Markets Today: Oil retreats, Gold rises as cautious tone dominates, Trump deadline now in focus

• Oil prices (Brent and WTI) jumped due to escalating geopolitical risk from the US-Iran conflict
• European stocks were muted as Eurozone growth slowed to its weakest expansion in nine months
• The US Dollar Index (DXY) remains strongly supported by the Federal Reserve's divergence in interest rate policy and anticipation of sticky inflation ahead of key CPI data

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Oil prices saw a renewed bid this Tuesday as geopolitical risk premiums return to the forefront. Brent crude futures (LCOc1) have climbed 1.3% to trade around $111.21, while WTI (CLc1) continues to outperform, jumping 2.1% to sit near the $114.73 mark.

The primary catalyst remains the escalating war of words between Washington and Tehran. Markets are on edge as a US-imposed deadline approaches for Iran to open the crucial Strait of Hormuz, a chokepoint responsible for a fifth of the world’s global oil supply. President Trump’s recent threats to target Iranian infrastructure, including power plants and bridges, have significantly heightened the "fear factor" for energy traders.

The start of the European session did see Oil prices fall to trade in the red for the day but the risk of escalation remains firmly in play.

The rejection of a US-led ceasefire proposal by Iran (via Pakistan) suggests that diplomacy is hanging by a thread. Tehran’s insistence on a permanent end to hostilities, rather than a temporary pause, has left little room for a near-term resolution.

As we approach 8 p.m. EDT deadline, volatility is expected to remain high. If the deadline passes without a diplomatic breakthrough or a de-escalation in rhetoric, the technical bias for both Brent and WTI remains firmly to the upside, with the psychological $115 level for WTI now well within reach.

European equities returned from the Easter break to a cautious landscape, with the STOXX 600 flatlining as geopolitical risks intensified. While the energy sector gained on rising crude prices, the broader market remains tethered to the looming US-Iran deadline.

ASML led the tech sector lower, sliding 4.2% following news of proposed US export curbs on chipmaking gear to China. This regulatory pressure continues to be a primary headwind for European tech.

Conversely, Universal Music Group provided a rare spark, surging 15% on a massive €55.75 billion takeover bid from Pershing Square.

The final Eurozone Composite PMI for March was revised slightly higher to 50.7, yet it confirms a sharp slowdown from February’s 51.9. This marks the weakest expansion in nine months, as the Middle East conflict continues to weigh on private-sector activity.

Key Takeaways:

Stagflationary Signals: Service sector growth has effectively hit a wall, while input costs surged to a three-year high, driven by soaring energy prices.

Labor Market Cooling: Business confidence has slumped to a one-year low, triggering the fastest rate of job cuts in 13 months.

Demand Weakness: Falling new orders and weakening export demand suggest further downside risks for the second quarter.

Overall, the data highlights an economy under significant duress. With output prices at their highest since early 2024, the ECB faces a tightening corner between persistent inflation and a cooling macro environment.

Gold recovered Asian session losses early in European trade, The precious metal was trading at $4682/oz as markets wait with bated breath on developments in the Middle East.

Any positive development around a deal with Iran could send Gold prices higher, while further escalation and attacks on infrastructure as promised by President Trump could lead to a selloff as inflationary risks will rise once more.

On a more positive note for Gold prices, the PBOC increased its gold holdings for the 17th consecutive month. China's Gold reserves increased to 74.38 million ounces (Prev. 74.22 M), and the value of gold reserves was $342.7 bln vs the previous $387.6 bln.

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The European session is quiet today with a host of PMI data already released.

The US Dollar Index (DXY) remains well-supported, trading within a 100.00-100.50 range as markets brace for tonight’s White House deadline. Following Friday’s upside surprise in payrolls, the Greenback continues to benefit from a resilient domestic economy and a shifting interest rate narrative.

Key Drivers:

• Fed Divergence: While trading partners are pricing in multiple rate cuts, the Fed remains flat. Persistent energy price spikes could force markets to price in actual hikes, a significant tailwind for the USD.
• Data Watch: Tomorrow’s FOMC minutes and Friday’s CPI (expected to jump to 3.4%) will be critical. Any signs of sticky inflation will likely cement the Dollar's bullish bias.
• Treasury Outflows: A $90bn drop in foreign Treasury holdings is more likely a sign of EM central banks intervention to support their own currencies rather than a fundamental "exit" from the Dollar.

The Outlook: Unless we see a major miss in today's ADP jobs data, the DXY should remain bid. We’ll also be monitoring NY Fed President John Williams at 2:30pm CET; any hawkish shift from this known dove would provide further fuel for the Dollar's ascent.

The UK100 (H4) exhibits a strong bullish recovery, recently reclaiming both the 100 and 200-period SMAs. After a period of consolidation, price action has cleared the psychological 10,400 level, signaling a shift in mid-term sentiment.

However, the RSI is currently flashing a "BEAR" divergence signal near overbought territory, suggesting the rally may be overextended.

• Upside: A sustained break above 10,500 targets the key resistance at 10,786.
• Downside: Failure to hold 10,405 (SMA 100) could see a retest of support at 10,269.

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