“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.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.