Risk sentiment was predictably buoyant Wednesday, as markets around the world cheered a two-week ceasefire between the US and Iran. Israel’s participating, but said the deal doesn’t cover its operations in Lebanon.
Iran claimed victory, which is fine. They were going to do that anyway, even if there was only one person left in the entire country to say it. Trump was going claim victory regardless too.
If Tehran and The White House can put their pride to the side, those claims aren’t mutually exclusive. Iran “learned” that threatening to blow up ships is an effective way to deter shipping traffic. (Who knew?! The Houthis, that’s for sure.) They also demonstrated a capacity for mutually assured regional infrastructure destruction.
For its part, the US proved, again, that America can go anywhere in the world, any time it wants and blow a lot of stuff up with hugely expensive weapons.
Both European and Asian shares were higher by nearly 5% Wednesday.
As the figure shows, the rally for the European benchmark was even more pronounced than the bump local shares received when Trump “paused” his global tariff push a year ago.
The prospect of an end to the energy crunch is especially welcome in Europe, where short-end rates responded violently last month to soaring oil and gas prices.
The UK front-end rallied hard on the ceasefire news, and I do mean hard. At one point — and I realize this is difficult to fathom — two-year UK yields were down 37bps.
Had that held, it would’ve been the largest one-day drop since the BoE stepped in to buy gilts on an emergency basis in late September of 2022 during the Liz Truss debacle.
Recall that the BoE’s the most sensitive major DM central bank to energy prices. On March 19, things went completely off the rails in London, when the bank pivoted hawkish, setting UK STIRs and front-end gilts ablaze.
If the ceasefire proves durable, and a peace deal ultimately materializes, BoE and ECB pricing has a lot of retracing to do. US crude plunged nearly 20% Wednesday and Brent fell 16%.
The figure above shows you the Wednesday move in the European natural gas benchmark. Those contracts dropped the most in almost four years. In the days after Ali Khamenei was assassinated, European natural gas prices rose ~60%.
While markets can’t be blamed for celebrating, the Mideast isn’t “fixed.” I hate to be the bearer of bad news — and far be it from me to question Jamie Dimon’s contention that this war sets the stage for a lasting peace — that region will always and forever be plagued by conflict.
Trump was back to making threats Wednesday. He can’t help himself. “A Country supplying Military Weapons to Iran will be immediately tariffed, on any and all goods sold to the United States of America, 50%,” he said. “There will be no exclusions or exemptions!”
Meanwhile, Reza Aref, Iran’s vice president, proclaimed a new epoch. “History has turned a page,” Aref, a veteran reformist famous mostly for doing absolutely nothing during domestic crackdowns on dissent, said. “The world has greeted a new pole of power, and the era of Iran has begun.”
A Tehran resident who spoke to The New York Times offered a slightly different assessment. “Last night was really frightening,” the man, who declined to be named for fear of government reprisals, said. “Our country is truly poor.”
“Our country is truly poor” that is an apt description for America too.
To quote the late, lamented National Lampoon, “Everyone’s a wiener!”
The MidEast remains a wire cage with rabid squirrels chasing around wheels with loose bearings…… But, makes for good opportunities writing options (puts recently, calls after TACO Tuesday)…
… especially with a rabid giant orange rodent inserted into the cage!
Who is representing Iran ? How do you get a straight answer and how do you rely on anything over there, or over here? Tomorrow it will be a different story.
With each escalation and climb-down by the US, it seems lran may be less not more inclined to give in on its core positions: missiles, nuclear, SoH. If Trump cannot end the war with Iran retaining any of those then he has to escalate, either the civilization thing or ground operations. SoH problem could be joint ventured away, but not missile/nuc. While Americans are distractible (summer! BBQ!), Trump can’t let weeks of palaver drift into months, in May the War Powers Act deadline will bring his dilemma front and center. I think oil prices will stay very high with continued physical + refined disruption. Iran will be digging out its missile bunkers and perhaps receiving helpful shipments from China/Russia. Watch if the US moves more ground forces in.
In the long run, the options are probably only (i) ground force invasion of Iran (and possibly freeing of the Iranian population) or (ii) the abject humiliation of Donald Trump. In terms of casualties, (ii) is far superior.
“While markets can’t be blamed for celebrating, the Mideast isn’t “fixed.” I hate to be the bearer of bad news — and far be it from me to question Jamie Dimon’s contention that this war sets the stage for a lasting peace — that region will always and forever be plagued by conflict.”
Iran could simply wait until election time in November to threaten the Strait of Hormuz again. Especially if the U.S. has removed the bulk of its military assets from the region by then. To quote Dimon again, that would be a real “skunk at the party.”