The clock is ticking, drones are waiting
Sometimes you really want to skip the Middle East news entirely, but it’s hard to do that when many market events are still interpreted through that lens. Basically, little has changed since yesterday, when I wrote that tension around this suspended conflict is rising. More media (both from the US and Israel) confirm that the attack on Iran is essentially confirmed and we’re just waiting for zero hour.
Pakistani intermediaries’ optimism in negotiations has definitely weakened, as they no longer see goodwill on either side. Despite an increasingly clear and widespread stance toward the looming escalation, traders during the Wednesday session are more likely to keep their fingers hovering over the “sell” order keys. They’ll press them and won’t stop until the sky over the Middle East is again obscured by drones and rockets. Will it become a bit more classic over the weekend?
Improving sentiment without fundamentals?
Less experienced market observers (i.e. not our readers) might conclude from Wednesday’s trading that we’re actually seeing a disappearance of some risks. After all, stock indices are nicely rising (we’ll skip the Asian session for the thesis), and major European indices are up over 0.5%. Emerging markets look even stronger, as shown by Warsaw, where the WIG20 is trying to recover yesterday’s losses and is up over 1%.
In the bond market, there’s finally a breath of fresh air; yields on many sovereign bonds are clearly falling today (it was enough that the tensions in this area, which I mentioned yesterday, attracted most Polish analysts’ attention), and Polish 10‑year yields are again below 6%. The oil market is the most uncertain (and it’s still unclear what exactly), but it’s trying to believe on Wednesday that oil will rise, with major variants down about 3% today, and the July Brent contract is priced below $108.
Forex is the least convinced about direction, where a good sign is probably the lack of visible strengthening of the US dollar. The EUR/USD hovers at the psychological 1.16 USD and is likely gathering strength before further southward movement. This arrangement limits losses of the zloty, and the dollar rate does not exceed 3.67 PLN. Meanwhile, the euro remains near 4.25 PLN, and the franc rate has adjusted to 4.64 PLN.
All in Nvidia
A little behind the main axis of market interest, more macro data appear. In the euro zone, preliminary April inflation data were confirmed, with the CPI at a year‑over‑year rate of 3%. It’s hard to say whether this result will change the ECB’s approach at the next meeting, as policymakers may be obscuring the base reading at 2.2% YoY. The market seems to increasingly believe in a June rate hike in the zone, but it’s still hard to see that reflected in the common currency’s valuation…
A positive inflation surprise came from the United Kingdom. April’s CPI YoY was adjusted from 3% to 2.8%. The RPI, closely watched by the Bank of England, fell even more sharply from 3.6% to 3% YoY. Nevertheless, these releases do not change the stance toward the expected June rate hike in the United Kingdom.
There’s also no change in the stance toward the GBP; the pound rate is close to 4.91 PLN. Tonight, markets will receive further strong impulses. First, at 8 p.m. our time, the minutes from the last meeting of the US monetary authority will be released. During that meeting, the biggest divisions in the Committee emerged for over 30 years. Even more attention will be drawn to the first‑quarter financial report of the world’s largest company by market capitalization. Nvidia has already been accustomed to breaking records, so the publication itself (after Wall Street closes) could become a great signal for taking profits.
