Tuesday Deadline in Focus

MACRO FRAME

Markets resume news flow trading, while inflation prints from Europe confirmed the conflict’s impact on energy prices. Meanwhile, March’s labor data supports the case for a Fed hold in the near-term.

STOCK INDEX FUTURES

US equity index futures are mixed as traders digest uncertainty surrounding President Trump’s 48 hour timeline (ending 8 p.m. EST Tuesday) for Iran to reopen the Strait of Hormuz. In Easter Sunday social media post, Trump threatened to target Iran’s power plants and bridges on Tuesday if the strategic waterway is not reopened. Reuters reported that the US and Iran had received a draft peace plan mediated by Pakistan, which would involve an immediate ceasefire. However, neither side has publicly confirmed the existence of such a proposal or their willingness to accept it. Adding to the uncertainty, Trump told Fox News on Sunday that Iran was negotiating, with a deal possible by Monday. Significant geopolitical uncertainty is likely to dominate market sentiment, while investor attention will also center around oil prices, which remain above $110 a barrel.

Watch point: Material signs of de-escalation will support equities, though the conflict presents real risks to future gains in the absence of certainty.

CURRENCY FUTURES

US DOLLAR: The USD is little changed at 99.95 as investor attention sits on President Trump’s deadline to reopen the Strait of Hormuz. With most of Asia and Europe closed for holiday on Monday, liquidity is likely to be thin, with investor focus on the possibility of a ceasefire after a media report suggested a last-ditch push from negotiators was underway. Investor focus will be centered around price direction in oil as a proxy for developments in Iran.

Money markets continue to price no change in Fed policy throughout 2026. Friday’s nonfarm payrolls report for March was bullish on the dollar, though it has since given up its gains. February’s JOLTS data reinforced the narrative of a stable, but low-hiring labor market. The figures have likely taken a move up from the Fed entirely off the table, a factor that had previously been offering the dollar support. Dollar direction will remain subject to safe haven flows and price direction in oil.

Watch point: March’s NFP report and February’s JOLTS data confirms that a move up from the Fed is out of the picture and reinforced the narrative that the Fed is well positioned in its policy rate.

EURO: The euro is up 0.24% to $1.1543 following a thin-liquidity overnight session as markets are close in Europe for holiday. Risk sentiment remains the dominant driver for price direction in the euro. The next 36 hours present significant uncertainty for markets in regard to President Trump’s deadline for Iran and risks an escalation in conflict that could ultimately prove bearish to the euro.

Euro price action remains driven by oil, risk sentiment, and broader macro news flow. Money markets are pricing a 62% probability of a rate hike at the European Central Bank’s meeting in April and are fully priced in for a hike at June’s meeting.

While recent data revealed euro area inflation jumped to 2.5% YoY in March, the rise in inflation is the product of higher energy prices. Core inflation fell to 2.3%, while a narrower measure that excludes food, energy, alcohol and tobacco held steady at 2.2%, unchanged from February. Services inflation, the stickiest and most policy-relevant component, actually eased to 3.2% from 3.4% in February. The critical risk factor is not the current inflation print but the persistence of the energy shock.

Watch point: March’s inflation data confirmed that headline inflation was dragged higher by rising energy prices, while other components were reassuring to the broader inflationary picture. A rate hike at the ECB’s April meeting appears unlikely, while the risk of prolonged conflict in Iran builds the case for a June hike.

BRITISH POUND: Sterling is 0.4% higher to $1.3240, as markets are closed in London due to holiday. Money markets are pricing 50 bps of tightening from the Bank of England by year-end, a significant drop from over 75 bps 10 days ago despite even higher energy prices. The drop in tightening expectations likely reflects sentiment around the UK’s stagnant economy, as PMI data showed British business activity grew at the slowest pace in six months, while manufacturers’ input costs accelerated at the fastest rate since 1992. The conflict in Iran has taken UK politics out of the spotlight, though local elections in early May create further risk of volatility. Keir Starmer’s governing Labour Party is trailing the populist Reform UK and the left-wing Green Party.

Watch point: Signs of de-escalation between the US and Iran are likely to provide short-term support to GBP, but evidence of an increase in inflation presents a downside to growth and will put the BoE in a bind.

JAPANESE YEN: The yen is little changed at 159.46 as investor sentiment centers around developments in Iran and the next 36 hours. Traders also continue to watch for indications of Tokyo intervening in the currency market following strong warnings from several officials in recent days. Japanese Finance Minister Satsuki Katayama on Friday said the government stands ready to act against speculative moves in FX markets as volatility has risen “significantly.” Speculators have also been adding to their short yen positioning, with the latest weekly data showing a short position worth $5.7 billion, the highest since July 2024, when Japan last intervened in the FX markets.

Money markets have place a 57% chance of a hike from the Bank of Japan at its April meeting and are fully priced for a hike come July. The IMF recommended on Friday that the BoJ continue gradually raising rates toward a neutral level to curb underlying inflation.

Watch point: A confirmed April hike could pull USD/JPY closer to 155, particularly if US yields stabilize; however, renewed US dollar strength or further escalation in the Middle East could limit yen gains despite BoJ normalization.

AUSTRALIAN DOLLAR: The Aussie is up 0.57% $0.6931 following an thin-liquidity overnight session as markets are closed in Australia for the holiday. Markets imply around a 71% chance the RBA will hike rates again at its next meeting on May 5, and expect the cash rate to land at 4.7% by year-end. Governor Michelle Bullock said the split in votes at the latest meeting was less a disagreement on policy direction but on timing. Analysts at HSBC now expect Australia’s economy to contract in the second quarter after two rate hikes this year, and higher fuel prices to weaken consumer spending. Major support for the Aussie lies at the 10-week low of $0.6834.

TREASURY FUTURES

Yields moved higher across the curve in response to the jump in energy prices as markets await Friday’s nonfarm payrolls report. One-year inflation swaps remain elevated in response to the rise in energy prices with current pricing at 3.12%, a sharp increase from 2.27% before the onset of the conflict. Treasurys are likely to trade at the mercy of energy prices ahead of Friday’s payrolls report.

Tuesday’s JOLTS data reinforced the case for a Fed hold but ruled out the need for tightening. Total job openings were little changed in February, with a rate of 4.2%, down 0.2% from January’s revised 4.4%. On a YoY basis, openings are essentially flat, suggesting the broader trend of gradual cooling from 2022’s record highs has stabilized. However, a drop in hiring supports the case for looser policy in the second half of the year. Total hires fell −498,000 to 4.849 million, dropping the hires rate to 3.1%, the lowest level since April 2020 at the onset of the pandemic. On a YoY basis, hires are down 387,000 from February 2025. Layoffs and discharges rate at 1.1% remains historically low and does not yet signal an acute deterioration. Taken together, the labor market is softening but not breaking, though the weak hiring figures do present real risks to the Fed’s dual mandate but do support the case for Fed easing later in the year.

Watch point: Following Tuesday’s JOLTS data, upcoming nonfarm payroll figures will be watched for clues on when, not if, the Fed will cut rates later in the year. We look for the Fed to lower rates

The spread between the two- and 10-year yields is 52.10 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.833%.

 

 

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