Emma Wall, Chief Investment Strategist, Hargreaves Lansdown: “According to President Donald Trump, preliminary truce talks have begun with Iran. According to Iran, he’s living in la-la-land and the talks never happened. But the markets love hope, and the prospect of a ceasefire was enough to push Brent crude oil down 11% yesterday to below $100 a barrel for the first time in weeks. But the Iran denial, and a report that the UAE and Saudi Arabia are considering entering the war, has sent oil back up to $103. It’s foreign-policy-by-soundbite, but it is President Trump’s speciality. Announcing plans to extend the previous 48-hour deadline to open the Strait of Hormuz, or else, by five days, he sent a clear signal to the market that the US is ready to make a deal. Just a couple of days earlier, Trump had outlined plans to target Iran’s power plants, and Iran in turn had threatened energy and water infrastructure across the Middle East.
Opponents are calling it another TACO – Trump Always Chickens Out – trade, supporters hailing another example of the Art of the Deal, but either way equity markets rallied in inverse response to falling oil, with the S&P 500 up 1.15%, the NASDAQ up 1.38%. Intra-day trading saw markets at even higher levels, as the peace talk optimism boosted stocks and bonds. Yields on Treasury bills – US government debt – whipsawed through the day, as market expectations swung from escalation to resolution. Ending the day with 10-year T-bill yielding 4.36%, down from highs of 4.45%. Gilt yields started the week at highs not seen since the global financial crisis – such was the fear induced by the incendiary language over the weekend but similarly fell to end the day down. The 10-year peaked above 5% before falling to 4.86%. UK inflation, due tomorrow, is expected to fall to 2.8% in February from 3% the previous month which could dampen yields further.
Today, Asian markets are continuing the positive momentum seen overnight in the US, with most markets in the green. The Nikkei 500 is up 1.37% in Japan, China indexes in Shanghai and Hong Kong are up 1.5% and 2% a piece. Futures for the UK and Europe are more cautious however, indicating the FTSE 100 will open marginally down and the Euro Stoxx and DAX, reversing their respective rallies of yesterday, look set to open down, too.
In other positive news, a few tankers are trickling through the Hormuz strait, Japan and India have confirmed safe passage of oil and liquified gas shipments. A few ships posts more hope, but is out by some magnitude to the 100 tankers that usually pass through the 21-mile-wide waterway on a daily basis.
Investors should be mindful that one day does not a market make, and that these are whipsaw markets, near impossible to trade with conviction. But this is the most consolatory tone that President Trump has struck since the beginning of the month. As we previously mooted, Trump cannot afford a prolonged war – both from a financial and political point of view. Market levels, approval ratings and Mid-Term election forecasting will all be weighing on the President, and all pointing to conflict resolution. For now, lower oil lowers the market fears of recession. But that is not to say that the only way is up from here, investors should expect further volatility. Iran is a more complex negotiating partner than a few weeks ago – fractured and emboldened and won’t capitulate without compromise. We advocate taking a long-term view, enabled by diversified portfolios, with laser focus on your financial goals.”
|
