charts.
The Friday drop looked like it was going to set off alarm bells and trigger stops come Monday. And that was what we were setting up for already, with S&P 500 futures even dropping hard at the start of the week before Trump came to the rescue.
As such, we’re seeing a bend but don’t break kind of mood for US stocks now. But as things stand, it’s all hanging by a very fragile thread. All it takes is one missile or one negative headline response from Iran and everything will come undone once again.
So, just keep that in mind as we look towards the second half of trading this week.
This article was written by Justin Low at investinglive.com.
