(May 11): US equity futures declined while the dollar rose against most major peers in early trading after President Donald Trump rejected Iran’s response to his latest proposal to end the war, likely prolonging the closure of the Strait of Hormuz.
S&P 500 futures contracts fell 0.3% in early Asia trading. The dollar climbed against major peers, with the pound among the laggards as UK Prime Minister Keir Starmer came under pressure to step aside after poor local election results. Brent crude rose 2.7% at the open on Monday.
Iran offered to transfer some of its stockpile of highly enriched uranium to a third country in its response to an earlier US proposal to end 10-weeks of war, but rejected the idea of dismantling its nuclear facilities, the Wall Street Journal reported. Iran disputed the report, according to Iran’s semi-official news agency Tasnim. Trump called the Iranian response “totally unacceptable”.
“Trump’s rejection of Iran’s latest peace plan sees the week beginning in a ‘risk-off’ mode, reversing some of the price action we saw last week,” said Jason Wong, a strategist at Bank of New Zealand. “This can extend in early trading.”
It’s a reality check for investors that have rode a scorching run of market momentum after a solid US earnings season and signs the world’s largest economy remains resilient in the face of energy stress triggered by the Iran war. Global stocks surged last week, pushing the S&P 500, Nasdaq 100 and a gauge of Asian equities to fresh record amid optimism over artificial intelligence.
Across markets, the success of the momentum strategy — piling into recent winners, effectively — has become a defining feature. Junk bonds and crypto have been drawn in, and one momentum index in equities closed last Friday near the highest since the global financial crisis.
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Barclays plc strategists say the trade has reached extremes that historically foreshadowed selloffs. At Goldman Sachs Group Inc, the trading desk wrote last week that valuations for high-momentum stocks are stretched and positioning is among the highest in recent years, based on prime brokerage data.
In currencies, the pound weakened ahead of a speech by UK Prime Minister Keir Starmer to forestall an immediate challenge to his job. Starmer will lay out a plan to turn the governing party’s fortunes around, including a commitment to take the UK closer to the European Union a decade after the Brexit vote.
“The pressure on Starmer to resign has increased,” Elias Haddad, the global head of markets strategy at Brown Brothers Harriman wrote in a note to clients. “Regardless, the risk the Labour government pivots further leftwards has diminished, which is supportive of GBP and gilts.”
See also: US stocks retreat on hotter-than-forecast core CPI, jump in oil
Meanwhile, fresh data on consumer prices in the coming week is likely to affirm inflation remains a threat in the US. Economists see a sharp 0.6% increase in the consumer price index for April, based on the Bloomberg survey median estimate. That’s after March’s biggest monthly advance since 2022. The Bureau of Labor Statistics’ report is due Tuesday.
In last Friday’s report, April’s non-farm payrolls rose 115,000 after an even bigger surge in March, marking the strongest two-month increase since 2024, according to Bureau of Labor Statistics data out last Friday. The unemployment rate was unchanged at 4.3%.
Still, the Federal Reserve is viewed as likely to remain on hold for now to allow the oil price spike to play itself out. Money market pricing continued to suggest the Fed will keep rates steady this year.
Uploaded by Isabelle Francis
