After the more optimistic showing yesterday, markets are not quite following up on that so far today. Traders and investors are looking guarded as the fragile truce between the US and Iran looks like it could fall apart at any time. After the gains yesterday, S&P 500 futures are now down 0.4% while major indices in Europe are also down slightly across the board.
Let’s recap what we’ve heard in the past day or so.
- US president Trump talks up optimism over talks with Iran
- He says that “there will be no enrichment of uranium and many of the 15 points have already been been agreed to”
- He adds that countries supplying military aid to Iran will be tariffed 50% immediately.. China, Russia?
- Iran reaffirms there are only 10 points in the peace proposal, open to conditional offer of reopening Strait of Hormuz
- Trump lashes out over “fake news” on negotiations, says it will be discussed “behind closed doors”
- Iran announces that three clauses to the ceasefire agreement have already been broken
- That being the attack on Lebanon, drones intruding into Iranian airspace, and denial to enrichment
- As such, Iran pulls back on any significant reopening on the Strait of Hormuz
- Trump warns that all US military presence in the region will remain in place until a deal is struck, threatens more strikes against Iran unless there are “no nuclear weapons and the Strait of Hormuz is open and safe”
It is easy to make an announcement of a ceasefire and a deal is ready to be made. However, working out the details look to be the problem. Sound familiar? Well, this is very much what we have seen before when it comes to Trump’s negotiating tactics. Think back to the US-China trade war. There’s always two sides to the story.
In that context, Trump often times bragged about “winning” and what he managed to squeeze out of China. But when you compare the messages from Washington and Beijing, they tend to differ in terms of what commitments were actually agreed upon and what terms were laid out and agreed during negotiations.
At the end of the day, China was happy to let the US take the “win” and settle with whatever trade deal. But apart from some gestures of goodwill after, China never followed up on fulfilling their end of the bargain in those deals.
This time around, there’s a clear black and white. If Iran refuses to reopen the Strait of Hormuz, ship tracking data is there for all to see and markets can’t turn the other cheek. That as if there are no oil and gas tankers moving, the reality of the economic impact will show up in many countries almost immediately.
The relief rally yesterday was one in hopes of a more lasting peace in the Middle East region. However, it is arguably one that is buying time for better news to come in the week(s) ahead. But with each passing day, the prevailing status quo will continue to chip away at that hopeful optimism.
And unless Trump has another way to sell his narrative of “total victory”, Iran not playing ball with the Strait of Hormuz will ultimately be the most important factor for markets.
I’ve mentioned time and time before, nothing changes for markets until something changes on the Strait of Hormuz.
So far, it is precisely that point that is keeping the broader market mood on edge. Because even with the ceasefire announcement, there are still no oil and gas tankers moving along the strait. Everyone is still stuck and waiting on more information on how to go about the situation.
And even if we do see a conditional reopening, it will be very limited. Think of it as being a slow trickle rather than a flood
