Stocks Rally to Record Levels into the Weekend – Dow up 0.7%
US stock markets finished the week on a positive note, with all three major indices pushing to fresh record highs as investors continued to favour risk assets amid optimism that a peace agreement in the Middle East may be drawing closer. The Dow Jones rose 0.72% to 51,032, while the S&P 500 added 0.22% to close at 7,580, and the Nasdaq climbed 0.20% to finish at 26,972.
The positive sentiment extended across markets as traders increased expectations that the Strait of Hormuz could soon reopen, reducing concerns about disruptions to global energy supplies. This helped drive Treasury yields lower, with the US 2-year yield falling 1.6 basis points to 4.004% and the 10-year yield easing 1.2 basis points to 4.435%.
The US dollar also drifted lower, with the Dollar Index slipping 0.08% to 98.94 as investors rotated into risk assets and reduced demand for safe-haven positions.
Energy markets continued to unwind some of the geopolitical risk premium built up over recent weeks. Brent crude fell 1.70% to settle at $91.12 per barrel, while WTI crude declined 1.73% to $87.36 per barrel as hopes for a diplomatic resolution in the Gulf improved.
Gold continued to trade in line with the dollar rather than as a haven asset. The precious metal gained 1.00% to close at $4,540.26 per ounce.
Big Week Ahead for the Dollar
Once again, there is no doubt that geopolitical updates will have a big say in where the dollar trades over the course of the week ahead; however, it is a huge week for US data, and traders are expecting to see plenty of volatility around the data releases in the short term, as well as a longer-term impact from the data for when the geopolitical dust eventually settles – if it does. There are no fewer than four major employment indicators coming out this week, culminating, as usual, in the Non-Farms numbers on Friday, while we also have some further inflation indicators from the Institute of Supply Managers on the schedule. These could go a long way to locking in market expectations for the Fed’s next move, and with inflationary concerns still high on the agenda, more resilient jobs numbers could push up hawkish expectations for the FOMC and take the dollar higher, whereas signs of slowing could give the Fed Chair Kevin Warsh the opportunity to push a more dovish agenda into the second half of the year.
Volatility Expected to Remain High as the Fresh Trading Week Starts
While markets ended last week in a constructive mood, developments over the weekend have been considerably more mixed, suggesting traders may face another volatile start to the new trading week. Attention today will remain firmly focused on geopolitical headlines, while early in the day, investors will also monitor comments from Federal Reserve Member Jerome Powell in his first scheduled speech since stepping down as Chairman last month. New Zealand markets are closed for a bank holiday, which could affect liquidity in the early hours of the trading day. There is little of note on the calendar in the London session; however, we do have the first of several key US data updates for the week out once New York opens, with the ISM Manufacturing PMI (exp 53.3) and ISM Manufacturing Prices (exp 85.3) numbers due out.
