US Stocks Regain Lost Ground into the Weekend – Dow up 1%
US equity markets finished higher on Friday despite the latest inflation data reinforcing expectations that the Federal Reserve could raise interest rates at this week’s policy meeting. The Dow Jones gained 0.98% to close at 52,573, while the S&P 500 advanced 0.86% to 7,656 and the Nasdaq rose 0.96% to finish at 26,333.
US Treasury yields moved higher following the inflation release, with Core CPI once again exceeding market expectations and adding to concerns that underlying inflationary pressures remain elevated. The policy-sensitive 2-year Treasury yield rose 4.0 basis points to 4.625%, while the benchmark 10-year yield edged 0.4 basis points higher to 4.967%, leaving it within touching distance of the key 5% level.
The US dollar experienced another volatile session as traders assessed the inflation numbers and their implications for this week’s Federal Reserve decision. The USD Index ultimately finished just 0.02% higher at 99.09, despite the continued move higher in Treasury yields.
Oil markets moved sharply lower following reports that talks in the region would restart with Iran over a potential reopening of the Strait of Hormuz. Brent crude fell 2.81% to $104.61 a barrel, while WTI declined 2.37% to $100.05. However, the prospect of renewed volatility remains high following a further escalation in the conflict over the weekend and confirmation that the meeting has now been postponed, potentially putting energy markets back under upward pressure as the new trading week gets underway.
Gold also experienced another volatile session but managed to finish higher, gaining 0.73% to close at $4,347.32. The precious metal continues to trade between competing influences, with elevated geopolitical risks providing support while rising US Treasury yields and expectations of tighter Federal Reserve policy remain significant headwinds.
Oil Remains in Focus at Start of the Week
Oil prices jumped more than 2% on the open today after new Houthi strikes on Saudi Arabia and Iranian attacks on ships in the Gulf over the weekend, compounded supply concerns following the closure of a key Saudi oil pipeline. Brent crude futures rose $2.90, or 2.77%, to $107.51 per barrel as of 2313 GMT. WTI futures rose $2.27, or 2.27%, to $102.32 per barrel. News on Friday that Gulf neighbours were prepared to sit down at the negotiating table again to look to reopen the Strait of Hormuz had seen prices fall; however, that meeting has since been postponed, and traders are preparing for more appreciation in ‘black gold’ as the week progresses. Any further increase in hostilities in the coming sessions could tip the market, and both major contracts could be back near annual highs again, and in all honesty, that looks more likely in the current environment. However, any signs of reopening transit routes could see some sharp corrections. Either way, prices are unlikely to remain at these levels for long.
Volatility Likely to Remain High Despite Quiet Calendar Day
The economic calendar is relatively light today, with nothing of note scheduled in either of the first two trading sessions. Canadian CPI (exp -0.1% m/m, Median +2.0% y/y, Trimmed +1.9% y/) is set for release early in the New York day; however, there is little else from a fundamental perspective scheduled. As a result, geopolitical developments are again expected to dominate market sentiment, particularly following the weekend escalation in the Middle East. Any further developments surrounding the Strait of Hormuz are likely to have an immediate impact on oil prices and broader risk sentiment, with knock-on moves expected across equities, bonds, currencies and precious metals.
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