- The UAE had to defend itself against Iranian missiles and drones on Monday.
- The US economy added 109,000 private jobs in April, missing the forecast of 118,000.
- Traders will focus on the US nonfarm payrolls report on Friday.
Interest futures ended Thursday down after another volatile week due to tensions in the Middle East. Market participants have had to grapple with sentiment shifting from a looming peace deal to an escalation. Meanwhile, there is caution ahead of the crucial US monthly employment report that will show the state of the labor market.
On Monday, interest futures plunged while Treasury yields soared amid tensions in the Middle East. The United Arab Emirates had to defend itself against Iranian missiles and drones. Meanwhile, US forces tried to use force to open the Strait of Hormuz. The escalation dashed hopes of peace and sent oil prices higher.
Calm returned on Tuesday after Trump said he would halt his efforts to escort commercial vessels through the Strait of Hormuz. Moreover, he noted that there was great progress towards a peace deal with Iran. Oil collapsed by over 7% on the next day after reports indicated that the White House was inching closer to a deal with Iran to end the war.
Iranian officials were reviewing a one-page memorandum of understanding before either agreeing to it or rejecting it. Trump cautioned that there would be dire consequences if Iran disagreed with the proposal. The drop in oil prices came as a relief for markets across the globe as it eased inflation worries. Cheaper oil will lower price pressures and allow the Fed to focus on easing monetary policy.
Lower interest rates mean a decline in Treasury yields and a rally in interest futures. Elsewhere, traders digested data showing a lower-than-expected increase in US private employment.
However, Wednesday’s rally barely lasted before the panic of an escalation gripped the markets again. On Thursday, reports indicated that the US and Iran fired at each other, sending interest futures lower. It remains unclear which side started firing. Trump later jokingly said it was just a love tap and that the ceasefire deal was still intact.
US employment estimates (Source: Bureau of Labor Statistics, Bloomberg)
Later in the day, the US will release its nonfarm payrolls report that will continue shaping the outlook for monetary policy. Economists believe job growth moderated in April. Such an outcome would support interest futures.