A Reuters Open Interest newsletter

Seeking signals from the noise

By Jamie McGeever, Markets Columnist 

Wall Street and the Asian stock markets that were open ticked higher on Easter Monday, as investors shrugged off another rise in oil prices and more belligerent rhetoric from U.S. President Donald Trump on Iran, and awaited more concrete ceasefire news. 

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* Bellicose rhetoric loses punch

After his expletive-laden threats to Iran on Sunday, U.S. President Donald Trump on Monday said every bridge and power plant in Iran will be blown up by midnight on Tuesday unless a deal is agreed and the Strait of Hormuz is reopened. 

But markets didn't flinch - Wall Street rose, the dollar slipped, and U.S. Treasury prices edged lower. Oil rose, but only 1%. Markets are on edge. But they may also now be ignoring Trump's bluster, much of which they have heard before, and looking to trade on more concrete developments.

* U.S. sunny side up

The Iran war is in its sixth week, U.S. gasoline is above $4/gallon, and WTI oil is 65% more expensive than it was a year ago. Yet the initial March data suggest the U.S. economy is weathering the storm (let's ignore price pressures for now).

Nonfarm payrolls smashed expectations, the manufacturing ISM rose to its highest since 2022, and the U.S. economic surprises index on Monday hit its highest in nearly four weeks. Some of these surveys only cover the early part of March so the positive surprises may not last. But the early signs are encouraging.

* Asia FX intervention risks

Some countries in Asia, like India and The Philippines, have already intervened in the FX market since the Iran war started to support their currencies. With the global price of oil elevated, and the premium in Asia for physical loads and refined products at record levels, they are unlikely to be the last.

Countries boasting current account deficits, like Indonesia, are particularly vulnerable, but surplus countries also face the threat of an energy/FX/inflation doom loop emerging. Indeed, in worst case scenarios, some countries may need to consider selling foreign bonds or gold to pay for fuel.