29th June - Weekend Flare-Ups Just More Noise
- Jun 29
- 5 min read
Over the weekend, we saw further hostilities between the US and Iran, with the US striking military targets after the tanker attack by Iran on Friday. Trump even posted a message that the US may have to "complete the job," causing some fears that the ceasefire may break down.
However, the market did not seem overly concerned, and by Monday morning, de-escalation had returned, and both sides had agreed to meet in Doha tomorrow, and the tit-for-tat attacks have ceased. The outcome has been the same as every escalation since the initial ceasefire was announced; we are back to where we were, and the small examples of hostility are just noise within the larger negotiations. The markets have also seen these events as such, so they have not reacted significantly to them.
The result is that we have not seen significant movement when the markets opened after the weekend, with this morning actually showing more of a risk-on tone despite the weekend's events.
Forex
This week we see the NFP report for June, moved forward to Thursday due to the US Independence Day holiday on Friday. This is the biggest event of the week and will shape the market movements up to and around the event.
Friday was a relatively quiet day for markets. The DXY struggled initially before pulling back to close to even for the day. The pullback, in large part, was caused by reports of the Iranian strikes creating some minor concerns about escalation, but as this was quashed over the weekend, the USD is again looking a little weak as it loses some further safe-haven demand. The fundamentals for the USD do still look strong, however (strong GDP numbers last week, strong retail sales and unemployment figures, expectations for rate hikes), so there is still room for the USD to continue to strengthen in the short term. In the longer term, buying the USD seems to be a crowded market right now, meaning even with strong fundamentals, there may not be that much more capital left to be pumped into the currency, and we may see a pullback from the highs. As a result, in the medium term, we may see a divergence in performance from what the fundamentals point to, so I would urge some caution for anyone not already in a USD trade but looking to get in today. Should we see a pullback in the currency, the 100.00 level on the DXY could become a good entry point for renewed USD demand and should be a level to look out for.
The USD/JPY continues to hover around previous intervention levels, so it remains a pair to watch out for. An intervention could happen at any time, so unless you are planning a trade around this, I would urge caution in the short term.
The GBP was largely flat on Friday but has seen a boost in demand this morning. This is likely due to both the easing of uncertainty around Iran and the easing of political uncertainty as Andy Burnham seems all but certain to become the new Prime Minister. He spoke this morning for the first time since Keir Starmer resigned, with some of his comments seeming to find support within markets. This is a breaking story, however, so the full fallout will be covered tomorrow in more detail. Should we see a more sustained pullback, the fundamentals are still pointing to USD strength and GBP weakness, so at the 1.33 level, there could be an excellent opportunity for a short on the GBP/USD as below. This could be one to look out for as the week progresses.
Outside of the GBP and USD, markets have broadly followed a risk-on trend this morning after a relatively flat Friday. The CHF and JPY are struggling (with the JPY's struggles emphasizing the focus in USD/JPY), whilst the AUD, NZD, and EUR are doing well on the day. CAD remains relatively level as oil prices have not moved a significant amount over the weekend.
Indices
Friday saw a continuation in the fall in indices, with all major US indices seeing falls on the day and the FTSE, Nikkei, and Kospi following suit. This meant that on the week the Nasdaq lost 4.6%, the S&P lost 2%, but the Dow gained 0.6%, showing in concrete data the move away from AI/tech stocks over the week. This had been crystallized by the news that OpenAI, due for an IPO this year, is looking to maybe delay the event until 2027 after seeing SpaceX's stock drop 24% in six sessions from its peak.
Today, interestingly, with the risk-on atmosphere in the market, we have seen demand come back into tech stocks and have seen the S&P and Nasdaq rise this morning. The test will be to see if this is sustained or just a bounce on the good news over the weekend. The longer-term concerns about AI-spending durability remain, so the expectation would be that this is just a temporary move and that the tech-heavy indices will struggle again this week. A continuation in the pullback at the pace it has been would be a healthy move for markets that had become overextended since the Iran peace rally began at the end of March.
Precious Metals
Precious metals had a good day on Friday thanks to the concerns in Iran, but the de-escalation over the weekend has essentially removed any of this safe-haven demand and pushed the metals lower. The metals remain caught in a worst-of-both-worlds scenario; they are losing safe-haven demand but are also not receiving any relief from a rate-drop cycle thanks to lower oil prices.
The FOMC's stance moving hawkish has been a huge strain on the precious metals, one that will not improve until we see more positive economic data that removes the need for rate hikes. The first of those could come with the NFP release on Thursday, so for those looking to trade precious metals, this will be a key event. As has been mentioned in the past, once the need for rate hikes is reduced, metals will see a resurgence. The question now is, how soon will that be?
This Week's Market Drivers
USD NFP Figures, Thursday - This will be the biggest news release of the week and will affect the FOMC's interest rate decisions going forward. A surprise either way could move the market significantly.
ADP Non-Farm & ISM Manufacturing PMI, Wednesday - These will not have the same effect as the Thursday news release, but they will nonetheless have an effect if there is a surprise either way.
Fed Chair Warsh speaks, Wednesday - This could be a non-event if Warsh is vague or non-committal, but unexpectedly hawkish or dovish comments could have a significant impact on markets going into Thursday's NFP release.
Iran peace talks, tomorrow - News from this will affect the market if it is not something that is expected. If we hear about slow progress and more meetings needed, then the effect will be minimal.
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