Despite ominous headlines, oil prices did not rise on Monday and market fears of the conflict spreading remain low. Is complacency too great, setting most up for failure or are the events just indeed noise?
The Middle East accounts for about a third of global crude production, but there have not been any signs of disruption to physical oil flows, including cargoes going through the Strait of Hormuz chokepoint that carries about a quarter of the world’s seaborne oil trade.
In fact. Bloomberg reports that since Isreal’s attack began, there have been signs that Iranian oil shipments out of the Gulf have risen rather declined.
Iran’s government voted to shut down the Strait, but calls are essentially ignored perhaps the result that Iran relies very heavily on the passageway. The US maintains a strong naval presence in the region and the blocking of the Strait can potentially cause severe military repercussions.
Bloomberg reports however that tanker rates are up over 200% since hostilities erupted 10 days ago and at this juncture do not appear to be weakening.
Treasuries are also ignoring the geopolitical events, and the market has priced in a reduction at the September FOMC meeting and another one by year’s end. The market has also lifted the odds of a third reduction to about 25%, up form 13% on Monday.
The dollar erased its recent gains following comments by a Fed official that a rate cut could occur as early as July.
Midafternoon, Iran fired missiles at Qatar, all of which were successfully intercepted. The Newswires called these attacks as part of the “de-escalation play book.” Crude fell about 7% on the news. Equites added to nominal gains and Treasuries remained around current levels.
Will Iran act out of desperation?
Most times the events of war are unquantified.
What will happen today?
Last night the foreign markets were up. London was up 0.30%, Paris up 1.14% and Frankfurt up 1.82%. China was up 1.15%, Japan up 1.14% and Hang Seng up 2.06%.
Futures are up about 0.6% on a tenuous ceasefire between Iran and Isreal, spurring cautious optimism to a lasting resolution. Oil is off about 2%. Reports have indicated that both sides have already violated the truce.
The 10-year is up 4/32 to yield 4.33%. The markets are now anticipating FRB Chair Powell’s Congressional 2-day testimony about the state of the economy and monetary policy.
