Yesterday's thinking was that Trump would declare victory in Iran and announce the operation would be wrapped up shortly. Instead, he said they're going to bomb Iran "back to the stone age, where they belong".
The big bet in markets is whether or not energy infrastructure is targeted in strikes and whether the Strait of Hormuz will open. The latest war news is that a large bridge in Iran was blown up and that is another step down a dark road for Gulf infrastructure in general. Should Iran's oil be struck and they retaliate by hitting the rest of the Gulf, then it would take many months to bring production back online.
For the short term, it's now not looking like Trump is close to making a deal -- as he indicated yesterday. That has May oil absolutely surging today with the WTI contract up $13.09 to $113.15.
Other than a few hours in May, this is the highest that front-month oil has been in the US.
That move has filtered to other markets with the dollar broadly stronger, Treasury yields up 3 bps across the curve and S&P 500 futures down 1.5%.
This is a frustrating market. Trump isn't making any sense and no one in the administration is outlining a strategy to reopen Hormuz or make a deal for lasting peace. Saying he will bomb Iran "back to the stone age, where they belong" isn't the kind of thing to bring anyone to the negotiating table.
For Europe's part, Macron today said it will be extremely hard to open Hormuz via military means and hinted that it will require some kind of diplomacy but it's not clear how that might come about.
Trump last week set a deadline for this Monday at 8 pm ET for attacking energy infrastructure and you can see from the energy market's reaction that those odds have certainly gone up.
