22nd April - Tentative Extension

Forex

Yesterday was a topsy-turvy day in the markets, owing entirely to the continued uncertainty in the Middle East. With the ceasefire deadline looming, there was initial negativity when it emerged Iran would not be in Pakistan on Tuesday for talks and VP Vance canceled his trip. Then we received word there may be some progress, and Trump released a message to advise there will be an extension to a ceasefire while talks continue. While this calmed the uncertainty somewhat, the US is still blockading Iranian ports, something Iran has claimed is a violation of the ceasefire and a potential sticking point before any new talks can begin. Iran has said early this morning there are signs the US is ready to break the blockade, so we may see some further breakthroughs today.

The USD rallied on the day due to increased uncertainty, coupled with a beat on Retail Sales figures and a surprisingly hawkish tone from Kevin Warsh during his confirmation hearing. This has pared back some of the need for lower interest rates to boost the US economy, as it seems to be holding up well in the face of the energy shock and low consumer sentiment readings. Long term, this indicates potential strength for the USD if rates are kept higher, but in the short term, the USD is still at the mercy of the peace process and any development there will have an outsized effect on the currency.

GBP CPI figures released this morning matched forecasts of 3.3%, meaning the UK could still go either way with the interest rate decision due from the BoE on the 30th of April. The JPY took a hit again yesterday as oil prices rose again, with USD/JPY sticking in the 159 levels and close to the key BoJ figure of 160.000 for potential interventions. The commodity currencies had mixed sessions (AUD, CAD). The CAD found some support from higher oil prices whilst the AUD fell back on reduced optimism. At the risk of sounding like a broken record, any moves over the next few days will be almost entirely dependent on news from the Middle East.

We are still very much in wait-and-see territory.

Indices

The recent monumental rally took a breather yesterday with the increased uncertainty. There is still strong momentum, meaning news that would have otherwise had a far greater negative impact ended up delaying rather than reversing the market. The US indices were slightly negative on the day, but I feel with any positive news today there is a strong likelihood of a further push upwards. Negative news today, however, could burst the optimism bubble, and I worry about how violent of a pullback we may see if this were to happen. The recent rally has been built on peace optimism rather than certainty; if this optimism proves unfounded, there could be a fast and significant change in sentiment.

Precious Metals

Dollar strength and rising oil prices pushed gold lower yesterday, with the potential for higher interest rates reducing the demand for non-yielding assets. Nothing really has changed in the short term though; once again, the markets are dependent on the outcome of the Iran peace talks. A deal and lower oil prices will help more than the uncertainty will encourage safe-haven demand, so I still feel a positive outcome in Iran is positive for precious metals overall.

Todays Market Drivers

• Ceasefire talks - Everything revolves around this. The war has such an outsized effect on energy supply across the world, that the ripple effects of news in Iran are affecting all markets. This is the key driver to be on top of.

• News events - Apart from this morning's UK CPI figures that met expectations, there are no other scheduled news releases today. This just puts even more emphasis on the news coming from Iran.