First Light News: Another Day, Another Deadline

The 8:00 PM Question

If you’re just returning to your desk after the Easter weekend, here is what we know. As stated in his Truth Social post below, Trump has threatened to destroy bridges and power plants in Iran by 8:00 pm ET today if they do not open the Strait of Hormuz. He clearly forgot to include the time in his initial text, but he quickly clarified the event’s timing in a follow-up post!

Oil on the Rise

I am not convinced that Trump will follow through on his threats, and it could be another case of extending the deadline.

However, spot oil prices are telling a different story right now. Brent Crude is up by 2.5% and touching highs of US$116.50/barrel, and WTI Crude is 1.5% higher, testing a peak of US$111.80. With strikes on key energy infrastructure and shipping, even if the conflict ends in the next few days, the damage done could keep oil prices higher. Evidently, the longer this goes on, the worse it gets for global economies.

Spot gold ended Monday’s session down by 0.5%. Given elevated oil prices and increased inflation expectations, the Fed cannot justify easing policy. Higher rates tend to be a headwind for the yellow metal as the opportunity cost is high.

Composure, Not Conviction

Stocks, nevertheless, are not in panic mode – far from it, in fact – and posted modest gains on Monday. The S&P 500 closed 29 points higher (0.4%) to 6,611, the Nasdaq 100 was up 146 points (0.6%) to 24,192, and the Dow Jones rose 165 points (0.4%) to 46,669.

Ultimately though, with parts of the markets observing the Easter holiday, and investors uncertain about what will happen over the next 24 hours, it is no surprise that volumes were thin yesterday.

US Treasuries bear flattened on Monday, with the benchmark 10-year yield around 4.34%. The USD index slipped marginally by 0.2%, trading around 100.00, while both GBP and the AUD penciled in gains and formed a textbook daily bullish engulfing candle.

Macro Data: Good Headlines; Ugly Details

Despite a subdued economic calendar on Easter Monday, the US March ISM services PMI data landed, following last week’s March manufacturing PMI. Both sectors showed the headline numbers in expansionary territory at 54.0 (from 56.1 in February) and 52.7 (from 52.4), respectively.

However, the prices paid indices are problematic. Services prices paid rose to 70.7 (from 63.0) and marked their highest level since October 2022, while manufacturing prices paid jumped to 78.3 (from 70.5) – the highest rate since mid-2022.

With employment sectors also in contraction, this makes it difficult for the Fed to tighten policy but, at the same time, the central bank will also find it hard to justify cutting rates given elevated costs. They are in a real stagflation bind.

Nevertheless, we have divergent demand for new orders, with the services sector jumping to 60.6 from 58.6, while manufacturing new orders eased to 53.5 from 55.8. With services contributing to around 80% of GDP, the jump in new orders also makes it difficult for the Fed to ease policy.

Limited tier-1 event risk is due today. Macro focus shifts to Wednesday’s RBNZ rate announcement – widely expected to remain on hold at 2.25% – and the Fed minutes from 18 March meeting, which saw the central bank stand pat on rates. We do, however, have Fed Vice Chair Philip Jefferson and Chicago President Austan Goolsbee speaking today, yet this is unlikely to move the market’s needle by much, as the focus will remain on geopolitics. Whether Trump moves the goalposts or follows through, uncertainty has become a market condition in its own right, and at US$116, oil suggests the market has already chosen its side.

Written by FP Markets Chief Market Analyst Aaron Hill