US financial markets will likely turn cautious as the Good Friday long weekend approaches. No one can rule out the US equity market rebound in the past two days as a dead cat bounce. Brent crude remains supported at $100 per barrel after retesting the year’s peak around $120. Markets are aware that US equities have sold off in the past nine Thursdays. President Donald Trump’s claims of a quick resolution to the Iranian conflict provided a temporary relief valve. The arrival of US troops suggests a seize and hold operation on Kharg Island, which handles 90% of Iran’s oil exports, when Trump’s April 6 ultimatum on Iran passes without a deal. While the US holds the conventional edge and has caused significant damage to Iranian infrastructure, Tehran is ready to counter America’s power projection with a war of endurance, a strategy that puts the Gulf Cooperation Council nations in a delicate position as the primary victims of the conflict.
The situation is slightly different for the USD in the near term. The USD’s haven status can pause unless the S&P 500 plunges to a new year’s low. Markets abandoned pushing the DXY Index above the critical 100.5 level after Fed Chair Jerome Powell pushed back against Fed hike bets on higher pump prices, signalling that inflation expectations were anchored and that the Fed was not panicking about a 1970s-style wage-price spiral. Fed officials took Powell’s lead on the Iranian conflict, mirroring the wait-and-see approach adopted after the Liberation Day tariffs. Fed Governor Michael Barr warned that the Iranian conflict poses a double-edged sword on inflation and growth, the longer it persists. The Atlanta Fed GDPNow model also weakened the USD’s exceptionalism narrative by projecting a lower growth to 1.95% vs. 3% at the start of Operation Epic Fury a month ago. Friday’s US monthly jobs data will likely complement the factors that pulled the US Treasury 10Y yield down from its 7-8- month peak near 4.50%.
Quote of the Day
“Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws.”
Plato
April 2 in history
US President Donald Trump announced his “Liberation Day” tariffs in 2025.
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