First Light News: Record-setting Session for US Stocks

A Record-setting Run, but Can it Last?

While the Nasdaq 100 notched an eleventh consecutive day of gains on Wednesday and refreshed all-time highs, and despite this feeling more than just a relief rally at this point, it remains to be seen whether this upside can be sustained.

Investors are clearly latching onto hopes of an extension of the two-week US-Iran ceasefire – which expires on 22 April – and are optimistic that a deal between the two sides will eventually allow oil to begin flowing once again.

Regardless, the Strait of Hormuz remains all but closed by both Iran and the US at this point. So, my concern here is whether markets are getting ahead of themselves, bolstered by headline-driven optimism. We have gone from oversold to overbought in less than a month.

Oil and Bonds

What was also interesting was oil prices ended Wednesday’s session largely unchanged, with Brent circling around US$95/barrel and WTI finishing considerably off session lows at US$92.

Bond yields bear steepened yesterday, which could be due to oil prices continuing to trade elevated and markets pricing in some inflation premium. It could also be down to some investors being hesitant regarding a resolution in the Middle East and cautious Fed speak, with Cleveland Fed President Beth Hammack supporting keeping rates on hold for the time being.

Risk Appetite Lifts Higher-beta Currencies

In the FX space, as you would expect, higher-beta currencies continue to benefit from the risk-on environment, with the likes of AUD and NZD penciling in gains as haven currencies are weighed. The 2-day line chart of the AUD’s performance versus G10 peers below tells the story better than I can.

Macro Space: Aussie Jobs as Expected; UK GDP Surprise

We had the March Australian jobs numbers land overnight and were largely in line with expectations. Alongside risk sentiment boosting the currency, the AUD eventually caught a modest bid on the back of this data. Unemployment remained at 4.3% for a third consecutive month, while employment rose by 18k, slightly below the 20k consensus. All in all, this suggests that the Aussie jobs market remains tight.

Under the hood, I did not see anything to push back against money market pricing right now, with full-time roles surging by more than 50k and offsetting the 35k decline in part-time roles. This offers the RBA some breathing space to raise the cash rate at its next meeting in early May. Investors currently assign a 70% chance that the central bank will raise the rate by 25 bps to 4.35%, with another hike expected at the tail end of the year.

Here in the UK, the February GDP growth numbers were also reported earlier this morning and were stronger across all measures, rising by a bumper 0.5% from 0.1% in January (revised from 0.0%). The reaction in GBP, however, was fairly muted, and I think this is because much of this growth has likely been wiped out by the US-Iran conflict and could slow in the coming months. You will recall that I mentioned in yesterday’s post that the International Monetary Fund delivered a grim read for the UK, with GDP growth downgraded by 0.5 percentage points from 1.3% to 0.8% for this year – the largest among all the G7 nations.

Written by FP Markets Chief Market Analyst Aaron Hill