Markets Being Driven by Sentiment, Volatility, and Tweets Are Tricky to Navigate
Aussie dollar and Chinese equities emerge as the winners during this period of war and elevated uncertainty.
Key Takeaways
Events and Sentiment Are Shifting Markets Rapidly: All markets are being driven by sentiment and volatility — whether it be off-the-cuff comments from the President hinting at a near-term conclusion to the war, or a misleading tweet from the Energy Secretary Chris Wright, who stated on X that “The U.S. Navy successfully escorted an oil tanker through the Strait of Hormuz to ensure oil remains flowing to global markets.” This was since taken down — meanwhile, a cargo ship was just struck by a projectile in the Strait.
Iran’s Military Retains Retaliatory Capacity: What is becoming clear is that Iran has a high tolerance for pain. Then again, all we need to do is go back to that eight-year war with Iraq in the 1980s. There were more than 200,000 Iranian casualties in that long conflict, many of them kids sent to the front lines. What also has become clear is that even with its military capacity seriously degraded, there remains enough to wreak havoc on Israel as well as military assets and energy infrastructure in the Gulf region. The Strait of Hormuz has been weaponized in a way that seems to have been underestimated at the onset.
The Australian Dollar and Chinese Equities Are Rallying: The Australian dollar and the Chinese stock market have become the refuges during this period of heightened volatility. The former is benefiting from a hawkish RBA and the fact that Australia is a net commodity exporter. The latter is helped by Beijing’s energy strategy — stockpiling cheap oil last year with a +16% YoY import surge that has led to a 1.2-billion-barrel inventory or about 115 days of supply, embarking on a green energy wave of solar and wind supplies, and stimulating coal production to a record high.
