With the amount of headlines crossing, the misinformation and disinformation, I'm not sure we managed to gather all too much yesterday. The bottom line is that Iran has returned to maintaining a de facto closure of the Strait of Hormuz since the weekend. And after, Tehran officials are maintaining a hard line in their negotiating position ahead of any talks. It looks to be the typical grandstanding before the next round of negotiations though.
As for the US camp, president Trump continues to talk up hopes for a deal and continues to proclaim that "I am winning this war by a lot". He even went as far as saying that the deal that will be struck will be far better than the JCPOA before this. So, that's how confident he is that something will be done. And for now, markets are continuing to feed off that for the most part.
After nudging up yesterday, oil prices are sitting back down today with Brent crude lower by 0.7% to $94.82 while WTI crude is down 1.0% to $86.50 currently. Meanwhile, the US dollar continues to be rather constricted amid a lack of conviction and the mixed geopolitical messages. As for equities, S&P 500 futures are up 0.2% after a mild drop of the same magnitude to start the new week overnight.
All in all, the broader market reaction continues to signal that things are not that bad. And come what may, traders and investors are expecting a positive outcome sooner rather than later.
As a reminder, the initial ceasefire agreement will expire tomorrow. However, another round of talks is poised to take place in Islamabad in the coming two days. I would expect the ceasefire to be extended as such, with both sides still feeling each other out in trying to fit the pieces for a potential deal.
While risk trades might warm to the idea that a ceasefire extension is a good thing, let's be reminded that this just means a further prolonging of the closure of the Strait of Hormuz. This was an issue that was supposed to be resolved in "four to five weeks", as per Trump's initial timeline.
A further two weeks extension will mean that the crucial waterway will stay closed for ten weeks. And with each passing day, the toll that is paid by every day consumers and businesses will continue to stack up.
