“There’s a sense that the market is holding its breath in anticipation of Trump’s Iran decision later today, with him giving the usual reality show treatment to the announcement,” says John J Hardy, Saxo’s Head of Forex Strategy. Ahead of the decision (possibly to be made public via Twitter), “the dollar and the yen are holding their recent strength in what has been a considerable eurodollar sell-off,” he adds.
The decision can be one of several that have been mooted and, says Peter Garnry, Saxo’s Head of Equity Strategy, “watch the energy sector in equities as there’s a possibility for a breakout to either side on the decision”.
But it’s the crude oil market that will likely show the most dramatic reaction to Trump’s Iran move. “The market has been left guessing and there are several options on the table because a withdrawal isn’t supported by the other five countries,” says Ole Hansen, Saxo's Head of Equity Strategy. The likeliest of these are, Hansen says:
1. Takes action to fully re-impose/enforce US sanctions
2. Watered down sanctions allowing “friends” to continue to trade
3. Postponing the decision again while working with Europe to get a better deal
“Options two and three could trigger an initial sharp reduction of the non-fundamental price premium before current supply disruptions from Angola and Venezuela come in with support,” Hansen says. Another important factor to bear in mind is that “Trump sees the November mid-term election as a battle for his survival”. Any sharp spike in gasoline prices (already +20% yoy) may receive more attention than him acting tough against Iran.
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.