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Following Monday’s events, specifically the start of ‘Project Freedom’, Iran’s unprovoked attack on a UAE oil facility and the exchange of fire between US and Iranian naval forces, expectations for a restart of hostilities were exceptionally high. However, US President Trump made another U-turn – investors have lost count of the back-and-forth during his 16-month tenure – announcing a pause of ‘Project Freedom’ to allow time for negotiations.
There is scarce information about these negotiations: are they based on Iran’s latest plan, or has the US presented its own proposal to conclude the current conflict? Given Trump’s comments, the two sides are apparently discussing a comprehensive solution, addressing both Iran’s concerns about further hostilities and the control of the Strait of Hormuz, and the US’s main objective of putting a stop to Iran’s nuclear intentions.
There has been a positive market reaction, but, as with everything that Trump deals with, there is still considerable risk of a disagreement between US and Iranian officials, partly due to Trump wanting to appear triumphant, which could result in another escalation and potentially a restart of hostilities.
For now, investors appear content with the newsflow, with both the S&P 500 and Nasdaq 100 indices posting fresh all-time highs yesterday and their futures pointing to another positive opening later today, partly assisted by positive earnings announcements and the drop in US Treasury yields.
At the same time, though, the Dow Jones 30 index continues to underperform and is hovering around the 49,400 level, around 2% below its record high. This index is dominated by cyclical and financial stocks, driven mainly by growth expectations, which at the moment are being revised down every day oil prices remain elevated.
The June WTI oil future contract is edging lower again today, trying to stay above $100, maintaining the $20 premium over the December future, thus signaling investors’ conviction that oil supply normalization would take months even if a US-Iran peace agreement is reached today.
The US dollar is firmly on the back foot today, while both gold and bitcoin advance. Regarding the former, the current dollar underperformance has been a contributing factor, but a 70 pips rally in euro/dollar since Tuesday’s lows is insufficient to justify a 3.3% rally in gold over the same period. This gold move probably suggests that Middle East countries preparing for a resumption of their oil exports have decided to maintain their gold holdings.
The situation appears to be more interesting for Bitcoin. After failing at least four times since early March, the king of cryptos is trying to meaningfully climb above the prevailing upward trend channel that has been in place since early February. The next key resistance area stands at the $83.5k region.
While investors will be glued to their screens for positive news from the Middle East, there are risk factors to consider going forward. For example, the conclusion of the US-Iran conflict would allow President Trump to refocus on tariffs. Following the Supreme Court decision on tariffs, up to $166 billion in collections by the US Customs and Border Protection agency could be refunded, with the first tranche expected on May 12, while the US-EU trade relationship is being tested following Trump’s threat of a 25% tariff imposed on EU cars and trucks.
Finally, the calmer geopolitical scene increases the visibility of incoming US data. Following yesterday’s decent ISM Services PMI survey, with both the prices paid and employment subindices failing to produce negative surprises, the focus shifts today to the April ADP employment report. A 60% increase from the March figure of +62k to +99k is projected by economists, which, if confirmed, will be the strongest rise in private employment since July 2025. Risk assets stand to benefit from further signs of a growing US economy until Fed rate hikes come back into play.