Market Update - Trading the Unknown

After coming off a holiday weekend and entering a lower liquidity environment today, the market is primed for more volatility, setting up for when Trump takes the podium at noon central time today to discuss the current Iran war. Off the heels of a stronger-than-expected jobs number on Friday (which had lower conviction given it was pre-Iran war), we are left with more of a longer digestion period with traders reentering the office today. That said, traders are mostly cognizant that it’s baby out with the bath water depending on what gets communicated in regards the developing war saga.

With oil now up to $110 a barrel, the inflationary pressure is palpable. The recognition is that the longer the Strait of Hormuz remains in lockdown, the greater the potential fallout it creates. The resiliency of stocks and even bonds (given the jobs number) are a testament to the reality (or the lack thereof) of what impact the war is currently having. More impactful is the volatility of simply not knowing, and the source of information is simply becoming increasingly unreliable (basing on the market’s reactions). Will there be a cease-fire? Will there be retaliatory responses to the threats if the strait doesn’t open? How much leverage does US have to strike a deal? There is much more unknown than known and considering that the path forward lies in finding slivers of certainty, we find ourselves now consolidating in wait-and-see mode.

The support we have currently is based on a very thin line of cease-fire talks. Word of a 45-day cease-fire and a full reopening of the strait being on the table begs the question on the validity that the two camps can come to any agreement. There are also a few signals of ships making it through the strait through safe-passage agreements being brokered directly with Iran, which isn’t the solution we are looking for. It’s not about what gets communicated at today’s news conference, it’s more about what the market is willing to trade on.   

Not surprisingly, I’d continue advising not taking on pipeline risk going into the press conference today. Let’s hope we hear about some forward progress as events continue to unfold. 10 & 2!