30th April - Higher For Longer?

Forex

There were a number of news events affecting markets yesterday, with possibly the largest being the hardening of the US position on Iran. Reports cited US officials who confirmed that Trump told aides to prepare for a longer blockade, with it staying in effect until a deal is reached with Iran that includes the nuclear question. This marked a change from previous sentiment when a deal was hoped to be reached and implied the conflict could last longer than many had hoped. Brent reached $120 this morning on the news, a key level that brings global recession fears to center stage and a continued inflation concern for all central banks.

We then had the FOMC rate decision and speech from Fed Chair Powell, his last in the position. The rate decision was expected (a hold at 3.50-3.75%); the far more intriguing parts were the vote split and the comments from Powell. There were 4 dissenters in an 8-4 decision, the first time since 1992 that 4 members dissented. The main reason for this was not the decision itself but the language in the statement, a desire to remove the easing bias language, making the next move more likely to be a hike than a cut. We also saw Powell confirm that he will step down as chair but remain on the board, meaning the incoming Fed Chair will not change the balance between hawks and doves and reduces the chance of unexpected decisions from the FOMC.

These news events combined were positive for the USD, increased risk-off sentiment, and a higher chance of rate hikes pushing the dollar higher against most currencies. The USD/JPY remains the most interesting pair, having broken the 160.000 level on the news from the Middle East yesterday. It has since continued to rise to around 160.600, its highest level since the previous BoJ intervention in July 2024. In 2024, the pair made it to 161.950. The question for today is whether the BoJ will let the pair reach this level again or whether it will act sooner. The JPY is being hit by higher oil prices, and the USD is receiving support, meaning the only current path is up without an intervention taking place.

The CAD saw support from higher oil prices, while the AUD and NZD saw weakness from the day's news. The EUR and GBP were mixed, with both seemingly in a holding pattern in advance of the BoE and ECB rate decisions due to be released today.

Indices

The markets were quiet during the day, with all eyes on the huge earnings releases after the bell. The news was overwhelmingly positive for 3 out of the 4 major releases, with Microsoft, Alphabet, and Amazon beating expectations on excellent earnings figures. Meta was the one disappointment, falling 7% after results came in below expectations.

Overall, though, the positivity was enough to continue support for the indices that rely on the tech mega-companies, although it is worth noting that the S&P and Nasdaq have already given back last night's gains this morning, while the less tech-heavy Dow is down both yesterday and today. This could indicate that despite blockbuster earnings from the Mag7 yesterday, oil prices and Trump's stance on Iran are having a negative effect on the stock market behind the scenes. I am still concerned that markets are overstretched, having moved significantly based on optimism of a resolution in Iran instead of confirmed news. Any unexpected negative news could change this sentiment and could be a catalyst for a sharp fall. Apple reporting its earnings after the bell today could be one to look out for.

Precious Metals

Both gold and silver are being pressured by market forces at the moment. The risk of higher interest rates, thanks to oil prices, is continuing to reduce demand for these non-yielding assets, with both now very close to key psychological levels. Gold is on the verge of hitting $4,500, while silver is just above $70. However, unless the market environment changes and we see a reduced incentive to hike rates, these levels may only be temporary resistance and can't change market sentiment. We would need a significant breakthrough in the Middle East to change momentum; if so, these levels could be an excellent starting point to then push back to the highs of earlier in the year.

Today's Market Drivers

• BoE & ECB rate decisions - These two news releases and the guidance that goes along with them should have significant effects on the two most significant currencies in Europe. While rate holds are expected, the key to look out for is any unexpected language that signals a more hawkish than expected route for future months.

• US GDP & Core PCE - Both figures will have an effect on the rate hike narrative and so both are key to market direction. Poor GDP and high inflation figures could lead to stagflation concerns and a drag on the USD, while higher inflation on its own would lead to increased risks of rate hikes. It will be a complicated picture as the FOMC balances its dual mandate of low unemployment and low inflation.