today’s market analysis on behalf of Michael Brown Senior Research Strategist at Pepperstone

(MENAFN- Your Mind Media ) DIGEST – Risk assets advanced once more yesterday, as crude benchmarks softened, with optimism over peace in the Middle East mounting further. Today, US CPI highlights the calendar, as focus also turns to US-Iran talks over the weekend.

WHE–E WE STAND – It might’ve only been a 4-’ay week, but it’s certainly felt like another very long one.

Anyway, after a chunky risk-on rally on Wednesday, we had another generally optimistic day yesterday, as hopes for a durable ceasefire in the Middle East grew further. The catalyst for this came not from the US, nor from Iran, but from Israel, who confirmed that they would be beginning direct talks with Lebanon over a potential peace deal.

Some context here is probably useful. To recap, while focus has fallen largely on US/Israeli strikes on Iran, and Iranian retaliation on targets in the Gulf, in recent weeks, Israel has separately been conducting strikes on Hezbollah in Lebanon. Earlier in the week, there was some confusion as to whether or not the Lebanon conflict was included in the agreed US-Iran ceasefire, with the Iranians viewing the two conflicts as inter-linked, and the US viewing them as separate entities. This, of course, stems back to the whole‘‘Axis of Resista’ce’, consisting of various Iranian-sponsored proxy groups in the region, including Hezbollah.

Middle East history lesson over, the thinking here goes that, if an Israel-Lebanon ceasefire can be agreed, that is in turn likely to increase the chances of a US-Iran deal being struck, thus raising the likelihood of a swifter normalisation of commodity flows through the Strait of Hormuz.

Assum’ng you’re still with me at this point, the market reaction to this renewed ceasefire optimism was relatively predictable, with crude benchmarks erasing earlier intraday gains, stocks gaining ground across the board, precious metals finding demand, and the dollar rolling over. Incidentally, that more positive vibe saw the S&P 500 notch a seventh straight daily gain, in what now stands as the best such run since last October. Fo’ what it’s wort’, we haven’t had an eighth straight daily gain in a year, nor have we seen a Friday gain in the SPX since the Middle East conflict begun, so we shall see if either of those milestones are achieved today.

In any case, zooming ’ut, yesterday’s developments largely serve to reinforce my overall stance at this juncture.

Pro’ided that we don’t see a material re-escalation on the geopolitical front, then a bottom should now be in for equities, with dips again standing as buying opportunities. It feels as if another move above 7k in spoos is increasingly inevitable. In turn, gold (now effectively a high-beta risk asset) should also continue to trade well, while front-end Govvies having room to rally too as near-term policy tightening is priced out. The dollar, meanwhile, should unwind t’e haven premium we’ve priced in in recent weeks.


Last month’s US CPI report will be the first order of business, with headline CPI seen rising 0.9% MoM, the biggest monthly jump in almost four years, dragging the annual rate to 3.4% YoY, its highest in a couple of years, in what will be almost entirely a reflection of the recent energy price surge. As such, not only is core CPI seen at a more subdued level of 2.7% YoY, but the policy implications of the report are likely to be relatively limited, ‘iven that th’ FOMC should ‘look through’ the likely-temporary rise in headline inflation, focusing instead on the potential for second-round effects, which seems limited for now.

Elsewhere, today also brings the latest Canadian jobs report, as well as Februar’’s US factory orders figures, and the preliminary April UMich consumer sentiment surv–y – the inflation expectations component of the latter report will be worth watching very closely indeed.

Besides that, participants will continue to monitor geopolitical events very closely indeed, not only today, but also over the weekend, with US-Iran talks scheduled for Saturday. Naturally, those talks present a significant gapping risk for the market re-open on Sunday night/Monday morning.

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