By Anna Szymanski
March 27 –
Everything Mike Dolan and the ROI team are excited to read, watch and listen to over the weekend.
From the Editor
Hello Morning Bid readers!
Whoever said “talk is cheap” isn’t following President Donald Trump on Truth Social. A single social media post from the U.S. leader on Monday claiming that “very good and productive” talks had taken place with Iran was enough to reverse the direction of trillions of dollars in financial assets. (For traders behind some remarkably well-timed bets, it was a very lucrative day indeed.)
After Trump said he was delaying his previous 48-hour deadline for Iran to reopen the all-important Strait of Hormuz to five days, oil prices plunged more than 10%, while global stocks rallied, the dollar weakened, yields fell and gold rose. Most of these moves didn’t prove durable, but the power of a single all-caps message was remarkable nonetheless.
Trump may have been aiming for a repeat of Monday’s magic on Thursday, but the results were mixed.
Following a bruising day for markets, with the tech-heavy Nasdaq slipping 2% to officially enter correction territory and Brent crude prices up almost 6% to over $108 a barrel, President Trump announced that he was extending his deadline for attacking Iranian energy plants yet again to April 6 (8 PM EDT), saying talks with Tehran were going “very well.”
In response, U.S. equities pared their losses, but only modestly, and crude prices merely stabilized. As of early Friday, oil was rising yet again, with Brent edging over $109/bbl, and S&P futures were back in the red.
Additionally, stocks in Asia – the region most heavily impacted by the energy supply disruption – continued to tumble, with South Korea’s KOPSI falling nearly 4% on Friday.
The dwindling “power of the post” may reflect the decidedly mixed signals coming out of Washington and Tehran.
While the U.S. president claims Iran asked for a seven-day reprieve, the Wall Street Journal cited mediators who said no such request had been made. Tehran has also rejected Trump’s 15-point proposal to end the conflict, and the U.S. is looking to send an additional 10,000 troops to the Gulf, according to WSJ reports.
So dramatic escalation may be in the cards, or we could see a deal in two weeks. Good luck pricing that.
What we do know is how financial assets have reacted thus far – and it’s sometimes counterintuitive.
Both Treasuries and gold have weakened since this crisis began on February 28.
The former is unsurprising given inflation fears and expectations for a hawkish shift at the Federal Reserve, not to mention roughly 300 years of financial history. A series of poor debt auctions is signalling more potential danger ahead in the $30-trillion Treasury market.
But the softening in bullion has caught many off-guard, suggesting it may be time to rethink the concept of a safe haven.
Investors also remain on edge about risks in private credit, which would likely be the biggest story in markets were it not for the war. Ares Management and Apollo Global Management were the latest to cap investor withdrawals from private credit funds after a spike in redemption requests.
Perhaps the asset to run to is … U.S. equities? While stocks have wobbled amid the geopolitical turmoil – especially given ongoing concerns about artificial intelligence spending and technological disruption – several big banks are now upping their S&P 500 forecasts on expectations of bumper earnings growth. The bull case is more compelling than you might think.
Back on the energy front, the oil futures curve still seems quite optimistic considering the level of supply disruption – as high as 20 million barrels a day – and the amount of damage to energy infrastructure. Investors appear to be banking on a relatively swift conclusion to the conflict resulting in the full reopening of the Strait of Hormuz, but by pricing this in, they may, ironically, be making it more likely that the narrow waterway remains mostly closed.
President Trump may have been willing to initiate the Iran war because he was convinced that America’s vast oil wealth would insulate the country from an energy shock. But with U.S. gasoline prices inching up toward $4 a gallon, that gamble does not appear to be paying off.
While the average U.S. consumer has arguably never been better equipped to deal with $100/bbl oil, the U.S. public certainly doesn’t appear pleased with the current state of affairs. Only 29% of the country approves of the president’s handling of the U.S. economy, according to a recent Reuters/Ipsos poll, the worst rating President Trump has ever seen on this question.
Ultimately, the gas market may be hit harder by the Middle East war than its crude counterpart, given its relatively inflexible supply chains, limited storage options, and difficult-to-repair infrastructure.
That’s bad news for heavily gas-dependent Europe, which may be forced to trim its ambitious climate agenda in the wake of this crisis.
However, on the flip side, the war may speed up the energy transition in Asia, particularly the adoption of electric vehicles, which is excellent news for EV powerhouse China.
Speaking of China, President Trump announced that his trip to Beijing to meet President Xi Jinping – which was due to take place next week – has been rescheduled for mid-May. This signals that the U.S. president expects the war to be mostly wrapped up in the next six weeks. For investors and everyone impacted by the war, that likely seems a long way away.
For more data-driven insights on markets and commodities, check out Reuters Open Interest. You can learn:
Morning Bid Weekend will be off next Friday for the long holiday weekend. To those of you celebrating, happy Easter and chag sameach!
I’d love to hear from you, so please reach out to me at .
This weekend, we’re reading…
MIKE DOLAN, ROI Finance & Markets Columnist: This New York Fed paper is the latest attempt to model global r*, calculated by looking at trends in this elusive neutral rate worldwide. Researchers found it has risen about one percentage point since the pandemic, though it’s still below pre-1990 levels.
GAVIN MAGUIRE, ROI Global Energy Transition Columnist: This compelling read from our Reuters colleagues examines the allure of Chinese EVs to U.S. car buyers, who are not allowed to purchase them legally. It’s a revealing example of industrial policy clashing with consumer tastes.
JAMIE MCGEEVER, ROI Markets Columnist: Three months before going to war with Iran, Trump signed a National Security Strategy expressing a “clear preference for non-intervention.” In a Project Syndicate op-ed, economist James K. Galbraith asks the obvious question: what happened?
CLYDE RUSSELL, ROI Asia Commodities and Energy Columnist: This Lloyd’s List article analyses Iran’s newly imposed toll system in the Strait of Hormuz, going beyond the news to weigh the risks and rewards for shipping.
We’re listening to…
ANDY HOME, ROI Metals Columnist: This week I joined Adrian Pocobelli on The Northern Miner podcast to discuss how the Strait of Hormuz blockage is hitting an already fractured metals market – aluminium and tungsten supply chains in particular. Tungsten stands out: it’s a key input for the missiles and munitions being fired across the Middle East.
And we’re watching…
JAMIE MCGEEVER, ROI Markets Columnist: This discussion features two voices always worth listening to: Nobel laureate Paul Krugman and economist Robin Brooks, who discuss Iran, oil, the dollar and at lot else in between.
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Opinions expressed are those of the authors. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Anna Szymanski)
