First Light News: All That Is Certain Is the Uncertainty

Despite the ceasefire remaining intact, the US claimed that three Navy ships were targeted, while Iran declared that the US had violated the truce by striking an oil tanker in Iranian waters.

Love Tap or Lit Fuse?

As you would expect, markets were left to interpret mixed messaging from both countries. On the one hand, US President Trump said the ceasefire was holding and described the recent episode in the Gulf as a ‘love tap’, while claiming the US inflicted significant damage without any losses. On the other hand, Iran claimed its strikes on US vessels were significant.

I cannot help but wonder whether this points to a lower-intensity situation, with longer-term negotiations? I also think my heading sums this up perfectly: ‘All that is certain is the uncertainty’, and the market close on Thursday showed this.

Oil prices ended the session considerably off worst levels, with Brent and WTI up around 1.5%. Notably, however, both benchmarks are around 2% lower this morning. Clearly, markets are not pricing in a significant escalation at the moment. In the equities space, major US benchmarks trimmed earlier gains and finished yesterday largely in the red. The S&P 500 slipped 28 points (0.4%) to 7,337, the Nasdaq 100 finished 35 points (0.1%) lower at 28,563, and the Dow shed 313 points (0.6%) to 49,596.

My read of the current situation is that the US and Iran do not want a re-escalation, though proceedings appear tentative at present. The US is still awaiting an official response from Iran, but, as we are aware, this will not address Tehran’s nuclear programme, and the country has previously indicated that the US demands are unrealistic. Time will tell.

Local UK Elections: A Difficult Morning for Labour

Closer to home for me, the UK local elections remain in the headlines, with the Labour Party clearly not in a great place, having lost at least eight councils as of writing, and Reform UK taking the top spot. With results still coming in and the counting still in its early stages, I would caution against reading too much into the overnight numbers, despite the direction of travel being relatively clear.

Reports also circulated that former leader Ed Miliband has privately urged Prime Minister Keir Starmer to set out a resignation plan, amid ongoing speculation that Starmer could be forced out by Labour MPs following the results.

Markets are reasonably calm this morning: GILT yields opened a touch lower, with the GBP up 0.3% versus the USD.

NFP Friday

In a week dominated by US jobs data, the macro space will be largely centred on today’s April US employment report at 12:30 pm GMT. Economists expect the economy to have added 65,000 jobs, down from the 178,000 gain in March. The estimate range is broad, currently between a high of 150,000 and a low of -15,000. Unemployment (U3 measure) is anticipated to remain at 4.3%, with MM (YY) average earnings forecast to tick higher to 0.3% (3.8%) from 0.2% (3.5%).

Deriving a clear reading of the labour market this year has been tough. 160,000 jobs were created in January, 130,000 were lost in February, and 178,000 were added in March. If April’s data align with consensus, we have an interesting dynamic of soft job growth alongside firmer wages, which will be an uncomfortable read for the Fed. Essentially, it is neither soft enough to justify policy easing nor strong enough to rule out tightening. The labour market has drifted into what economists call a ‘slow hire, slow fire’ equilibrium, partly a consequence of immigration policy constraining the supply of both skilled and lower-wage workers.

Markets expect the Fed to remain on hold this year and for much of 2027, though a broadly softer (stronger) report today could prompt a dovish (hawkish) repricing, which should be negative (positive) for the USD.

With stocks remaining bid, weaker data – or ‘bad news is good news’ – should help underpin stocks, with the USD and yields likely lower. Conversely, broadly stronger numbers could prompt a short-term bid in the USD, though I would not expect it to hold. With geopolitics remaining the dominant market driver, any hawkish repricing on the back of a strong print is likely to be faded – the Iran situation carries far more weight for the USD right now than a single month’s payroll beat.

Written by FP Markets Chief Market Analyst Aaron Hill