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Good morning, friends. Let’s take a quick look at the most important things that happened in the past 24 hours.
First, about negotiations. Obviously, we don’t expect any progress today. The situation around Iran is becoming increasingly tense. The U.S. ramps up pressure on sanctions: Restrictions on Iran’s fleet are expanded and Chinese banks are under pressure for cooperating with Tehran.
Trump directly stated that the only way to get Iran back to the negotiating table is to increase pressure. He even mentioned the possibility of rapidly destroying the country’s infrastructure. We’ve heard this before. Frankly, this seems to be a form of hyperbole or populism, and markets no longer react much to these claims.
Iran responded sharply. The most important one: the threat of closing maritime trade routes in the Persian Gulf, Strait of Oman and Red Sea.
This is an important point. The Red Sea problem is very serious. Many people underestimate it, but it is no less important than the Strait of Hormuz.
Remember what happened to the Ever Give ship on the Suez Canal in 2021? Just six days of disruption is enough to cause significant disruption to global trade.
Now imagine the entrance to the Red Sea is completely closed. Most likely through proxies such as the Houthis in Yemen. Iran has the resources and capabilities to achieve this goal.
If this happens, all trade to Europe will be forced to bypass the Atlantic and cross Africa. That means longer time, higher costs and significant pressure on global trade. Frankly, it’s hard to decide whether the closure of the Strait of Hormuz or the closure of the Red Sea is worse.
In addition, Iran refuses to establish safe sea lanes and claims that it will not accept any forced surrender. It demanded the lifting of sanctions and compensation for damages.
Against this backdrop, the negotiating agenda appears highly unstable. Officially, discussions took place – about a new ceasefire, Pakistan and the possibility of extending it. But in practice, the pressure is only growing.
The United States did not agree to an extension and Iran said there was no deal. The signals the market is receiving are entirely mixed.
Meanwhile, negotiations between Israel and Lebanon have not yielded significant results. Israel has not yet decided on a ceasefire, which could complicate talks between the United States and Iran, which does not want to lose its proxies in the region.
All in all, there is nothing positive happening in the Middle East right now. We just keep following.
Now about energy.
U.S. oil inventories unexpectedly fell, but exports hit a record high. It makes sense: With the return of sanctions on Russia and the Hormuz issue, the U.S. is filling this gap in the market.
Interesting note: Central banks have started selling gold despite geopolitical tensions. Typically, gold is considered a safe haven in such situations.
The reason is simple: increased military spending, increased energy costs, the need to support currencies – all of these require liquidity, so gold is selling off.
For the macro.
Still, economic data remains strong:
— China’s GDP grows by about 5% every year
——The UK also exceeded expectations
As for the United States.
Domestic political tensions are rising: Democrats are trying to limit the president’s military powers and there are rumors of impeachment of the Pentagon chief.
Trump continues to pressure Jerome Powell and demands he be fired — nothing new.
On the other hand, the U.S. Treasury Department is sending reassuring signals: Inflation is falling, interest rates may be cut, and the economy remains resilient. How does this fit into the current situation? Open question.
Finally, there is the market.
The S&P 500 hit an all-time high. Big banks including Morgan Stanley and Bank of America reported strong results.
At the same time, hedge funds are opening short positions on the U.S. dollar, estimating that the dollar is overvalued by about 20%. This indicates that the dollar may weaken in the coming period.
That’s all for now. We will continue to monitor the news and markets during the day.
