Things you need to know
- It’s Easter Monday European markets closed.
- Air Force Officer – Rescued!
- Trump gives Tehran 48 hrs. to open Strait or tells them to prepare for Hell.
- Markets holding steady, Oil down, Yields up, Gold Up, dollar down.
- Try the French Onion Chicken Breasts.
Ok – Boyz and Girlz – It’s go time…. It’s Easter Monday – markets across Europe are closed, but the geo-political drama is wide open. We rescued that downed pilot in Iran – after nearly 48 stressful hours – early Easter morning all while Trump sent a very clear and profanity laced truth social post warning Iran that their days are numbered if they didn’t open the Strait of Hormuz by Tuesday April 7th at 8 pm EST. If you missed it – here you go
“Tuesday will be Power Plant Day and Bridge Day all wrapped up in one in Iran. There will be nothing like it!!! Open the F…..g Strait, you crazy bastards, or you will be living in Hell, Just Watch! Praise be to Allah. Donald J Trump”
Overnight the reaction was the classic geopolitical risk trade. Oil initially surged on the headlines — both WTI and Brent spiking higher — but prices have since backed off a bit as the market reassesses the situation. Equity futures initially sold off as traders reacted to the latest rhetoric surrounding Iran and the Strait of Hormuz, but those losses have largely been erased, and futures are actually slightly higher as we begin the morning.
The bond market also reacted in textbook fashion — Treasuries sold off overnight, pushing yields higher on renewed inflation fears tied to oil — but that move has since reversed, leaving yields roughly flat this morning. Meanwhile Iran making it clear that it will not even consider reopening the Strait unless its demands are met — including full reparations for war damage and guarantees that the U.S. and Israel halt all bombing operations. So, the rhetoric is escalating, but for now the market appears to be treating it as brinkmanship rather than an imminent increase in the conflict.
Now, we begin another week juggling 3 competing forces…. rising geopolitical risk, worries over inflation all while the US economic data remains resilient.
So, let’s discuss the data because on Friday – when markets were closed for the Good Friday holiday – we got the March NFP report….and it showed a US economy that doesn’t want to stop….. Key takeaways – we added 178k new jobs (expectations were for 65k jobs), Unemployment declined – coming in at 4.3% down from 4.4%, all while wage growth moderated but remained solid at +0.2% m/m and 3.5% y/y. And that reinforces the idea that the labor market remains strong and that complicates the next FED decision.
But now contrast that with the final March S&P Global Services PMI, which came in a bit weaker than expected at 49.8, down from 51.1. That’s important because it takes the index from expansion to contraction — anything below 50 signals contraction, which is obviously not what we want to see. Now before anyone starts lighting the place on fire, later this morning we get the ISM Services PMI, and economists expect that to come in much stronger — around 54.9 putting us solidly in the expansion zone. So why the difference? Well, we discussed this last week – while both reports measure purchasing managers’ outlook on business activity, they survey different companies and use different methodologies, which is why they can sometimes send very different signals.
The ISM survey historically carries more weight with investors because it has the longest track record and focuses squarely on the U.S. economy, while the S&P PMI is part of a broader global survey system — which is why the market tends to react more to the ISM number, so the market will be watching closely today to see if it confirms strength in the services economy or if the S&P number is the ‘canary in the coal mine’.
This morning oil is down – WTI trading at $111.20 – down 30 cts – this after trading up to $115.48 overnight…Brent is trading down 50 cts at $108.47 – after trading up to 111.90. Interestingly, WTI is trading above Brent this morning — which is unusual since Brent typically trades at a premium. That tells us the market is reacting more aggressively in the U.S. futures markets as investors hedge geopolitical risk. In any event – it does not appear as if oil is going to decline significantly anytime soon and in fact could trade higher if Trumps tweet becomes a reality.
Now, over the weekend OPEC+ met to assess the surge in oil prices caused by the conflict and the risk surrounding the Strait of Hormuz. In the end the group did not announce any major emergency production increase, choosing instead to stick with the previously announced plan to raise output gradually beginning in April. In other words, OPEC+ is watching the situation closely but is not rushing to flood the market with supply – because they can’t get it out anyway, which helps explain why crude remains elevated this morning.
Bonds were lower overnight sending yields higher, but as noted have since come back in line…..the 10 yr is up 1 bp at 4.35% while the 30 yr is also up 1 bp at 4.91%. 30 yr Mortgages have surged higher over the past month – going from 5.9% to 6.3% today. Remember – if yields stay right here, then investors can stay focused on the eco data, but if yields kiss 4.5% and 5% respectively – then expect a bit of pressure on stocks.
Last week saw gold rally up and through trendline resistance at $4,650, and this morning it is up another $15 at $4,692, holding above that breakout level. Now remember — if the dollar weakens, that helps gold and this morning the dollar is down about 13 cents to $99.89 — and that weakness is helping to support gold and keep the breakout intact. Separately, should Trumps post become a reality then expect gold to surge again as some investors seek gold as the ultimate ‘safety trade’.
And as you might imagine — the VIX is up about $1, or roughly 4%, this morning on the back of the latest Truth Social post regarding Iran and the Strait of Hormuz. That leaves volatility firmly in the “concerned zone” — elevated enough to show investors are paying attention, but below the levels that begin to signal more panic – think +30 and real panic at +35 – Levels I do not think we will hit.
Eco data today includes the March ISM Services Index. Tomorrow brings us the latest ADP weekly employment change, Durable Goods and NY Fed Inflation expectations. Wednesday we will get Mortgage Apps, and the FOMC March mins…. where I suspect we will NOT hear anything that we don’t already know. Thursday brings us the Feb Core PCE number and that is expected to be +0.4% m/m and +3% y/y – in line with last month’s readings.
European markets are closed for the Easter Monday holiday.
Now, despite the geopolitical headlines and the overnight volatility, US futures are pointing higher this morning, suggesting that investors are betting that Iran will come to the table. At 7 am – Dow futures are up 5, S&P’s up 16, Nasdaq futures are up 130 while the Russell is flat.
The S&P closed on Thursday at 6,582 — up 7 points, leaving us still below the long-term trendline at 6,644. But we are getting close and are now retesting that level for the fourth time, which is significant considering all the noise the market has been dealing with.
Remember, the more times we kiss resistance, the weaker that resistance tends to become. (it’s like being a teen-ager……LOL). But the next 36–48 hours could be particularly interesting, because that window coincides with the Trump deadline – warning Iran to open the Strait of Hormuz. In other words — the market is sitting right at a major technical level just as the geopolitical risk rises, so, it will be one of two outcomes…. either we kiss and ‘score’ or we get rejected once again.
Call me at 561-931-0190 and let’s talk about risk and reaching your goals.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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French Onion Chicken Breasts
This is a new twist on a classic dish – French Onion Soup.
Now for this you need: thin sliced chicken breast, s&p, butter, olive oil, 2 big onions – sliced, 1 can of French Onion Soup (or you can make your own – but this makes it faster), beef broth and of course the Gruyere Cheese.
Preheat your oven to 350 degrees.
Sauté the sliced onion in a sauté pan with butter and olive oil. Keep the heat on med and sauté until nice and soft, golden and translucent (20 mins). Remove and set aside.
In that same pan – add the seasoned chicken breasts and cook until golden, flip and repeat – should take 5 – 8 mins. Add back the onions.
Next add the French onion soup and 1 c of beef broth. Simmer the whole thing for 3 mins and then transfer to a Pyrex baking dish. Top with the Gruyere cheese – the same way they top it when they serve the soup.
Place it in the oven and cook for 10 mins or until it’s all bubbly and golden.
Remove – let sit for 5 mins and then serve. Delish…..
Buon Appetito.