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US Stocks finish flat after President Trump pulls out of Iran deal; Oil trades in volatile session returns to $70; USD hits new 2018 highs – risk hit hard by USD and JPY

May 9, 2018 | Daily Market Outlook

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US markets – finished flat on Tuesday after President confirmed pulling out of the Iran nuclear deal which was widely expected by the market. The Dow Jones did briefly drop 150 points following the announcement. Back in 2015, the Obama administration and Iran signed a deal to defer sanctions on Iranian oil exports, while Iran curbed its nuclear program. On Tuesday, Trump said the U.S. was pulling out of that deal and restoring sanctions. “Allowing Iran to produce nuclear fuel again would further boost the dollar and lower US Treasury yields,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies, in an email. “The US withdrawal from Iran the treaty would be another step in isolating the US from rest of the world.”

Financials were one of the better-performing sectors on Tuesday. “If financials weren’t performing well today, we’d be looking at a much darker picture,” said JJ Kinahan, chief market strategist at TD Ameritrade. “If you look at the rest of the board, things are kind of pink.”

In Zurich, the chair of the U.S. central bank said that the Fed’s interest rate hikes may not end up having as great of a risk on emerging market economies and stock markets as many had initially thought. Powell added that the central bank would, however, continue to communicate its policies clearly, to avoid market disruptions.

European markets – finished flat as traders looked to Trump’s decision on Iran. Major indices barely changed by markets close. Italian equity investors were the big losers as uncertainty over the country’s future government loomed. The FTSE MIB in Milan closed down by 1.67 percent.

Oil – traded sharply lower once news hit the US was leaving the Iran nuclear deal. Price fell down to 255 cents lower in three hours before paring loses later in the NY session to close just below $70. This morning buyers have lifted prices back above $70.

Sanctions restored, under U.S. law he must wait at least 180 days before imposing their furthest-reaching measure, which is to target banks of nations that fail to significantly cut their purchases of Iranian oil. “If we assume he goes back to 2012 sanctions, we estimate a loss of 0.4 million barrels a day of Iranian supply based on recent Iranian export numbers. ÔÇ£Regardless, his foreign policy continues to ignite tensions in the main oil-exporting centre and is, thus, price supportive,”

Forex – what a night for the USD, Powell’s speech in Zurich looked to light the fuse for strong USD buying. In last night’s London session dollar bulls really got going and risk was dumped. The USD hit fresh highs for 2018; Europe’s slowing economic growth caused traders to cut bullish bets on euro and to scale back their outlook for European interest rate hikes in 2019. Expectations for more U.S. interest rate hikes from the Federal Reserve have underpinned the dollar’s rebound despite soft U.S. domestic data, analysts said.

The AUD, EUR sank to new 2018 lows to the greenback. The Pound hit new monthly lows but staged a late session fight back to finish 7 pips lower. It wasn’t all about the USD, the JPY also rallied sharply on the back of uncertainty sinking risk and knocking the USD lower. Gold traded in a choppy session losing $7 at once stage before recovering to close just under $1 higher.

Oils wild night at the office.

Good trading from Eightcap.

Sources; CNBC All times are AEST

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