Markets hang onto the gains

Experience tells me to be wary of a rally such as the one that took place on Wednesday, post the announcement of the proposed “peace deal” between Trump and Iran. The sharp move up felt very much like a bear squeeze; those who were running shorts based on a protracted war and a market that was getting technically oversold proved an explosive cocktail for a sharp rally. Not reflecting whether we are or are not in a bear market, but rallies like this are not uncommon in bear markets. However, it was encouraging that, after a cautious start to the day, US stocks finished higher on Thursday despite the ceasefire’s fragile nature. The price of Brent Crude remained below $100 dollars a barrel on Thursday, which may be an important level for investors. The Vix fear index is back below 20, which may also be significant.

Going forward, assuming a peace deal is agreed, there is likely to be a new risk premium on oil prices. The newly highlighted dependency of commodities on the Strait, which is supposed to be an international waterway, can be effectively shut down at the whim of one regime. As a result, I would imagine are unlikely to see oil prices back at the $60 level for the foreseeable future.

The release of the Fed minutes from the March meeting this week added little to the sum total of world knowledge. Certain members focused on the potential inflationary impact of higher oil prices, while others were concerned about its impact on growth. Reading between the lines, any potential cuts in the coming months are probably ruled out, but at present, the risk of a hike is low. Not sure I would want to be the one who voted for a rise, I would imagine you would be dragged into the headmaster’s study in fairly short order. UK two-year gilt yields, which spiked to 4.6% at one point last month amid fears the Bank of England would be forced to raise rates, have drifted back to around 4%. In my view, the monetary policy committee would still be very reluctant to raise interest rates. The next Bank of England meeting is scheduled for the end of the month, we shall know more then.

Thursday, we had some US employment and inflation data, which painted a mixed picture of the US economy, reflecting ongoing labour-market uncertainty and lacklustre consumer confidence. Later today, we get the March consumer price index. Economists expect a 0.9% increase in the Consumer Price Index, reflecting higher oil and gas prices.

This coming week marks the start of Q1 earnings season, and JPMorgan will once again set the ball rolling. FactSet has the market forecasting 13% year-over-year earnings growth. That feels like a high bar to meet.

For those wondering about Harry, finished the day 5 over, he will have his work cut out to make the weekend sadly.