• Saudi Arabia, Kuwait lift restrictions on US military access to bases, airspace
• Crude prices choppy as traders await Iran response to deal proposal
• S&P 500 retreats from record as peace deal remains elusive
• McDonald’s warn of price pressures from energy costs and rising beef

Forex

USD found a bid in the US session as it printed an ‘inside day’. Markets awaited the Iranian response to the US peace plan with the 48-hour deadline set to end today, though this has been flexible. Optimism turned to pessimism with reports Iran was more negative about the ‘unrealistic’ US plan. As we have said all week, Trump’s meeting in China with Xi at the 14-15^th May summit seems instrumental in the Middle East negotiations. This week’s low in the DXY sits at 97.62. The dollar would rebound on any re-escalation while stock market performance has been highly correlated currently to dollar crosses.

EUR was mid-pack among its peers as gains for a third day against the greenback proved elusive. ECB rate hikes bets have eased as oil has dropped with around 59bps priced in for 2026, and 18bps for the June meeting. This essentially reflects hopes that peace will give central bankers more time to assess the inflation impact of the energy shock. Prices need to get above the 61.8% Fib of this year’s high to low move at 1.1825 to see a bull move towards 1.19 and 1.20.

GBP was also mid-pack among its peers with focus on the Middle East and also the domestic local elections. The results, which won’t be fully clear until probably the weekend, could have a big impact on PM Starmer’s authority and leadership. Sentiment and positioning remain bearish, leaving the pound vulnerable to any positive surprise and a relief rally in the event of a better-than-feared result. The flip side see sterling fall and gilt yields rise.

JPY had a quiet day with a small trading range after an eventful few days of intervention. Japan returned from its Golden Week holiday with fresh, strong threats of more action by the MoF. The government was said to be ‘closely watching’ with ‘a sense of urgency’. Wednesday’s low is 155.02 and the 200-day SMA sits at 154.18. We note US Treasury Secretary Bessent is to meet with Japanese PM Takaichi, Finance Minister Katayama and BoJ Governor Ueda for three days starting next Monday to discuss the weak yen.

US Stocks

The S&P 500 lost 0.38% to close at 7,337, the Nasdaq closed down 0.12% at 28,564 and the Dow Jones settled lower by 0.63% at 49,602. Materials, Energy, Industrials and Utilities were the laggards while Tech and Communication Services were just barely in the green and the only two sectors that were positive. Nvidia rebound continued as it rose 1.8% and not far off record highs at $216.83. The tech surge paused with ARM down 10.1% on worries it won’t be able to secure enough supplies for its new AI chip. Intel and AMD gave back gains, down 3% and 4.2% respectively after their stellar recent runs. McDonald’s EPS and revenue beat estimates but management warned Q” sales could slow as consumer sentiment weakens. Higher gas prices tied to the Iran conflict and a tougher comparison saw the stock close marginally lower by 0.14%. Datadog surged 31.3% on stellar results and better than expected next quarter and full year guidance. Other software names like Snowflake (10%) and AppLovin (6.4%) jumped.

Asian Stocks

Futures are mixed. APAC stocks traded mostly positive as more fresh record highs were posted in the US. The ASX 200 bounced again with miners strong and energy lagging. The Nikkei 225 surged to new all-time highs and above 63,000 on its return from holiday with SoftBank and tech majors jumping. The Shanghai Composite and Hang Seng gained, led by AI and tech as Alibaba rose 5% amid the general positive risk mood.

Commodities

Gold and silver rallied again though gave up some gains later in the day, as hopes of a US-Iran deal pushed oil prices lower and eased inflation concerns. Lower energy prices weighed on yields, while the dollar stayed around pre-war levels, supporting non-yielding assets. The potential easing in energy prices gives the Fed more room to cut rates, which is positive for gold. Prices are just below the 100-day SMA at $4,765, with the 50-day above here at $4,791.

Day Ahead – US Non-Farm Payrolls, Canada Jobs

The headline forecast for non-farm payrolls is for another solid gain in jobs of 65,000. This comes after the big March headline gain of 178,000, though this was somewhat flattered by a boost from returning healthcare strikers which had dragged on February’s report. Across the two months, underlying job creation was running around 20-30k, with the 3-month average now at 68k and the average from January 2025 at 20k. The jobless rate is forecast to stay unchanged at 4.3% and wage growth is predicted one-tenth higher at 0.3% m/m, and 3.8% y/y.

Several Wall Street economists believe we are in for muted figures with the jobless rate steady. We don’t actually need a big headline number to keep the unemployment rate in check, in the current low labour supply growth environment. That points to monthly payroll changes being more volatile than before. Policymakers at the recent FOMC meeting were more concerned about the inflation outlook and the price stability side of their dual mandate so an inline report would be quickly looked through. A negative headline number has been mooted due to weather and under-sampling, and there’s no doubt NFP does always have the capacity to jolt markets.

Chart of the Day – Dollar Messy

The dollar is pretty much back to where it was pre-Middle East conflict at the end of February. Prices rose as investors were attracted to its haven status and energy independence. A booming rebound in US stocks also helped as American excpetionalism reared it shead again. However, the greenback encountered strong resistance at previous swing highs from August, November and March which it wasn’t able to crack. Newsflow around the Gulf has more recently turned positive and prices have fallen through the 200-day and 50-day SMAs at 98.54 and 99.00. The midpoint of the Janaury low to March high sits at 98.09. A strong jobs report would typically support USD but may be looked through if Middle East news confirms the positive peace outlook. Softer than expected data could see the DXY breakdown, especially on hopeful US-Iran signs towards the major 61.8% Fib below at 97.49 and beyond. Escalation in the Middle East is the risk and would likely see more dollar buying.