* UAE air defences respond to new missile threat, Iran launches new maritime mechanism

* Global oil reserves plunge at record pace as conflict strains supplies

* Wall Street notches record highs as AI chip stocks surge

* Gold rises as traders assess Middle East developments, USD steady

FX: USD was very quiet after it found a bid to kick of the week on Monday after more geopolitical tensions between Iran and the US. That had lifted crude prices close to fresh cycle highs and with them, bond yields and bets on interest rate hikes. Markets price in roughly a coin toss chance of a quarter point hike in early 2027. Data was mixed and largely secondary to geopolitics. JOLTS pointed to a gradual cooling in labour demand, while ISM Services missed expectations with elevated prices and employment still in contraction.

EUR was very mildly bid in a quiet range day with prices just above the 200-day SMA at 1.1674. Momentum remains around the neutral threshold of 50 on the daily RSI. ECB commentary has been relatively hawkish with money markets now predicting in 80bps+ of rate hikes by year end and June quarter point move virtually fully priced.

GBP was mid pack among its peers with cable printing an inside day. Bearish sentiment and positioning in sterling must be balanced against hawkish BoE guidance and expectations of two to three rate hikes. Thursday sees local UK elections put the spotlight on domestic politics and how badly the current governing Labour party does. Relief – losing less than 1,000 local council seats – could lift the pound amid a relief rally, while even bigger losses would see gilt yields potentially surge to new highs.

JPY weakened as the major moved higher for a third straight day after last week’s intervention. Local markets remain closed for holidays and reopen on Thursday. The MoF is meant to have sold more than $30 billion last Thursday. The issue is US interest rates are rising, energy prices remain high, Governor Ueda wasn’t full-on hawkish last week and the current government is dovishly minded. The 50-day SMA sits at 158.59.

AUD was an outperformer after the RBA hiked as expected by 25bps to 4.35%. The bank said it was pausing to ‘sit back and assess’ developments, having brought policy to mildly restrictive territory. But policymakers stand ready to do more and hike potentially through the summer if warranted as the tightening bias remains. The recent long-term top is 0.7227.

US stocks: The S&P 500 added 0.81% to close at 7,259, the Nasdaq rose 1.31% at 28,015 and the Dow Jones settled up by 0.73% at 49,298. Those were record highs for the S&P 500 and Nasdaq as AI related stocks lifted the indices. The chip index jumped over 4% to another record high and is now up 55% in 2026. The Tech sector led gainers, with Materials and Consumer Staples next best. Communication Services was the only sector in the red. Big movers included Intel, which soared 14% and made more record highs after last week’s earnings. Reports suggested Apple had held talks about using INTC to produce the main processors for its devices. There were also reports the next iOS Apple system will allow users to choose rival AI models. That helped the stock gain 2.7%. Amazon and Alphabet posted all-time high building on their results last Wednesday. DuPont added 8% after it lifted its annual profit forecast. On the flip side, Palantir dropped 6.9% on positive results but numbers that were not good enough to justify its super high valuations.

Day Ahead

The market has swung to roughly 6-7bps of Fed tightening this year, with expectations that price stability trumps any issues around the job market in the FOMC’s dual mandate. This week is very much focused on the latter, with JOLTS openings falling below last month, while we get the usual monthly ADP data today and the April non-farm payrolls numbers on Friday. It seems like even a big drop or negative headline print might not be enough to derail fed tightening expectations, given the volatility of recent jobs data and the emerging view that the size of the labour force may be flat right now.

There is some chatter that President Trump wants a Middle East deal before his trip to China on 14/15 May. Better risk appetite would curb dollar demand, though high oil prices likely do the opposite. Do stocks slow now we are past peak positive earnings momentum or will this unloved rally see a melt-up as more fund play catch up and are forced to add risk with volatility still relatively low?

Chart of the Day – Gold rangebound

Gold has been stuck in a relatively narrow range since the end of April after it broke down last week through a major Fib level at $4,671. Higher energy prices mean inflation concerns are growing, suggesting that rates will remain higher than originally anticipated. This has boosted USD and weighed on non-yielding assets like bullion. ETF holdings in gold have fallen by more than 2.2% since the start of hostilities in the Middle East, while the managed money net long in COMEX gold futures is at its lowest level since February 2024. There’s a minor Fib level at $4,452 with the October top at $4,380 and the 200-day SMA at $4,269. The 100-day SMA sits above at $4,755.