Trading Day: Cooling Off, but Still Optimistic

Cooling Off but Remaining Optimistic: Markets Navigate Geopolitical Risks

Market Reactions and Key Developments Amid Geopolitical Tensions

By Jamie McGeever

ORLANDO, Florida, April 20 (Reuters) - Oil rose on Monday and the main U.S. equity indices fell as U.S.-Iran tensions re-escalated and the Strait of Hormuz was closed, although the fairly mild market moves suggest investors are hopeful negotiations will resume and yield positive results.

In my column today, I look at how Big Tech's resurgence paradoxically puts the AI risks looming over the sector - including concentration risk and high energy costs - back in the spotlight.

And before you read on, don't forget to sign up for my upcoming LSEG webinar on April 23, where I will talk about safe havens in uncertain times with my ROI colleague Mike Dolan.

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

Recommended Reading: Today's Market Context

1. Iran considers US talks in Pakistan with blockade still unresolved

2. Hormuz shipping again near standstill after shots and seizure

3. Fed nominee Warsh commits to central bank's independence, with limits

4. EXCLUSIVE-BOJ is likely to hold off raising rates in April, sources say

5. Investors pile into US stocks as 'TINA' revival knocks 'TIARA' trades

Today's Key Market Moves

Global Indices and Sectors

• STOCKS: Asia in the green, major indices up ~0.5%; Europe in the red, major indices down ~1%. Wall Street's main three indices down - Nasdaq breaks 13-day winning streak - but Russell 2000 up 0.5% to fresh all-time high.

• SECTORS/SHARES: Six S&P 500 sectors rise, five fall. Shares of psychedelic drug developers rally. Apple -1.5% in after hours trade on news Tim Cook is stepping down as CEO, but shares recover most losses.

Currency and Bond Markets

• FX: Dollar dips slightly. CAD, NOK biggest G10 FX gainers, INR, ZAR among the biggest EM FX decliners.

• BONDS: JGB yields dip, 30-year lowest in 3 weeks; 10-year gilt yield +7 bps; U.S. yields up 2 bps at short end.

Commodities and Metals

• COMMODITIES/METALS: Oil jumps: Brent +5.6%, WTI +6.9%. But both still comfortably below $100/bbl. Precious metals dip ~1%.

Today's Talking Points

Geopolitical Risks and Market Resilience

Beginning of the End?

Yes, oil prices and equity volatility spiked on Monday, and U.S. stocks fell as hopes of de-escalation in the Middle East and the Strait of Hormuz re-opening were dashed. But market resilience to the war and its fallout is strengthening.

If you said at the start of the war it would last at least eight weeks yet oil would be below $100/bbl, the S&P 500 and Nasdaq would hit record highs, the VIX would be below 20 and the 10-year Treasury yield would be 4.25%, you might have got a few odd looks. But here we are.

It's a Warsh

Kevin Warsh, a former Fed governor, will be grilled by U.S. senators on Tuesday in his confirmation hearing, the next step in his journey to replace Jerome Powell as Chair of the Federal Reserve. He is expected to tell lawmakers that he is "committed to ensuring that the conduct of monetary policy remains strictly independent."

But President Donald Trump, who nominated Warsh, is not so wedded to the idea of Fed independence, and has repeatedly made it clear he wants lower interest rates. Warsh will face tough questions on Tuesday on how he will lead the central bank and resist any pressure from the White House.

Tech it to the Limit

Last week, it was financials, this week it's tech in the U.S. earnings spotlight, as IBM, Intel and Tesla release their latest results. Although the tech-heavy Nasdaq broke a historic 13-day winning streak on Monday, the pullback from Friday's record high was a paltry 0.3%.

Worries over return on capex, concentration risks, soaring energy costs and the Mythos security issues are being parked to one side for now. These three reports this week will be an early signal as to whether the resurgent optimism around artificial intelligence is justified.

What Could Move Markets Tomorrow?

• Developments in the Middle East

• Energy market moves

• New Zealand CPI inflation (Q1)

• Taiwan export orders (March)

• UK employment (February)

• Germany ZEW investor sentiment index (April)

• U.S. retail sales (March)

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Disclaimer

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(Reporting by Jamie McGeever;)