US Markets Cautious at Start of Big Week – Nasdaq gains 0.2%
US equity markets opened the week on a cautious note as investors digested ongoing geopolitical developments in the Middle East, with reports indicating the US is reviewing a fresh proposal from Iran regarding the Strait of Hormuz. The uncertainty kept risk appetite contained ahead of a busy week for macroeconomic data, central bank decisions, and big tech earnings. Performance across the major indices was mixed. The Dow Jones edged lower by 0.13% to close at 49,167, while the S&P 500 posted a modest gain of 0.12% to finish at 7,173. The Nasdaq outperformed slightly, rising 0.20% to settle at a fresh record high of 24,887. In currency markets, the US dollar traded within familiar ranges, with the DXY ultimately slipping marginally by just 0.05% to close at 98.49. Meanwhile, US Treasury yields moved higher across the curve, with the 2-year yield rising 1.9 basis points to 3.797% and the 10-year yield climbing 3.9 basis points to 4.340%. Commodity markets were driven by ongoing supply concerns linked to Middle East tensions. Brent crude rose 2.85% to $108.33 per barrel, while WTI gained 2.46% to settle at $96.72 per barrel. In contrast, gold prices declined by 0.58% to $4,682.08, pressured by the rebound in yields.
Bank of Japan in Focus for Yen Traders Today
Markets are widely expecting the Bank of Japan to leave interest rates unchanged at 0.75% at today’s meeting, with the focus firmly on forward guidance rather than the decision itself. Therefore, traders are expecting that the statement, and then the subsequent press conference, will give more scope for moves in the yen. While inflation in Japan continues to run firm, rising global uncertainty—particularly linked to Middle East tensions and energy prices—is likely to keep policymakers cautious in the near term. As a result, the BoJ is expected to maintain a “hold for now, but prepare to hike” stance. Any hawkish shift in tone, including upgraded inflation forecasts or stronger language around policy normalisation, would reinforce expectations for a rate hike as early as June or July, which remains the market’s base case for the next move. USDJPY is again trading close to annual highs, and a more hawkish outlook could see some pressure on the pair, with resistance levels now just above the 160.00 level and support coming in around 158.50.
Central Bank Action Kicks Off Today
Looking ahead, attention now turns to a packed economic calendar, whilst traders will also be keeping a very close eye on newswires for any updates on the Middle East. The Bank of Japan is set to deliver its latest interest rate decision and hold a press conference during the Asian session, marking the first of five major central bank announcements scheduled for the week. Markets are expecting rates to remain on hold at 0.75%, but volatility is expected on forward guidance. There is very little of note on the calendar in the London session today; however, we do have the first of several key US data updates of the week shortly after the New York day commences. The CB Consumer Confidence data is due out, with the market expecting an 89.0 print, well down from the 91.8 we saw last time out. Despite the busy macro backdrop, geopolitical developments are likely to remain the key driver of market sentiment in the near term.
