Trump's pause of the Hormuz naval operation has eased energy-driven inflation fears, pushing 30Y Treasury yields toward 5% and fueling a rally in semiconductors.
The geopolitical landscape surrounding the Strait of Hormuz has shifted, with President Trump announcing a temporary pause to “Project Freedom,” the naval operation previously tasked with securing the waterway. This de-escalation signal has triggered an immediate repricing in energy markets, as oil prices declined following the announcement and continued their downward trajectory overnight. For traders, this move represents a critical pivot point: the reduction in immediate supply-side risk is currently acting as a tailwind for risk-on assets, while simultaneously easing the upward pressure on global bond yields that had been driven by energy-related inflation fears.
The market’s reaction to the pause in the Hormuz mission illustrates the direct link between geopolitical stability and the cost of capital. As the risk of an escalation in the US-Iran conflict diminishes, the bond market has experienced a modest rebound. The 30Y Treasury yield is currently trading near the 5% level, reflecting a cooling of the risk premium that had been baked into long-dated debt. However, this trend is not uniform globally. In the UK, 30Y government bond yields have climbed to 5.78%, marking their highest level since 1998. This divergence highlights that while the Hormuz pause provides relief, domestic factors—specifically higher energy costs and political uncertainty surrounding upcoming local elections—continue to dictate the trajectory of UK gilts.
Equities responded to the de-escalation with a broad-based rally on Tuesday, with the S&P 500 gaining 0.8% and the Russell 2000 small-cap index jumping 1.8%. The internal composition of this move is telling; while tech remains the primary driver, there has been a distinct rotation from software into semiconductors. Intel, Qualcomm, and Micron all saw surges between 11% and 13%. This momentum has spilled over into Asian markets, with Korea’s index surging 6% this morning, building on a 70% year-to-date gain.
Investors should note that while the Stoxx 600 has gained 2% over the last month, the S&P 500 has rallied 10%. This performance gap is rooted in sector composition rather than just energy price differentials. The rebound in general cyclicals, regional banks, materials, and industrials—which rose between 1% and 2% yesterday—suggests that the market is beginning to price in a more stable macroeconomic outlook following the ceasefire rhetoric from the US administration.
While the geopolitical narrative dominates, the underlying labor market data remains mixed. In the US, the latest JOLTs report showed hiring increased to 5.6M, but layoffs also rose to 1.9M, leaving the job openings-to-unemployed ratio steady at 0.95. This stability over the past six months suggests the labor market is not yet signaling a clear directional shift. Similarly, the ISM Services report provided conflicting data, with unchanged prices and weaker new orders offset by improved business activity and employment indices.
For those tracking institutional positioning, ADP stock page remains a point of interest as the firm prepares to release its monthly estimate of private-sector employment growth for May. Current pulse estimates suggest a strong rebound in job growth, though this must be weighed against ongoing energy supply uncertainties. Meanwhile, in Switzerland, April CPI headline inflation climbed to 0.6% y/y from 0.3% in March, driven by fuel prices. Despite this, core inflation softened to 0.3%, reinforcing the expectation that the Swiss National Bank will keep its policy rate at 0%.
The dollar continues to range-trade around the 117-level against the Euro and has pushed above the 157-level versus the JPY. These levels reflect a market that is balancing the potential for a peace deal with Iran against the persistent reality of central bank policy divergence. With the NBP base rate expected to remain unchanged at 3.75% in Poland, and the final euro area services and composite PMI releases due today, the focus remains on whether underlying economic activity can sustain the current equity momentum. The preliminary composite PMI in the euro area stood at 48.6, with the services sector acting as a drag at 47.4. Traders should monitor the upcoming webinar on the Strait of Hormuz closure for further clarity on the severity of the energy supply shock and the prospects for a lasting recovery in transit volumes.
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