The one from which more details were expected about the end of the conflict in the Middle East has disappointed the markets that on Wednesday’s trading started. The US president’s statements that he would hit Iran “extremely hard” have dashed all hopes for clarity on when the war might actually end. The stock markets, therefore, cut back this Thursday, oil rises 6% and the dollar recovers its upward path. European futures fell 1.9% and US futures fell 1% while Asian stock markets were preparing to close the day with cuts of more than 1%.
The prospect of an end to the US-Israel war with Iran, which is in its fifth week, boosted global stock markets yesterday – their biggest rise in a year – and caused the dollar to fall from its recent highs in the last two sessions, after a brutal March in which rising oil prices caused risk assets to plummet. This is the third time that Trump has sent a reassuring message to stop the rise in oil prices. However, immediately after the speech, investors sold almost everything except the US dollar again, causing oil prices to rise.
“Trump’s intervention was not what the market expected, that is, signs pointing to the end of the conflict,” says Jumpei Tanaka, director of investment strategy at Pictet Asset Management Japan. “Instead, he suggested a possible escalation. The statements are being interpreted as a negative factor for the stock market,” adds the expert.
In the speech, which lasted almost 20 minutes, Trump did not outline any changes in policy towards Iran, nor did he give details about how operations would develop beyond what he had previously said. Trump affirmed that fundamental strategic objectives are close to being achieved, in his speech from the White House. However, the president suggested that military operations could soon intensify, saying: “In the next two or three weeks, we are going to return them to the Stone Age, where they belong.”
“The market has been craving some clarity on when the conflict will end, but this talk has only added more uncertainty,” said Nick Twidale, chief market analyst at AT Global Markets. “Investors are clearly not impressed and I think we could see more declines in global markets today.”
For his part, Jon Withaar, senior portfolio manager at Pictet Asset Management in Singapore, points out that “the fact that we can expect two or three more weeks of action, that the deployment of troops on the ground has not been ruled out and that threats to infrastructure have been reiterated puts the market on the defensive again, especially as we approach the long weekend.”
The oil reaction has not been long in coming and the contract brent for June it rises more than 6%, approaching $107 per barrel, after falling below $100 yesterday, after investors found little reassurance in the speech, which did not specify when or how the Strait of Hormuz, a critical route for fuel transportation, would be reopened to alleviate supply disruptions. Trump’s comments also reignited concerns about stagflation, the toxic combination of high inflation and weak growth that roiled markets in March.
The US dollar has been investors’ preferred haven during the turmoil and the greenback rose against most currencies after the speech. The euro weakened 0.25% to $1.156.
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