Global markets change dramatically on the eve of China's market opening

Source: Wall Street Intelligence Circle

— On the eve of the Chinese market opening, the global market has changed dramatically.

Previously, there was a flood of news, but yesterday the feeling was of “missiles flying everywhere.” The fragile ceasefire agreement between the US and Iran is being tested, and financial markets are also facing a test.

Trump posted on Truth Social claiming that the US “shot down” seven small Iranian vessels.

The UAE Ministry of Defense stated in a statement that its air defense systems intercepted 12 Iranian-launched ballistic missiles, 3 cruise missiles, and 4 drones.

Iranian Foreign Minister Abbas Araghchi posted on X platform that negotiations with the US are “making progress,” but the US and the UAE “should be wary of being dragged back into the quagmire by ill-intentioned parties.” The situation in the Strait of Hormuz demonstrates that “there is no military solution to a political crisis.”

Both the US and Iran are “testing the red lines” rather than escalating into an all-out conflict. Iran is attacking, but with controlled intensity; the US is responding, but not expanding the scope of airstrikes. The market is still “waiting for a reason to panic.”

First, Monday marked the first outbreak of violence in four weeks since the US-Iran ceasefire agreement, which startled the market but did not cause panic. This can be seen from the declines in US stocks—Dow Jones dropped 1.13%, S&P 500 fell 0.43%, and Nasdaq fell 0.19%. According to the recent trading history of the S&P 500 since the outbreak of the Iran war, after a decline on Monday, the index usually rebounds on Tuesday—whether this pattern will persist today remains to be seen.

Second, all traders are currently focused on the US Treasury market—the 10-year Treasury yield closed at 4.44%. If it breaks through 4.5% (algorithm trading trigger point), a wave of global market sell-offs could be triggered. In addition, the 30-year Treasury yield has already exceeded 5%. If it still stands above this level at the close on Tuesday, it’s time to be cautious, as this will force all risk assets to be repriced. The 30-year yield rising above 5% could even have more impact on the real economy than the 10-year yield.

Third, Japan intervened in the foreign exchange market for the third consecutive trading day (April 30, May 1, May 4), and the effect is clearly diminishing; the impact in the last two sessions was much weaker than the first, and USD/JPY is rising again. This exchange rate may once again test the 160 level—which will also be a globally significant threshold.

Fourth, oil prices are near a four-year high, with Brent crude rising to $114 and US crude rising to $94. Even if the current conflict de-escalates, its aftershocks are expected to persist for a while.