“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.
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.