Trump says Iran war "close to over" amid hopes for more negotiations
The market opened strongly on reported negotiations with Iran, but was cut in half in the first half hour. Uncertainty remains as to who is negotiating for Iran. Another wild card is Israel. One encouraging sign is that it was reported that 9 ships made it through the Strait of Hormuz yesterday.
Interest rates are down across the yield curve and globally, still very elevated since the Iran conflict began. The tension here is that this oil shock is arguably the biggest ever, when considering that the Strait of Hormuz has been largely closed for the first time, and severe damage has been done to production facilities, leading to an extended period of supply shortages, virtually guaranteeing a rise in inflation in the short term. An extended oil shock also has the potential to create meaningful recession pressure. Central banks must deal with the specter of stagflation, the least desirable circumstance.
On a positive note, the strength we’re seeing today is a glimpse of what we should see when the conflict in Iran is resolved. Equities are strong, with tech leading, precious metals are rebounding, and even crypto is well bid. Investors want to buy the dip. The sooner energy prices come back down, the better.
Inflation remains problematic. The import price index for February, expected to be flat with January at 0.6%, came in at 1.3%, the highest since April ’22. The export price index was expected to fall a tick from January’s 0.6% and came in at 1.5%, the highest since June ’22. It is the small caps, the Russell 2000, usually the most interest rate sensitive group, that has held up the best, and is the only major index positive YTD, an encouraging sign.
The brinkmanship continues, and crude prices are inching higher. The trend remains volatile, but the dip buyers are ready to move when the Iran situation becomes resolved.