It’s been that kind of week in European trading, where markets are left in a bit of a bind but keeping the steady optimism for the most part. US-Iran developments continue to be the key thing to watch out for and market players are hanging on to hope that there will be some good news ahead of the ceasefire deadline on 22 April next week.
In doing his part, US president Trump continues to fuel the optimism as he says the war will be over “very soon”. And there are multiple reports about both sides looking for further progress in general. However, it’s still a case of having to wait and see.
For now, markets are definitely running with the narrative that good news will eventually come. The only question is when exactly will we see a material shift in the geopolitical landscape? Is it going to be in the next week? Or is it going to be in two to three months from now? There’s a big difference there.
Risk trades are holding on to hope that peace talks will succeed and the Strait of Hormuz will reopen soon enough. I can see the case of the former being pushed hard but on the latter, it is doubtful that we will get a big change to the status quo any time soon. And that is a big concern, with market players perhaps underestimating the impact of a prolonged disruption to the strait.
S&P 500 futures are up another 0.2% today with European indices also holding modest gains on the session so far. That’s another signal that risk sentiment continues to ignore the potential downside risks to the reality of the situation.
As for major currencies, the dollar is steadier once again but not really doing all too much. EUR/USD keeps just below 1.1800 while USD/JPY sits just above 159.00 as we approach the final stages this week. Those levels are not too different from where we were in the past two days.
If anything, it shows that currency traders are still holding some reservations and limiting their exposure. That as to not underestimate the potential for peace talks to fall apart.
Looking to betting markets, we can also see the shift in optimism among the broader public and money players. The odds of a nuclear deal before 30 April has surged up to 44% now, after having been as low as 3% at the start of the month:
However, even betting players are not really all too optimistic about the situation with regards to the Strait of Hormuz. They’re only seeing 28% odds of traffic returning to normal in the strait before the end of the month:
Those odds do jump up to roughly 65% for a timeline by the end of May and then 76% by the end of June.
This article was written by Justin Low at investinglive.com.