Ouch that hurts

Yesterday, back to stocks down and oil up, trying to trade the commentary coming from all quarters on a daily basis is a fool’s errand. Just after the market closed, the U.S. President announced he would extend his deadline and hold off on striking Iranian energy plants until Monday, April 6, at 8 p.m. Apparently, the new deadline was “As per the Iranian Government request.” I am sure they did request that he stop attacking them. What happens in the next 10 days is anyone’s guess. The assumption from markets this morning is that this could lead to an agreement to an extended halt to hostilities, as futures are opening higher in Europe and oil prices are back around $100 a barrel. It continues to feel that Trump is reaching his pain threshold for a resolution

Last night, it seemed there was some further capitulation among investors. The Nasdaq entered correction territory, down 10% from its last peak; over 80% of S&P 500 stocks are below their 50-day moving averages; and the S&P 500 broke below its 200-day moving average. The Vix index traded closer to 30, approaching true fear territory. The AAII investor survey did not indicate further deterioration in sentiment from the previous week. However, according to one report, US retail investors briefly turned net sellers of single stocks for the first time since November 2023.  Barclays’ Equity Euphoria Indicator has declined toward its 30-year average.

Those who study the effects of higher oil prices conclude that it’s not how high the price rises in absolute terms but how long it stays inflated, which seems pretty obvious. Should oil prices stay around here for a limited time, which is defined as around 3 months, the impact could be limited. Commentators talk of the Straits of Hormuz as being closed; it’s not closed as such, just jolly dangerous to go down it the way things stand.

In other matters, there was some good news on the US economy yesterday. Recurring applications for US unemployment benefits fell to the lowest level in almost two years, indicating stability in the labour market. There was some slightly less good news on the UK economy this week, as February’s inflation report concluded that UK inflation remained at 3% before the impact of higher energy prices.

Do I think UK interest rates will rise in the near term? No, I do not. Are they coming down in the near future? That is also unlikely. But if oil prices retreat quickly, speculation will resume that the Fed and the BoE could be tempted to cut rates, looking through the short-term impact on inflation of higher energy prices. Just don’t count your chickens on that one just yet.