29th April - Oil & Earnings

Forex

Yesterday saw two major news points. The first was news that Trump was not happy with the initial proposal from Iran to shelve the nuclear issue during talks, and that he has instructed his advisers to prepare for a longer blockade. We also then saw the shock news of the day, with the UAE withdrawing from OPEC. In the short term, the news from the US is far more impactful, but in the longer term, the UAE being free from OPEC oil supply restrictions will have a significant bearish effect on the price of oil.

The dollar rose yesterday on the news from the USA, outperforming other risk-off currencies like the CHF and JPY. The USD/JPY cross continued to move back towards the key 160.000 intervention mark that has been looming, especially after BoJ Governor Ueda's more measured tone following the hawkish BoJ vote yesterday. The carry trade issue remains for any shorts on JPY pairs, with the exception of CHF/JPY; any longer-term play will have its margin eaten into by swap fees. The play may then be a gamble on an intervention if the 160.000 mark is met or breached, hoping for a short and sharp move lower before taking profits and running.

CAD saw downward pressure yesterday on the news from the UAE. The oil-producing nation saw a reaction to potential long-term falls in oil, even though the short-term effect is largely mitigated by the ongoing bottleneck in the Strait of Hormuz. A softer-than-expected Australian CPI print overnight has taken some of the shine off the AUD, giving back a portion of the gains made over the past week. The commodity-sensitive AUD has been rallying on market optimism and increased risk appetite; the weaker number could be a reminder to the market to also pay attention to domestic fundamentals.

Other currencies were relatively flat on the day, with most in wait-and-see mode ahead of rate decisions from the BoC and FOMC today, then the ECB and BoE tomorrow. These decisions and the guidance around them could significantly change the outlook within forex markets, so patience is being practiced by the market in anticipation of any surprises.

Indices

There was some concerning news for US indices in particular yesterday, with reports from OpenAI that revenue and growth are below targets and CFO concerns about cash flow if this does not improve. The US indices have been booming in large part due to the large tech firms that have been pumping vast sums into AI development. Could the news from OpenAI right before earnings releases from 4 of the Mag 7 be a precursor for things to come? US indices fell yesterday, falling away from all-time highs in the S&P & Nasdaq. There were positive earnings released, with Coca-Cola up 4% on positive earnings and General Motors up 1.3%.

Everything is pointed towards this evening's earnings; however, if we see poor results from companies heavily invested in AI, it could lead to a sharp change in sentiment for the market and possibly burst an AI bubble. Positive earnings could calm fears and lead to a continued surge upwards, possibly creating an even larger bubble ready to pop further down the line.

Precious Metals

Gold and silver fell yesterday, thanks in large part to the US-Iran news being inflationary in the short term and increasing rate hike potential. The $4,700 floor we had seen for gold was broken, paving the way for a move down to the key $4,500 level. The bull case for gold is that physical demand is still high, with 27 tonnes bought by central banks in February alone. This could potentially create a floor that paper gold trading cannot push through, before the hopeful end to the US-Iran hostilities and a move back north for precious metals.

Todays Market Drivers

• FOMC / BoC Interest Rates - The FOMC decision is expected to be a hold, but the key event will be the statement from outgoing Fed Chair Powell. Will he strike a hawkish tone in the face of energy price inflation, or remain vague to avoid tying the hands of his successor in the role? Unexpected news here will have a huge effect.

• Mag 7 earnings - This will have an enormous effect on the indices, the US indices by definition but also global indices by extension. The fate of the AI bubble could rest on unexpected results.

• US-Iran Updates - As has been the case for the past month, any news in either direction will have a huge effect. Look for social media posts from Trump once the USA wakes up.