Stocks Rebound as Crude Oil Sinks After President Trump Eases Iran Threats

The S&P 500 Index ($SPX) (SPY) today is up +1.73%, the Dow Jones Industrial Average ($DOWI) (DIA) is up +1.97%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.79%.  June E-mini S&P futures (ESM26) are up +1.47%, and June E-mini Nasdaq futures (NQM26) are up +1.77%.

Stocks are sharply higher today as crude oil prices plunged more than -7% after President Trump said strikes against Iranian energy infrastructure and power plants would be postponed for five days following the start of talks with Iran to end the war.  Mr. Trump said the US held productive talks on a comprehensive resolution of hostilities in the Middle East and that the discussion would continue throughout the week.  However, stocks fell back from their best levels after Iran’s semi-official Fars news agency said, “There is no direct or indirect communication with Trump.”

Global bond yields fell from their highs today and turned lower on news of a possible end to the war in Iran.  Bond yields had risen on concerns that soaring energy prices from the Iran war would stoke inflation.  The 10-year T-note yield fell from an 8-month high today at 4.44% and is down -1 bp to 4.27%. Also, the 10-year German Bund yield fell from a 14.75-year high of 3.08%, and the 10-year UK Gilt yield fell from a 17.75-year high of 5.12%.

Stock index futures initially fell sharply in overnight trading after President Trump gave Iran until Monday evening to reopen the Strait of Hormuz.  President Trump on Saturday issued a 48-hour ultimatum for Iran to "fully open" the Strait of Hormuz or the US will obliterate Iran’s various power stations.  The ultimatum, which expires at 7:44 p.m. Eastern time on Monday, was met with harsh rhetoric from Iran, with one senior Iranian official saying that if such an attack were to occur, the headquarters and assets of financial entities that buy US Treasury bonds are "legitimate targets" for attack. Iran also said that it would mine the “entire Persian Gulf” and block all access routes through the Strait if its power plants were attacked.

Iran carried out fresh strikes across the Persian Gulf over the weekend, with the UAE reporting drone and missile attacks today.  The International Energy Agency said that more than 40 energy sites across nine countries in the Middle East have been "severely or very severely" damaged, potentially prolonging disruptions to global supply chains once the war in Iran ends.

Last Friday, CBS reported that Pentagon officials have made detailed preparations for deploying US ground troops into Iran, and Axios reported that the US is considering taking over Iran’s Kharg Island, a key oil-export site, to put pressure on Iran to reopen the Strait of Hormuz.  The Wall Street Journal reported last Friday that the Pentagon is deploying three warships and thousands of Marines to the Middle East.

Crude oil prices (CLK26) remain high despite attempts to boost global supplies.  The IEA on March 11 released 400 million barrels from emergency oil stockpiles and said the war against Iran is disrupting 7.5% of global oil supply, and the conflict will cut global oil supply by 8 million bpd this month.  The closure of the Strait of Hormuz, through which about a fifth of the world’s oil and natural gas flows, has choked off oil and gas flows due to Iran’s attacks on shipping in the waterway and forced Gulf producers to cut output because they can’t export from the region.  Iran has attacked about 20 vessels in the Persian Gulf and near Hormuz since the conflict began.  Goldman Sachs warns that crude prices could exceed the 2008 record high of close to $150 a barrel if flows through the Strait of Hormuz remain depressed through March.

The markets are discounting an 8% chance for a +25 bp FOMC rate hike at the April 28-29 policy meeting.

Overseas stock markets are mixed today.  The Euro Stoxx 50 recovered from a 6-month low and is up +1.97%.  China's Shanghai Composite fell to a 6-month low and closed down -3.63%.  Japan's Nikkei Stock 225 tumbled to a 2.75-month low and closed down -3.48%.

Interest Rates

June 10-year T-notes (ZNM6) today are up by +4 ticks.  The 10-year T-note yield is down by -1.2 bp to 4.368%.  June T-notes recovered from a 9.5-month nearest-futures low today, and the 10-year T-note yield fell from an 8-month high of 4.441%.  T-notes recovered from overnight losses and moved higher today after WTI crude oil prices fell more than -7% when President Trump postponed strikes on Iranian energy infrastructure for five days, pending talks to end the war in Iran. 

T-note yields have risen sharply over the past three weeks on concern that surging energy prices from the Iran war will boost inflation and even force the Fed to tighten monetary policy. 

European government bond yields gave up early gains and are moving lower.  The 10-year German bund yield fell from a 14.75-year high of 3.077% and is down -3.8 bp to 3.006%.  The 10-year UK gilt yield fell from a 17.75-year high of 5.121% and is down -4.4 bp to 4.950%.

ECB Governing Council member Peter Kazimir said, "The ECB can do little about the inflation spike in the next few months, but if we judge that the risk of inflation remaining above our target for a prolonged period is significant, we will act with appropriate forcefulness to bring inflation back down to our target."

Swaps are discounting a 74% chance of a +25 bp ECB rate hike at its next policy meeting on April 30.

US Stock Movers

The Magnificent Seven technology stocks are moving higher today, a supportive factor for the overall market. Tesla (TSLA) is up more than +3%, and Nvidia (NVDA), Amazon.com (AMZN), and Apple (AAPL) are up more than +2%.  Also, Meta Platforms (META) is up more than +1%, Microsoft (MSFT) is up +0.92%, and Alphabet (GOOGL) is up +0.83%.

Airline and cruise line stocks are climbing today, with crude oil prices down more than -7% as the lower fuel costs should boost corporate profits.  Norwegian Cruise Line Holdings (NCLH) is up more than +6%, and Carnival (CCL) is up more than +5%. Also, United Airlines Holdings (UAL), Royal Caribbean Cruises Ltd (RCL), and American Airlines Group (AAL) are up more th an +4%.  In addition, Delta Air Lines (DAL) and Alaska Air Group (ALK) are up more than +3%, and Southwest Airlines (LUV) is up more than +2%. 

Home builders and building suppliers are moving higher today as T-note yields fell on hopes of an end to the Iran war.  Builders Firstsource (BLDR) is up more than +4%, and DR Horton (DHI), Toll Brothers (TOL), Pulte Group (PHM), Home Depot (HD), and KB Home (KBH) are up more than +3%.  Also, Lennar (LEN) is up more than +2%. 

Defense stocks are falling today after President Trump said he’s had constructive talks on ending the war in Iran.  Lockheed Martin (LMT) and Northrop Grumman (NOC) are down more than -1%, and Huntington Ingalls Industries (HII) is down -0.36%. 

Apogee Therapeutics (APGE) is up more than +15% after saying data from a mid-stage trial showed its experimental therapy deepened responses in patients with moderate-to-severe atopic dermatitis. 

Insmed (INSM) is up more than +8% to lead gainers in the Nasdaq 100 after saying its study of its Arikayce in patients with lung disease met its primary and all multiplicity-controlled secondary endpoints. 

DraftKings (DKNG) is up more than +4% after the Wall Street Journal reported that US senators are set to introduce bipartisan legislation to ban sports bets on prediction markets.

Synopsys (SNPS) is up more than +4% on news that Elliot Investment Management has made a multibillion-dollar investment in the company and plans to push for changes.

Valvoline (VVV) is up more than +4% after Stifel upgraded the stock to buy from hold with a price target of $42. 

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