Oil prices may be holding firmer in pushing higher this week but overall risk sentiment is keeping on edge as investors are still holding out hope that there will be some positive news to come. Considering that oil prices are up about 17% on the week, the S&P 500 is down only 0.3% and Nasdaq down by just 0.1%. That is really not bad, all things considered.
Is that a signal that there are diverging camps starting to form in broader markets? Perhaps. But if anything else, it is worth noting how different asset classes are responding to the latest US-Iran headlines.
As things stand, there is still no firm timeline on when both sides will sit down to talk again. Iran continues to maintain a hard line in that they will not negotiate while under threat. In other words, they will only consider talks if and when the US naval blockade is lifted. Until then, the Strait of Hormuz will also still remain in de facto closure.
Meanwhile, US president Trump had a lot to say about the situation yesterday. He put the blame on Iran in saying that the leadership in Tehran is in shambles at the moment.
“Iran is delaying because they don’t know who they’re talking to.”
He also added that he will not be rushed into ending the war and that he has “all the time in the world” to ride this out. I’m not sure if that is the case, especially for someone who needs to worry about his political image back home and also for someone who benchmarks his achievement via the stock market.
The latter is perhaps a reason why equities are feeling bullish as they know that they can fall back on the Trump put at the end of the day.
That being said, the current situation may feel a bit convoluted. If stocks don’t drop by that much, Trump won’t feel the pinch as badly to want to put an end to the war.
In case you need a reminder, he was very much in a tough spot around this time last month when oil prices were surging and equities were taking a dive. Now, he can even go so far to brag that he has “all the time in the world”. No pressure there.
For a war that was supposed to meet its conclusion in “four to five weeks”, we’re now poised for nine weeks of a high stakes standoff. All the while, the Strait of Hormuz remains closed and global oil supply tightens further day by day.
The overall risk mood is on edge so far today with US futures holding flattish. In Europe though, major indices are down around 0.5% to 1.1% but this week’s drop will mark the first in four/five for stocks in the region.
In the currencies space, we’re not seeing the dollar do much again in European morning trade so far. Major dollar pairs are flattish mostly and trading within 0.1% change of one another.
Markets are very much gripped at the moment as traders remain on edge in waiting to react to the next round of headlines before the weekend comes along.
This article was written by Justin Low at investinglive.com.