Iran, U.S. Negotiation Hopes Holding Market Together into a Critical Weekend
Here's what the market is pricing in as the two sides head toward a potential peace deal.
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NYSE Trader
It was a choppy market session on Friday, topping off a big week. Breadth was only about 37% positive, and the indices suffered minor losses, but that is surprisingly resilient action ahead of the negotiations that begin this weekend in Islamabad between Iran and the United States.
What the CPI Said
The March CPI came in at 3.3% year over year, slightly below the consensus estimate of 3.4% and the highest annual reading since May 2024.
Monthly headline inflation rose 0.9%, triple February's pace, driven almost entirely by a 21.2% surge in gasoline prices that accounted for nearly three-quarters of the total monthly increase. Core CPI, which strips out food and energy, rose a more modest 0.2% monthly and 2.6% annually, matching expectations. Grocery prices actually fell 0.2% in March.
The slight beat on the headline number versus consensus gave investors a reason to stay calm, but the trend is clear. Inflation is heading higher, and the easy comparisons are behind us. Economists are already warning that airfares, transportation costs and food prices have not yet fully reflected the oil shock, which means the April and May readings are likely to be worse.
The Iran Picture
The buying this week has been steady since news of the ceasefire agreement, although there have been ongoing hostilities and nearly zero oil tanker traffic through the Strait of Hormuz. President Trump continues to sound optimistic about a deal while Iran publicly expresses unwillingness to cooperate. The Islamabad talks begin this weekend with Vice President Vance leading the U.S. delegation. The gap between the two sides remains wide.
Iran's 10-point proposal includes lifting all sanctions, U.S. troop withdrawal from the region and continued Iranian control of the strait. The U.S. position is that the strait must be fully open and Iran cannot develop nuclear weapons.
What the Market Is Pricing In
The strong market action heading into a possible deal raises the risk of sell-the-news action next week, but the bigger risk is that the U.S. has to take further military action.
One of the main reasons Trump has been pushing hard for negotiations is that the destruction of Iranian infrastructure will have long-term negative consequences, particularly for oil production, on which a post-war recovery will depend.
Investors appear to be looking beyond Iran and are anticipating good first-quarter earnings reports. Banks kick things off starting Tuesday when JPMorgan Chase (JPM) , Citigroup (C) and Wells Fargo (WFC) report. The technical action is good but the fundamental support for it is questionable. Investors want the Iran distraction to end and are not worried about much else right now.
I had another quiet day of trading on Friday but expect to see elevated volatility next week to offer some better opportunities to build positions.
Have a great weekend. I'll see you on Monday.
Related: China’s Influence Rises as Beijing Becomes Unusual U.S. Ally on Iran
At the time of publication, DePorre had no positions in any securities mentioned.
