So, does the US strike on Iran add to or reduce the threat of escalation? Does it get us closer a resolution or make things worse? It’s clearly got near-term implications for oil prices with the Strait of Hormuz in focus, but wider implications are less hard to pin down – geopolitics is always discounted pretty quickly unless there is a direct read through from events to particular assets. In the case of oil, which hit a 5-month high, we could see further spikes to add to the roughly $10-a-barrel premium we have now. US entry into the conflicts add another dimension for oil traders – we need to see what Tehran does next.

Could it close the Strait of Hormuz? Possibly, but the US Navy would probably have a lot to say about this. It could hit tankers and create a de facto closure though and that could see oil trade higher for longer.

US president Trump somewhat contradicted the official line by talking about “regime change”, which adds a layer of complexity to this discussion. Is this a surgical, one-off strike or just the start of something more terrible? 

Equity markets have a mild risk-off mood this morning but not quite the big knee-jerk move that might have happened had the strikes been announced when markets were open – time has allowed for selling to be orderly. The FTSE 100 is doing a little better than other European indices with oil prices giving index heavyweights Shell and BP a lift.
Meanwhile last week we had Fed governor Waller tease the prospect of rate cuts in July ... it's unclear right now if this is the position held by Fed chair Jay Powell - is Waller just auditioning for the role and saying what Trump wants to hear?

Final thought - Institutional investors' cash level as a share of assets fell to 4.2% in May from 4.8% in April. According to the BofA, cash allocations at or below 4% historically indicate a “sell signal” for global equities. This comes as stocks are about as expensive as they have ever been. The S&P 500 Forward P/E ratio hit 22x, above its 20-year median of around 16x. The Nasdaq 100 P/E sits at 27x, also well above the median, while the Russell 2000 forward PE reached 24x.