As oil prices continue to move up, there was a surprising rally in US stocks yesterday. But after some fake news chatter overnight, that is putting a dampener on the risk mood as we get into the new day. S&P 500 futures are now down 0.5% with the cautious optimism this week being uncovered to be a rather fragile one.
All it takes is one negative headline blip and it could all come undone. And after having that exposed for just a moment, we’re starting to see a more nervous mood again.
As a reminder, US president Trump has set no deadline to the ceasefire extension this time around. And on the Iran side of things, they are continuing to maintain that there is no point for negotiations so long as the US naval blockade continues. So, we’re basically at a high-level stalemate until someone decides to cede some ground.
Markets were quite convinced that there will be some good news eventually, and I’m sure there will be. The main question though is when is that going to come? Is it a few days from now? Is it a week from now? Is it a month from now?
And the longer this goes on, the reality of the situation is that global oil supply continues to tighten further. There was just one vessel that transited the Strait of Hormuz in the whole of yesterday. Yes, just one. That being Panama-flagged bulk carrier, LB Energy. Other than that, no other ships were willing to even attempt the crossing with Iran having attacked a couple of vessels yesterday.
So yes, the waterway is still in de facto closure.
The longer this drags on, the more markets have to realise that this is going to have a more profound impact on the global economy. Adding to that is the more embedded impact it will have on price pressures in major economies too. And that means central banks will be slowly wrestled off the path of cutting interest rates and having to either be more hawkish or neutral at the very least.
In that lieu, this fragile optimism is starting to look more and more dicey as each day passes. Think of it as being pushed one step closer to the edge of walking the plank. Markets are banking on something or someone *coughs* Trump *coughs* to rescue them but at some point, there will be no firm footing to stand on anymore.
