Stocks Rally on Middle East Peace Hopes – Nasdaq up 2%
Global markets rallied strongly overnight as improving sentiment around the Middle East supported risk appetite. News that the US and Iran are set to resume talks in the coming days helped drive a broad-based move higher across equities, while a much weaker-than-expected US PPI print added further momentum by pushing the US dollar and Treasury yields lower. On Wall Street, all three major indices finished firmly in the green, with the Dow Jones rising 0.66% to close at 48,535. The S&P 500 gained 1.18% to 6,967, while the Nasdaq outperformed, jumping 1.96% to end the session at 23,639. In currency markets, the US dollar softened, with the Dollar Index falling 0.28% to 98.10, as lower yields reduced support for the greenback. Bond markets saw a solid bid, with the US 2-year yield dropping 3.0 basis points to 3.743%, while the 10-year yield declined 4.5 basis points to 4.248%. Commodities were a key focus again, with oil prices falling sharply as optimism grew that tensions in the Strait of Hormuz may ease. Brent crude dropped 4.47% to $94.92 per barrel, while WTI crude slid 7.33% to $91.82. In contrast, gold surged on the weaker US dollar, climbing 2.14% to $4,841.75.
Gold Continues to Trade on the Dollar Side of the Equation
One of the more interesting reactions that market participants have noted over the last several weeks is how gold has responded to geopolitical updates and risk trades with regard to the war in the Middle East. Traditionally, the haven attraction of gold would be expected to dominate in conditions of geopolitical turmoil, and even more so when armed conflict is involved. However, recent moves have nearly all coincided with the gold market reacting to the dollar side of the equation, with any improvements in risk seeing gold rally and any dramatic increases in geopolitical tensions, and indeed outright hostilities, resulting in gold moving lower. That pattern is continuing to work in the short term, but traders are continuing to monitor the correlation closely and are prepared to revert to ‘normal’, especially as some feel US yields may pull back in the coming months. Gold is now sitting near the monthly high of $4,853.89, and further downside for the dollar could take it higher to challenge longer-term resistance just under the $5,200 level.
More Volatility in the Sessions Ahead for Traders
Looking ahead, it is another relatively quiet session on the macroeconomic front. However, as has been the case recently, geopolitical developments out of the Middle East are likely to remain the dominant driver of market direction. The Asian and European sessions both have very little in the way of macroeconomic updates that will influence markets, and it is a similar story in the New York session. Although we will again hear from some senior central bankers, the US Empire State Manufacturing Index (exp. +0.3) is the only notable data release due during the session. Central bank commentary will be in focus as we progress through the day, with Bank of England Governor Andrew Bailey speaking early in the piece, followed by SNB Chairman Martin Schlegel and RBNZ Governor Anna Breman later in the session. Even though their input is unlikely to have a short-term impact on overall markets, their comments will be noted for longer-term plays.
