The second week of April in the financial markets was influenced mostly by the 2-week ceasefire between the US and Iran, which was perceived positively by markets. As a result, Brent Crude oil had slid below $100 last week, but after that the weekend’s negotiations haven’t ended with any meaningful resolution of the situation: the US had announced the blockade of the Hormuz Straight, and Crude oil futures have jumped above 100$ again.
The risk appetite has slowly returned to the stock market, with VIX (S&P500 volatility index) diving below 20 (then it had bounced off the 20 level again). Energy stocks have plummeted during Wednesday’s opening session after the ceasefire announcement, but now they seem to be back in play again.
Traders have been paying attention to PCE index publication last week, which has met expectations and brought no intrigue to the market, especially to capital flows in the bond markets. Probabilities of interest rates and bond yields remain stable, as the situation in the geopolitical front remains stable too (unchanged).
US PCE index annual change. Source: https://tradingeconomics.com/united-states/pce-price-index-annual-changeThe risk appetite holds at a decent level despite tensions in the Middle East and escalation as the US closes the Hormuz Straight.
The level of fear, according to the fear-and-greed index from CNN, has transitioned from “extreme fear” to “fear” territory, signaling the neutralizing market sentiment. Yields of 30-year bonds of the US are declining early on Monday, signaling relatively soft sentiment.
Fear-and-greed index from CNN. Source: https://edition.cnn.com/markets/fear-and-greedThe current situation lifts Nasdaq and S&P500 index, pressures Crude oil and keeps risk appetite at some decent level.
Speaking of crude oil prices, we can note that historical volatility for Crude oil is being kept at historical highs, and usually the market needs to stabilize before making another bullish (or bearish wave). Generally, the market has a relatively short-term scope now, as big money stays out of the game amid increased tensions associated with the US-Iran situation.
News in focus this week:
Tuesday, April 14: US PPI (Mar) – Crucial for gauging inflationary pressure after last week’s CPI heat. Also, Big Bank Earnings (JPM, C, WFC) kick off the season.
Wednesday, April 15: China GDP (Q1) – A major driver for global growth sentiment and commodity demand. NY Empire State Manufacturing provides an early look at April’s US industrial health.
Thursday, April 16: US Jobless Claims – Ongoing pulse check on labor market tightness. Netflix Earnings – The first major tech bellwether for the quarter.
Friday, April 17: Japan National CPI – Vital for JPY volatility and potential BoJ policy shifts amid currency weakness.
Now let’s shift to potential trading ideas for the week ahead.
XAUUSD
Gold is in the interesting position, as it probably is located at the bottom of the bearish move, and is moving within the bullish swing having locked in a triangle as shown on the chart.
The lowering level of fear and local pressure for the US dollar might boost gold higher closer towards $4800-5000 level, as an intermediate-term resistance area.
USOIL
The dynamics of the Crude oil shows the extreme historical volatility, which is usually associated with the further decline of volatility in a form of extension of a trading range (a triangle), after which volatility may turn back.
The negotiations between the US and Iran may take some time, and the sentiment of energy markets may fluctuate along with the related information.
Given the extreme volatility, shifting to smaller timeframe or staying away from the market would be the better option until volatility settles.
