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The market optimism from yesterday has been dashed after US president Trump’s address here. There was some anticipation that he would hang the “mission accomplished” banner but it wasn’t really that in the end. While he reaffirmed that Iran’s military capacity has taken a heavy hit, he still says that it could take at least 2-3 weeks to wrap things up.For markets, that just means that we will get many more weeks of extended uncertainty. And more importantly, it just means that the de facto closure of the Strait of Hormuz will be prolonged. At this stage, every single day matters and another few more weeks of a supply shock to the oil market won’t do anybody any good.And even then, who is to say that the US can immediately withdraw its presence from the region? That is certainly not going to happen. And what more that even if the war were to end today, some countries might still take weeks or even months to get their energy facilities back up and running at full capacity. And then when you get all of that, who is to say Iran will allow for a straightforward resumption to normality on passage through the Strait of Hormuz?As mentioned yesterday here, “mission accomplished” doesn’t really do anything unless it comes with the reopening of the Strait of Hormuz.That is the reality for markets and the reality of the situation for the global economy.After Trump’s address, we’re now seeing markets sell the fact with worries continuing to mount. Oil prices are surging up again with WTI crude up over 6% to $106.50 at the moment. Brent crude is also up nearly 7% in jumping back above $108 on the day.Meanwhile, equities are slumping hard with S&P 500 futures down 1.4% and European stock futures bordering on 2% losses ahead of the open later.In the bond market, 10-year yields in the US are surging again as we see a 6 bps climb to 4.38%. In FX, the dollar is rallying back strongly after losses to start the week. EUR/USD is down from 1.1600 overnight to 1.1520 now while AUD/USD has dropped from 0.6940 to 0.6870 on the day.
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
Market sentiment took a hit after Trump’s address, which fell short of expectations. Traders were hoping for a clear signal of victory regarding Iran, but the lack of definitive statements has left uncertainty hanging in the air. This could lead to increased volatility, especially in energy markets, as geopolitical tensions often correlate with oil prices. If traders were positioned for a bullish move based on anticipated positive news, they might now reconsider their strategies, especially if oil futures start to react negatively. It’s also worth noting that the broader market context is still fragile, with many investors eyeing upcoming economic indicators and potential Fed moves. If oil prices begin to slide, it could trigger a sell-off in related sectors, impacting equities tied to energy. Traders should keep an eye on key support levels in oil, as a break below those could signal further downside. Watch for any shifts in sentiment as the week progresses, particularly around economic data releases that could influence market direction.
📮 Takeaway
Keep an eye on oil prices and related equities; a break below key support levels could signal further downside.
