Read on the Trading Floor - 19 April 2024
Today’s focus… known unknowns, CB speak, Erdogan may have been right and much more
Macro Themes At Play
Theme 1 - Restraint, de-escalatory, limited, nerves, known unknowns, what ifs...
Theme 2 - A wave of CB speak this week, with the Fed the only one adjusting their message
Theme 3 - What if Erdogan was right?
Theme 4 - Week Ahead Previews
Further reading and listening of note
Theme 1 - Restraint, de-escalatory, limited, nerves, known unknowns, what ifs...
The market has spent the week waiting for Israel's response and overnight call levels triggered as Israeli drones have reportedly hit a military base in the middle of Iran.
The calculus is continuously evolving and the ball is back firmly in Iran's court.
#1. The west are trying their best to ease tensions
#2. Domestically, the perception from afar is both Israeli and Iranian citizens have shown support for their governments/regimes
#3. The current lack of a nuclear deterrent distorts the West's thinking on Iran/Israel relative to Ukraine/Russia
#4. Will Iran retaliate once again or show restraint?
#5. Who benefits from a war?
The current "perception" is that the Israeli strike appears to have matched Iran's in terms of target, scope and damage. The verbal response from the Iranian regime has been controlled, limited and has crucially not called for revenge (yet). So, have we seen the last step in an "escalate to de-escalate" tit for tat between the nations?
Bringing it back to the markets. The continued sense into the weekend is hedge and/or unwind now, think later... There will be a natural paralysis to add new risk into the weekend. The rising tensions in the middle east have added to the April slide in assets as Fed rhetoric has shifted on the back of the inflation story, leaders in the Mag7 have come under pressure due to individual stories (e.g. Tesla and Apple), positioning and sentiment was frothy, tax season has been well flagged, buybacks lag during earning blackouts, the probability has shifted away from a soft landing towards a rekindling of a "higher for longer" induced hard landing and of course the mkt is nervous of the known unknown risks in the middle east ... cash, gold and bonds are king as investors look for certain returns in an uncertain world?
However, if and it is a big if, we've seen peak tension between Israel/Iran and the current market consensus is correct that both sides have followed the correct playbook to de-escalate the situation with their actions, then the blowout highs in USDMXN, capitulation hammer lows in equities maybe a short-term nadir in risk sentiment.... Time for the second half of April seasonals to kick in?
Brent Donnelly am/FX - Blowoff
Capital Spectator - Is Israel’s Strike On Iran The End Or The Beginning?