A Reuters Open Interest newsletter

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

U.S. stocks surged on Wednesday, with the Nasdaq setting a new high and the S&P 500 a new closing high, as tech and earnings optimism outweighed Brent crude's return above $100 a barrel and concerns that peace in the Middle East is proving elusive. 

In my column today, I look at why the timely relief for U.S. consumers from bumper tax refunds will be short-lived - the boost will be more than offset by the 'higher for longer' gasoline prices sparked by the Iran war.

Before you read on, don't forget to sign up for my upcoming LSEG webinar on April 23, where I will talk about safe havens in uncertain times with my ROI colleague Mike Dolan. 

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* Oil back above $100

Brent crude futures are above $100 a barrel, lifted in large part by unease at the hiatus in direct U.S.-Iran talks. After three weeks of retreat, Brent is up 12% so far this week and on track for its second biggest weekly rise of the war. 

The lack of peace talks is worrying. With the conflict about to enter its third month, Rabobank analysts expect the Strait of Hormuz to remain closed for up to another 4 weeks, perhaps into late May. But the likelihood of escalation to achieve that de-escalation is very high, "which risks more energy supply damage." This doesn't seem an unreasonable take. 

* Profit warming

Despite the myriad risks - war, energy shock, inflation, tariffs, Fed independence, breakdown of the global order - stock markets are buoyant. Why? Money talks, specifically earnings - as long as the returns are palatable, investors can stomach nearly anything.

Investors are licking their lips. JP Morgan analysts have raised their S&P 500 EPS forecast for this year to $330, on tech/AI optimism rather than an improving geopolitical outlook. BlackRock are now overweight U.S. stocks for similar reasons. Who's next to revise up their outlook? 

* FX swap shop

The Middle East conflict and disruption to energy supplies is taking a financial toll on a range of countries, and U.S. Treasury Secretary Scott Bessent said on Wednesday a number of U.S. allies in the Gulf region and Asia have requested currency swap lines from the United States.

Bessent didn't name them, although President Trump said on Tuesday he is considering a dollar swap line with the United Arab Emirates. Swap lines give countries access to hard currency and ease strains on funding and local markets. But didn't Trump also say last year Gulf countries are going to invest trillions of dollars in the U.S.?

Bumper US tax refunds soften energy blow. But not for long

The U.S. tax deadline of April 15 often elicits both dread and anticipation — the administrative grind of filing, and the prospect of a refund windfall. This year, that refund could be substantially larger than usual, and it could not be better timed.

Tax refunds are currently 17% higher than last year, implying a $50 billion windfall for consumers by the end of May relative to the same period last year, according to Goldman Sachs economists. 

This should offer a much-needed boost to consumers and the wider economy following the spike in fuel prices after the outbreak of the Iran war two months ago.

The question now is how long any refund-driven boost will last.