Stocks bounce, oil + gold rallies fizzle

Morning Note

There has been an abrupt reversal in risk appetite after Donald Trump’s measured respond to the Iranian strikes. Far from stoking tensions, he used the moment to step back from the brink, saying Iran appears to be standing down and raising economic sanctions. It looks as we called it – Iran saves face with those air strikes but the regime made damn sure the US wouldn’t escalate. In short, it looks like the shooting war is over for now, but there is always the potential for escalation at any point. But the relative calm should mean the focus will come back to the economic data and US-China trade deal.

US stocks made gains as investors turned risk-on with the Nasdaq setting a fresh intra-day and closing high, rising 0.7%. The S&P 500 made a new intra-day high, but dipped at the death on some sketchy reports of rockets being fired in Baghdad to finish 0.5% higher at 3,253. The Dow’s gains were held in check by Boeing but still rallied 161pts to mark a near 700-pt swing off the lows of the day hit before the cash equity market opened.

On Thursday, US stock futures point to modest gains. Asia rose overnight with the Nikkei jumping more than 2%.

European markets won’t miss out on the party and are set to bounce amid this broad relief rally. The DAX is looking to open up about 100pts higher around 13,445 while the FTSE is shaping to rally 30pts for a 7600 handle.

Oil has completed an 8% round trip to $65 and then back below $60. Certainly the geopolitical risk premium is vastly diminished, but the genie’s out of the bottle and we may expect the gently rising slope of price action to continue once it bases. Yesterday’s outside day bearish engulfing candle points to near-term downside risks. Crude prices are starting to test 50% Fib level of the decline from the 2018 high to the low the same year around $59.60, with the 50-day MA coming in at $59. Even the lower end of the uptrend channel is starting to come into view – could start to see a bounce but hard to say when the base is found. Bearish US inventory data added to the pressure on oil prices as EIA data showed a build of 1.2m barrels, following draws for the last three weeks.

Gold was also substantially weaker, slipping to the $1545 region having earlier smashed through $1600. Another bearish engulfing candle suggests near term weakness and the rout has continued into today’s session.

USDJPY also shows a big engulfing candle – this time bullish –  pointing to the recent downward move ending and offering near-term upside potential. The falling trend line from the 2018 high is coming into play and offering resistance around 109.30. Clearance of the 200-day moving average is bullish.

Elsewhere in fx the euro and sterling are softer vs the buck but not tumbling. GBPUSD is finding round number support at 1.31 and has rallied from last evening’s lows. The failure of EURUSD to break 1.12 to the upside continues to back a bearish near term view but the extent of the pullback is up for debate. Rising trend support around the 1.110 has been tested and held for now. On the 4-hr chart the hammer candle points to a bullish reversal on the rising lower trend line of our channel. 4hr moving averages turning south however.