Peace Hopes Spur Rally

MACRO FRAME

The Trump administration believes it is nearing an agreement with Tehran on a preliminary deal to end the conflict.

STOCK INDEX FUTURES

Equity index futures are higher, driven by an Axios report that the US and Iran were close to an agreement on a one-page memorandum to end the war in the Gulf. President Trump also posted on social media saying the war could end if “Iran agrees to give what has been agreed to,” without providing further details. The proposed 14-point, one-page memorandum would formally end the war, followed by discussions to unblock shipping through the Strait of Hormuz, lift US sanctions on Iran and agree curbs on Iran’s nuclear program. Front-month brent crude futures have fallen nearly 7% to $102 following the report, while most risk-tied assets rally. For the indices, news flow is expected to be the dominant factor for price direction. Markets are looking for a formal confirmation from either side to sustain the rally, also adding the risk that any negative news or retort of such peace agreement could unwind price gains.

The ISM Services PMI came in at 53.6 in April, a modest 0.4-point decline from March’s 54.0 but the 22nd consecutive month of expansion. The reading sits 1.1 points above its 12-month moving average of 52.5, and ISM’s survey chair Steve Miller noted that the 4-month rising trend in that 12-month average, from 51.7 in December 2025 to 52.5, reflects genuine, if uneven, momentum. Business Activity was the strongest performer this month, new Orders fell sharply by 7.1 points to 53.5, attributed partly to March’s front-running, employment remained in contraction territory at 48.0, while the Services Prices Index held steady at 70.7.

The April ISM suite presents a stagflationary signal with both sectors price indices near multi-year peaks alongside contracting employment. The 107-month consecutive streak of services price increases, now at an October 2022-equivalent level, could make it difficult for members at the Fed to lean dovish based on services inflation, although the labor market signals in both PMI reports argue against further tightening.

The June S&P is trading at 7,337.75, up 0.69% from Tuesday’s settlement of 7,287.25, within an overnight range of 7,293.50 to 7,366.25. Near-term support is seen at 7,293.50 (overnight low), with initial resistance at 7,366.25 (overnight high, also matching the 52-week high) and the 7,400 round number above. The S&P 500 cash ($SPX) closed Tuesday at 7,259.22, holding +6.28% above its 50-day SMA of 6,830.02 and +7.72% above its 200-day SMA of 6,739.16.

The June Nasdaq leads at 28,446.75, up 1.10% from Tuesday’s settle of 28,136.00, within an overnight range of 28,243.00 to 28,634.25. Initial support is at 28,243.00 (overnight low), with resistance at 28,634.25 (overnight high) and the 28,700 round number above. The Nasdaq 100 cash ($IUXX) closed Tuesday at 28,015.06, sitting +10.74% above its 50-day SMA (25,297.94) and +12.64% above its 200-day SMA (24,871.36) — the most extended of the three indexes.

The June Dow E-mini (YMM26) is at 49,786, up 0.75% from Tuesday’s settle of 49,415, within an overnight range of 49,350 to 50,063. Support sits at 49,350 (overnight low), with resistance at 50,063 (overnight high) and the 50,000 round number just below. The DJIA cash ($DOWI) closed Tuesday at 49,298.25, holding +3.01% above its 50-day SMA of 47,856.28 and +4.32% above its 200-day SMA of 47,255.24.

Watch point: Equities remain sensitive to upside moves in crude. However, a solid earnings backdrop and optimism over an end to the war remains friendly to prices.

CURRENCY FUTURES

US DOLLAR: The USD index is 0.55% lower at 97.90. The dollar is trading lower as oil prices moving dropped in response to the Axios report. Recent price action suggests the dollar will likely remain under pressure unless US–Iran talks break down, as optimism surrounding a potential agreement to end the conflict and restore energy flows through the Strait supports broader risk sentiment and eases Fed tightening expectations. Underlying fundamentals make the case for a resumption of the dollar’s downward trend once hostilities between the US and Iran are over. Despite rising inflationary pressures and modestly tighter Fed policy expectations, the dollar has lost its interest rate differential support compared to major peers.

Watch point: An in-depth, formal peace agreement is likely to be dollar negative, while any retort of such from either party presents upside risk.

EURO: The euro is 0.56% higher to $1.1756. Price direction in the euro is subject to developments regarding the US-Iran conflict. Any lift in sentiment over a possible/complete agreement to end the war is likely to be friendly to the currency and could see a reduction in policy-tightening expectations from the European Central Bank. Markets are no longer fully priced for three rate hikes by year-end, instead seeing 58 bps of total easing. The sharp step-down in tightening expectations is being driven by US-Iran news and the resulting drop in energy prices. Meanwhile, a rate hike at the June meeting is now no longer fully priced in; markets are pricing a 68% chance of a hike. The fluid US-Iran peace agreement news is likely to contribute to volatility regarding rate-hike expectations.

Elsewhere, President Trumps increased tariffs on EU cars and trucks to 25%, would otherwise pressure the euro, however, the situation in the Middle East remains the dominant factor in price direction for the currency. The euro is likely to continue trading opposite of big moves in oil prices. Positive developments out of the US-Iran conflict will be supportive of the currency, while safe-haven demand would see flows to the dollar.

BRITISH POUND: Sterling is 0.52% higher to $1.3610, as investors reacted to the Axios report saying that the US and Iran were closing in on a deal to end the war. Local elections on Thursday could see Prime Minister Keir Starmer’s Labour Party faced with big losses. Repeated scandals ⁠and criticism have stirred speculation Starmer may be replaced, a causing concern that political instability could be reflected in FX markets.

Money markets are pricing a 39% chance of a hike from the Bank of England at its June meeting, a substantial drop from 55% priced yesterday. Markets are no longer priced for three rate hikes this year, reflecting a similar unwinding in expectations as the ECB. Weakness in the UK economy will act as a limiting factor to policy tightening.

JAPANESE YEN: The yen gained 1% to 156.24 yen per dollar, as an increase in risk sentiment and speculation of further intervention by Tokyo, lifted the currency overnight. A formal end to the war and a reopening of the Strait is likely to alleviate near-term pressure on the Yen, though fiscal policy and a lack of a hawkish signals from the Bank of Japan will likely challenge further price gains. Government intervention highlights that the 160 level is a pain threshold for the government, acting as a support level for the currency. Money markets pricing a 55% chance of a rate hike at the June meeting and a 65% chance of a hike at the July meeting. Those odds are unchanged from recent sessions.

Watch point: Geopolitical factors/oil prices remain the main obstacle to appreciation against the dollar, even despite policymakers commitment to raise rates. Given the current status quo, the yen is likely to consolidate in the 157-159 range.

AUSTRALIAN DOLLAR: The Aussie is 0.77% higher to $0.7237 as broader risk-sentiment supported the currency. The Reserve Bank of Australia raised the cash rate to 4.35% and hinted that any further rate hike may be on hold saying, “monetary policy is well placed to respond to developments.” The board voted 8 to 1 for the hike, a hawkish shift from March when it split 5-4. Markets imply around a 20% chance of an additional move in June, but are fully priced for another hike to 4.60% by September. However, a reopening of the Strait this month would likely result in the board holding on rates. The main downside risk for the Aussie in the near term remains the geopolitical bid.

Watch point: While a durable ceasefire would alleviate downside risks to growth and moderate inflation pressures, ongoing pass-through into broader prices is likely to keep the RBA on a tightening path.

TREASURY FUTURES

Yields inched lower across the curve as traders react to US-Iran headlines over a possible end to the war in the Gulf, with the belly leading the rally: 3M 3.686% (-0.3 bp from 3.689%), 2Y 3.880% (-5.8 bps from 3.938%), 5Y 4.008% (-6.3 bps from 4.071%), 10Y 4.362% (-5.4 bps from 4.416%), and 30Y 4.943% (-3.9 bps from 4.982%, decisively back below 5.00%). The 2/10 spread stands at 48 bps (+0.4 bp wider), 5/30 at 94 bps (+2.4 bps wider), and 3M/10Y at 68 bps (-5 bps tighter but still uninverted). With the 30Y down only 3.9 bps versus the 5Y down 6.3 bps, the move is a clean bull steepening at the long end, consistent with geopolitical de-escalation, the oil slide.

The March JOLTS report delivered a mixed but broadly stabilizing picture of the labor market, job openings came in better than feared, hires surged sharply off February’s depressed base, but layoffs crept higher year-over-year and the underlying “low-hire, low-fire” equilibrium remains firmly entrenched. Job openings fell a modest 56,000 to 6.866 million, though came in well above a consensus estimate of 6.656 million. February’s openings figure was revised up by 40,000 to 6.922 million, offering a slightly better baseline.

While the absolute level remains above the long-term median of roughly 5.9 million, openings are now running -1.2% year-over-year, a continuation of a gradual downtrend that has been in place since 2022. The most notable positive in the release was a +655,000 surge in hires to 5.554 million, pushing the hires rate to 3.5%, the highest since February 2024 and more than reversing February’s sharp decline.

Layoffs and discharges rose +153,000 to 1.867 million, with the layoff rate ticking up to 1.2% from 1.1%. Year-over-year, layoffs are up 272,000 — a notable trend. Most of the monthly spike was concentrated in large establishments (5,000+ employees) and in professional & business services (+99,000 in separations), which aligns with the high-profile white-collar job cuts seen at major firms.

Watch point: Fed policy is poised to stand pat for the time-being, though a path to loosening remains open. Well-anchored inflation expectations should offer resistance to higher yields, while also supporting the case for Fed easing later in the year.

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