Market sentiment remains slightly downbeat as softer U.S. stock futures contrast with modestly positive Asia-Pacific equities. Failed United States (U.S.)–Iran talks, renewed disruption in the Strait of Hormuz after a brief reopening last week, and rising Iran–United Arab Emirates (UAE) tensions weigh on risk appetite ahead of a key data week.
Over the weekend, tensions escalated after the U.S. Navy fired upon and seized an Iranian-flagged cargo vessel in the Gulf of Oman for failing to comply with warnings. The United States Central Command (US Central Command) confirms the vessel was boarded and disabled after prolonged non-compliance. Iran condemns the action as “armed piracy,” warns of imminent retaliation, and reports drone attacks on U.S. military assets, further raising geopolitical risk.
The ceasefire, set to run through Tuesday, now appears increasingly fragile. Iranian officials signal limited confidence in upcoming talks, with reports suggesting Tehran may not participate, while U.S. negotiators are still expected to arrive in Islamabad. Pakistani sources indicate narrowing gaps between the two sides, keeping hopes of a deal alive.
On the ground, conditions in the Strait remain disrupted rather than fully closed. Data shows more than 20 vessels transited on Saturday, the highest since early March, but incidents of rerouting, vessel turn-backs, and attacks continue. The situation is best described as controlled disruption, keeping supply risks elevated.
In the Gulf, the United Arab Emirates (UAE) signals it may shift toward a yuan-denominated oil trade if U.S. Dollar (USD) liquidity tightens. It has also sought discussions on a potential U.S. financial backstop. The UAE warns that around 600 million barrels of oil flows are effectively blocked and rejects “protection racket” claims, highlighting widening regional divisions and rising global cost risks.
Federal Reserve (Fed) Governor Christopher Waller says the job market break-even rate is now likely near zero. He warns that a combination of high inflation and weak employment would be difficult for policy. He notes consumers remain nervous but still spending, while businesses remain cautiously optimistic, calling them “strong pillars.”
San Francisco Federal Reserve (Fed) President Mary Daly says businesses remain cautiously optimistic. She adds that zero job growth could represent a new steady-state economy. Daly stresses that the outlook depends heavily on how long oil price shocks persist and how prolonged the geopolitical conflict becomes.
The U.S. Dollar Index (DXY) extends a three-day recovery from a seven-week low. EURUSD falls for a third straight session, GBPUSD extends a four-day decline, USDJPY posts mild gains after rebounding from a monthly low, AUDUSD retreats from its highest level since June 2022, NZDUSD continues a three-day downtrend, and USDCAD posts its first daily gain in six despite strong crude oil prices amid renewed U.S.–Canada trade tension concerns.
Gold posts modest losses. Bitcoin (BTC) and Ethereum (ETH) edge higher after recent weakness. Asia-Pacific equities continue to outperform relative to weaker U.S. futures, while Wall Street previously closed on a strong note.
The U.S. Dollar (USD) continues its gradual recovery. Mixed sentiment and a lack of data early Monday add further pressure on major currencies. EURUSD falls for a third straight day, while GBPUSD extends losses for a fourth consecutive session.
Bank of England (BoE) Chief Economist Huw Pill warns that a “wait-and-see” approach may be insufficient. He says simply holding rates may not be enough to return inflation to the 2% target. He adds that while labor market slack helps anchor expectations, monetary policy cannot fully offset real economic shocks such as geopolitical disruptions. BoE official Sarah Breeden also warns that the Iran conflict could trigger financial vulnerabilities to crystallise.
USDJPY rebounds from a seven-week low and posts mild gains. Traders step back from recent hawkish Bank of Japan (BoJ) commentary and focus instead on firmer USD strength, especially in the absence of major Japanese data.
Market’s weaker risk tone, combined with the People’s Bank of China (PBoC) policy status quo and a slightly firmer U.S. Dollar (USD), puts pressure on commodity-linked currencies.
AUDUSD retreats from its highest level since June 2022, while NZDUSD falls for a third consecutive session. USDCAD bounces off a multi-week low and stalls its five-day losing streak, despite a recovery in crude oil prices, Canada’s key export. Sentiment is also influenced by remarks from Bank of England (BoE) Governor Mark Carney, who signals readiness to reduce reliance on the United States (U.S.) amid trade tariff tensions under U.S. President Donald Trump.
The People’s Bank of China (PBoC) keeps its Loan Prime Rate (LPR) unchanged for an 11th straight month, with the one-year rate at 3.0% and the five-year rate at 3.5%.
New Zealand data shows both exports and imports rising sharply from February, with the trade balance improving to +698 million versus -257 million previously.
Canada reports March housing starts at 235.9K versus 255.0K expected. The Canada Mortgage and Housing Corporation (CMHC) notes continued loss of construction momentum, despite higher year-on-year activity due to a weak base.
Crude oil jumps at the start of the week with an upside gap after Iran re-imposes de facto restrictions on the Strait of Hormuz, reversing last week’s brief reopening. Prices later ease as markets reassess the outlook for continued United States (U.S.)–Iran negotiations. However, oil remains elevated on supply crunch fears, with the United Arab Emirates (UAE) signaling readiness to counter Iran, indirectly supporting the United States (U.S.) stance.
Gold price extends its pullback from the 50-day Simple Moving Average (SMA), trimming gains after a three-week uptrend as a firmer U.S. Dollar (USD), cautious sentiment, and month-end consolidation weigh on prices. The People’s Bank of China (PBoC) policy stance and mixed demand signals from India also add pressure, as China and India remain the world’s largest gold consumers.
Asian equities stay resilient despite geopolitical tensions. Japan’s Nikkei moves back toward recent highs, while Taiwan hits record levels driven by artificial intelligence (AI) optimism. In contrast, U.S. equity futures remain under pressure even after the Standard & Poor’s 500 Index (S&P 500) closed at a record 7143, up 1.45% or 102 points, extending a rally of more than 10% from the March 30 low.
Technology continued to lead gains, with Microsoft Corporation (MSFT) up 1.56%, NVIDIA Corporation (NVDA) up 1.12%, and Intel Corporation (INTC) up 1.74%, reflecting strong semiconductor momentum. Tesla Inc. (TSLA) rises 2.12%, supporting the automotive sector. Energy stocks weaken sharply, with Exxon Mobil Corporation (XOM) down 5.64% and Chevron Corporation (CVX) down 4.64%, pressured by oil price volatility and demand concerns.
German Producer Price Index (PPI), Eurozone Construction Output, and Canada inflation data provide early signals on Monday’s economic calendar. However, the main focus stays on the United States (U.S.)–Iran peace deal talks and market reaction to the renewed closure of the Strait of Hormuz.
The U.S. Dollar (USD) continues its gradual rebound, supported by weaker risk sentiment, firmer U.S. data, and expectations of a hawkish Federal Reserve (Fed). The Greenback is likely to extend its recovery ahead of key Purchasing Managers’ Index (PMI) releases and Iran-related developments.
Stronger USD may pressure major currencies, including EURUSD, GBPUSD, and AUDUSD, while USDJPY could extend gains as recent losses are pared. USDCAD, however, may remain under pressure due to firmer crude oil prices. Gold, Bitcoin (BTC), and Ethereum (ETH) could see mild downside if risk appetite weakens further.
Equity markets may also lose momentum and give back part of recent gains if U.S. data reinforces a hawkish Federal Open Market Committee (FOMC) stance and overall risk appetite fades.
Looking ahead, the week includes multiple key events: US–Iran ceasefire expiry, UK jobs data, Warsh Senate hearing, U.S. retail sales, UK inflation, Japanese inflation, UK retail sales, Chinese trade balance, U.S. PPI, European Central Bank (ECB) minutes, Swiss National Bank (SNB) minutes, Australian jobs data, Chinese GDP, UK GDP, and April PMI releases from the Eurozone, UK, and the U.S.
May the trading luck be with you!
