There is a nice pop in risk assets after Netanyahu posted a statement that Israel will open direct negotiations with Lebanon as soon as possible. The negotiations will focus on disarming Hezbollah and establishing peace.
Here it is (translated):
In light of the repeated requests from Lebanon to open direct negotiations with Israel, I instructed the cabinet yesterday to open direct negotiations with Lebanon at the earliest possible time.The negotiations will focus on the disarmament of Hezbollah from its weapons and the regulation of peace relations between Israel and Lebanon.Israel appreciates the call today by the Prime Minister of Lebanon to demilitarize Beirut.
It seems there is still some negotiating to do but it’s not exactly easy to ‘demilitarize’ Beirut without causing a civil war. There is major international pressure on Israel to stop strikes on Lebanon as part of a ceasefire and reopening the Strait.
The report says Netanyahu’s approval of negotiations with Lebanon came after phone calls with Trump and Witkoff.
To me, the most important thing remains that Trump wants an end to hostilities with Iran and he wants the Strait reopened. There are going to be some tough negotiations around that and Iran has a fairly strong hand to play in order to get sanctions removed, funds released and even some tolls in Hormuz. It looks like they’ll have to give up uranium or leave it deep underground but they’ve shown the ability to shut down Hormuz and that’s likely to be a strong disincentive against future attacks.
What’s less clear is what direction the new leaders in Iran will take the country and what role China might play in that.
Update as Axios cites a senior official who says “There is no ceasefire. The negotiations will begin in the coming days.”. The message seems to be that attacks will continue during negotiations. At the same time, it appears that Iran is going to be allowed to severely limit Hormuz during negotiations.
The S&P 500 is at a session high, up 23 to 6805. Oil has also given back some gains and Treasury yields are back to flat.
This is a great sign for broader peace.
This article was written by Adam Button at investinglive.com.