Stocks Mixed as Crude Oil Slump Continues

• Trump-Iran deal allows Tehran to immediately sell oil
• SpaceX set to overtake Amazon in value as it jumped for a third day
• New Fed Chair Warsh set for debut as Fed holds line on rates
• Wall Street mixed as Dow posts another record high, tech lags

Forex

USD was lower amid a relatively quiet trading day in FX. Oil sunk for a fourth straight day to levels last seen in early March. That was brought on by reports that Qatar is to reach 80% output within two months of the Strait of Hormuz reopening. Crude has gradually returned to around pre-war levels, which means the focus is shifting towards central bank action and reaction, rather than terms of trade. That said, there are still several major details in the MOU between the US and Iran which need to be fully agreed. Positions are probably being kept small too, ahead of today’s FOMC and first meeting under new Fed Chair Warsh.

EUR pushed up above 1.16 even as fundamental support eases in rate differentials. The latest German ZEW investor sentiment figures have offered a mixed read, delivering a positive upside surprise for the expectations sub-component while offering a slight miss on the current situation series. The three major long-term SMAs (50,100 and 200-day) have congregated around 1.1671/79.  

GBP traded around the 200-day SMA at 1.3415 as cable faced up to CPI data and Thursday’s jobs figures ahead of the BoE meeting. In truth, those releases will come too late for the MPC, and rates will remain steady. There is also some domestic political risk with Thursday’s by-election and presumed victory for the possible new PM, Andy Burnham. He is more left-leaning than PM Starmer so bond markets will be watching closely.

JPY weakened for a third straight day as the yen underperformed. The BoJ delivered a 25bps rate hike as expected, lifting the target rate to a fresh multi-decade high of 1.00%. The bank sounded quite positive on underlying economic momentum and warned that tight labour markets could trigger second-round effects. However, it still pitched its monetary policy settings as accommodative to support growth, which likely signals it is not applying the brakes to slow the economy. The next hike isn’t fully priced in until December.

Stocks

US stocks: The S&P 500 lost 0.57% to close at 7,511, the Nasdaq closed down 1.89% at 29,968 and the Dow Jones settled higher by 0.64% at 52,005 – a record high. Tech underperformed heavily losing 2.3% with only three other sectors in the red, including Energy off 0.25%. SpaceX eventually finished up 4.8% after rising over 15% at one point. It said it will acquire Anysphere, an autonomous coding agent that could help the company catch up with its AI rivals, for $60 billion. Micron was volatile falling 9.8% on the day, Intel dropped 8.5% but Western Digital rose 4.2%. Microsoft fell 1.5% after it walked away from a $3bn deal to lease Oracle cloud capacity over security concerns.

Asian Stocks: Futures are mixed. APAC stocks traded mixed as the prior day’s rally and US-Iran peace deal euphoria petered out. The ASX 200 was lower due to weakness in tech, consumer discretionary and industrials. The RBA warned of potential future rate hikes if necessary and remained hawkish regarding inflation. The Hang Seng and Shanghai Comp were choppy as participants digested mixed activity data in which Industrial Production topped forecasts, but Retail Sales missed and printed in contraction territory.

Gold

Gold rose for a fourth straight day, its best run since late March. Inflation concerns have been reined in as crude oil prices sink nearer to pre-war levels. The 200-day SMA sits at $4,432. We note that according to a World Gold Council survey of 74 central banks, 45% said they plan to buy gold in the coming year, with only one saying it plans to cut its holdings. 

Day Ahead – FOMC Meeting, UK CPI

Headline CPI is forecast to rise two-tenths to 3.0%, core to 2.7%, while services tick up to 3.7% from 3.2%.  This is expected to be partly offset by negative base effects in food. The key question going forward is how much effects from the recent energy shock will impact CPI. The BoE watches services inflation as a gauge of longer-term inflation pressures. The bounce back is due to Easter dampening April’s data. Hot data should support sterling and add some heat to policymakers at the BoE, though its meeting on Thursday will see rates held steady at 3.75%.

No changes are expected at Fed Chair Warsh’s first FOMC meeting. But a removal of the easing bias and a hawkish shift in language is likely. It seems too early for Warsh to push back against market expectations of Fed tightening. There are 18bps of policy tightening priced in for 2026 or a 72% chance, and around a 45% chance of a second one next year. Updated forecasts should point to healthy growth and elevated inflation this year, with more officials signalling higher rates by year-end.  

The new Fed Chair may kick off a shift in communication with the removal of forward guidance, which would effectively eliminate the easing bias that prompted three hawkish dissents in April. This change would pave the way for a unanimous decision. Otherwise, Warsh is expected to stress data dependence, a meeting-by-meeting approach, and announce reviews into the Fed’s balance sheet strategy and communications framework.

Chart of the Day – Crude falls

Oil prices fell for a fourth consecutive session, after Thursday saw a breakdown through $90 in Brent crude.  Expectations of a full reopening of the Strait of Hormuz and a possible deal later this week have been the key driverS. Prices have declined more than 30% below their peak during the height of the conflict.

The Qatar news helped push Brent through a major Fib level at $82.01, close to its 200-day SMA at $78.42. The next (minor) Fib level sits at $71.68. We had initially thought restarting infrastructure and logistics flows could take time, while some shipping operators might remain cautious about returning to the Strait in the near term.