Not Exactly Peace in Our Time
The de-escalation trade shifts into reverse.
Key Takeaways
Hormuz Blockade Risks Retaliation: The big news overnight is the announcement from President Trump that he intends to implement a full naval blockade on the entire Strait of Hormuz (so long as the vessels do not stop at the Iranian ports) following the collapse of talks with the Iranian delegation over the weekend. The next question will be how Tehran retaliates. It is not just the Iranian reaction, but also China’s (which has already issued warnings of its own).
Metals Follow Oil Higher: Oil has unsurprisingly spiked nearly +9% to $104 per barrel, and with that, U.S. equity futures are in the red, and Asia-Pacific, Emerging Markets, and the Euro Stoxx 600 are all off around -0.8%. Why the equity markets have not been clobbered more is that the marginal investor believes this step by Trump will prompt the regime to begin living up to its commitment to restore traffic in the Strait (with the regime’s oil export revenues about to be severely crimped). Aluminum has joined crude oil on the up-escalator, firming +2.0% to a four-year high — watch copper, platinum, and fertilizer follow suit.
Hungary Turns the Page: Lost in all the commotion over the Trump blockade announcement was the historic election result in Hungary, where Orbán’s sixteen-year tenure came to a resounding close — the rival Tisza party led by Péter Magyar emerged with 53.6% of the vote and 138 seats (a two-thirds super-majority). Markets have reacted very positively, with the forint surging +2.5% to a four-year high and the broad Hungarian equity market rising more than +4.0% to a new high. In short, investors are treating this as perhaps the most bullish political shift to hit Europe in many years — notably a key potential turning point for Hungary’s economy and markets as the country’s relationship with the EU is set to enter a new and more constructive chapter.
