9th July - "It's Over"
- Jul 9
- 5 min read
Yesterday, Trump was speaking at a NATO summit and, when asked about the ceasefire, declared that "it's over," saying "I don't want to deal with them anymore… They're scum," and later threatening "we're going to hit them hard tonight." All of this has come off the back of heavy strikes by the US overnight on Tuesday and was backed up by more strikes on Wednesday night. In a speech to NATO yesterday, Trump then said that he was not sure he wanted to make a deal with Iran's leaders, before also saying that he did not think the war would start again.
Trump has this morning said that Iran has "called a little while ago," and that "they want to make a deal so badly," before saying "I just don't know if they're worthy of making a deal, I don't know that they're gonna honor the deal."
While Trump is well known for bluster and exaggeration when speaking, the strikes themselves are genuinely significant developments and, if sustained in the longer term, have the potential to make the prospect of a deal seem much further away than it did at the start of the week. The key sticking point of control of the Strait of Hormuz looks to have not made any progress, and with the recent strikes, it seems this is unlikely to be resolved anytime soon without a significant change in position from one side.
The markets have reacted by moving to assets less affected by volatile energy prices, while oil has seen another jump on the day, with Brent Crude Oil rising 4.33% yesterday. Interestingly, it has already pulled back 2% of that rise on this morning's comments from Trump, so we will have to see if the oil spike is temporary or a more permanent move back towards barrel prices in the $100s.
Prices for now are still not too far away from pre-war prices, so the markets are not panicking just yet. If the originally proposed resumption of talks on the 11th of July does not go ahead, I think at that point we may then see some further and more significant moves in the market.
Forex
The USD was an interesting currency to watch yesterday, as conflicting remarks from Trump meant the DXY was roughly level on the day overall. If markets believed the escalations were genuinely worrying, we would have seen a safe-haven bid in USD, as we saw at the start of the conflict. The implication is that while there was some positioning to protect against higher oil prices yesterday, the market as a whole is seeing this, for the moment, as a more extreme version of a negotiating tactic. It would seem the market believes the two sides will come back to the table in the not-too-distant future to continue discussions, with the strikes a way to let the other side know how serious they are.
The USD/JPY remains close to the recent high, so the threat of BoJ intervention is still looming over the pair. The JPY as a whole has performed poorly overall for the past few days, as has the CHF, as markets are not using these energy-dependent economies as safe-haven assets for the time being. Should the USD start to catch a safe-haven bid if tensions continue to escalate, this could spell real trouble for the BoJ and really force them to decide between significant intervention and abandoning their stance. A key few days are ahead, once again, for this pair.
The NZD was another interesting pair yesterday, coming off the back of the RBNZ's interest rate hike to 2.5% early Wednesday morning. The hike was largely expected but not completely priced in, so we saw a spike in the NZD yesterday morning. The demand for the currency was muted, however, thanks to the guidance that came with it. The RBNZ was the first central bank to revise their inflation expectations downwards, citing lower oil prices. While this did come before the US strikes and the rise in oil over the past 2 days, the dovish stance nonetheless put a cap on NZD's upside in the longer term.
CAD was the big winner yesterday, with spiking oil prices boosting demand in the oil-producing nation. If the oil spike is longer-lasting, we could see more CAD strength, but it is worth being wary of whether this is a temporary move. Should oil fall back lower, CAD will feel the pain from lower oil in the same way it saw the benefits from higher oil yesterday.
The EUR and GBP were largely flat, with GBP outperforming the EUR thanks to the smooth PM transition story over the past few weeks.
Indices
Yesterday was a poor day for the Dow, falling 1.15% due to the uncertainty coming from the Middle East. Interestingly, this fall was not replicated in the S&P or Nasdaq, which only fell 0.37% and 0.15%, respectively. This divergence is the opposite of what we have been seeing for the past few weeks, with capital seemingly moving back into mega-cap AI/tech stocks that are less sensitive to higher inflation and interest rates. This is not yet a reversal of the trend from growth to value, but it is an interesting wrinkle in the pattern we have seen play out recently. As mentioned earlier, the test will be whether the tensions remain escalated and strikes continue long term, or whether this is just a temporary blip in the process.
Q2 earnings season begins next week, which will add further intrigue to an already fascinating market picture. Will the mega-tech stocks need blowout earnings to keep momentum, as we saw with Samsung this week, or will anything less than the best possible results lead to falls in AI stock valuations?
Precious Metals
Yesterday was another negative day for metals, as they faded their recent rise for a third day. Once again, metals failed to gain any meaningful safe-haven demand and instead suffered from higher inflation fears. This continues the theme since the start of the war in Iran; metals are currently almost exclusively at the mercy of rate hike expectations in the US. This is not likely to change over the next few weeks, so we will continue to see metals be very sensitive to oil prices and any news releases that will affect interest rate expectations.
Today's Market Drivers
Iran - As with yesterday, markets will be keen to see whether the raised tensions are part of a broader negotiating tactic or whether the war is really about to recommence. Comments from both sides will be closely monitored.
US Unemployment Claims, 1:30 pm UK time - Weekly figures and so not as impactful as monthly ones, these will nonetheless help to shape the picture of the US economy and will go some way towards affecting the next FOMC decision.
Comments