Reprieve = Relief Rally
Did Trump cave or is he just buying time?
Key Takeaways
Relief Rally Runs Ahead: The risk-on trade is now on steroids over this two-week ceasefire that has at least temporarily reopened the Strait of Hormuz — but apparently on Tehran’s terms. The major issue is that investors have moved immediately to price in the end of the war at a time when it seems very difficult for the President to agree to any of Iran’s ten demands.
Sharp Moves Dominate Early Market Action: The market response has been swift and dramatic. Brent crude has plummeted by as much as -16% to below $92 per barrel, and WTI is down nearly -20% (worst day since the onset of the 2020 global pandemic). European gas prices are off -20%. The Asia-Pac equity market composite has surged by more than +5.0%, and the Euro Stoxx 50 index is up +4.5%. U.S. equity futures have spiked between +2.0% and +3.0% — the S&P 500 looks poised right now to pierce the 200-day moving average in a bull-run move for the first time since the aftermath of the Liberation Day reprieve nearly a year ago. The VIX collapsed to below 21x from around 26x and the nearby 35x peak. Talk about a swift reaction — most of this relief rally is already priced in!
Beijing Emerges as the Quiet Winner: The DXY dollar index has plunged from around 100 to a four-week low of 98.7 and, with that, the Chinese yuan has emerged as the darling, hitting a three-year high overnight, and there is little doubt that Xi Jinping comes out the biggest winner from this mess because this conflict cost Beijing absolutely nothing, but did cost the U.S. a whole lot in terms of depleted armaments, a weakened fiscal backdrop, and greater global isolation due to the Trump tariff file (don’t think for a second that in the next twelve months, there is no potential for a blockade of the Taiwan Strait… which Beijing has long been planning for).
