Investors may continue cheering as Trump seems to lay the groundwork for concessions
Chaos, who cares? – Will US and Iranian negotiators meet in Pakistan today? Tomorrow? Tehran made positive comments, while also refraining from a clear confirmation that it would send a delegation to Islamabad. US President Donald Trump expressed optimism about reaching a deal, saying an extension to the ceasefire is unnecessary. He also menaced Iran with fresh war. In addition, the Commander-in-Chief criticized the Obama-era accord with the Islamic Republic and said it would be hard to find Iran’s uranium “dust.” Markets are upbeat, and Oil prices remain down despite the ongoing blockade of the Strait of Hormuz.
Why it matters
TACO time – Trump seems to try to deflect potential criticism about any concessions to Iran, whether by allowing development of nuclear capabilities, a slow process of extracting the uranium already enriched by the country, sanctions relief or anything else. That shows he is wary of voters, who are unsure what the war was about and are angry at the price at the pump. Markets smell that “chickening out” and are rising. They do not care about the details, as long as energy prices come down. There is always the risk that hardliners in Iran, emboldened by their massive leverage in the Strait of Hormuz, overplay their hand and push demands too far.
What’s next
Extension eyed – Markets will be content with a prolonged truce in the war, even without a deal. Investors assume that the Strait will open soon, as negotiations are making progress. An outright reopening of the critical waterway would boost Stocks and hurt Oil, but not as much as on Friday. Failure to provide any ceasefire extension or to confirm progress on talks could trigger a violent reaction in the other direction.