Market update: Trump overdelivers in hawkishness on Iran, USD rally continues

9 May

by Mihály Tatár


Good Morning!


  • Even for veteran geopolitical news watchers, Trump’s withdrawal from the Iran nuclear deal was quite a sight to see: I have never seen a US President, from Bush to Clinton, talking so determined and hostile about Iran, calling it the ’world’s greatest sponsor of terrorism’, with ’bloody ambitions’ to ’destabilize the region.’ (Oil traders seemed to be surprised too, and despite the decision being widely as expected, oil prices finished the day higher, WTI 70.60, Brent 76.70 USD). It’s worth adding that 1. Despite the humiliated EU trying hard to keep the deal and the business running, it is fighting an uphill battle with Washington already signalled its deadly serious: The US ambassador to Germany already warned that German companies operating in Iran ’should wind down operations immediately’. With all the sanctions reinstalled back to 2015, most European banks and companies will think twice about touching energy, debt, currency or even insurance and automobile related transactions with Teheran. Not even China is likely to provoke the US this time, as it would give Trump the perfect ammunition to sanction Chinese companies. Russia will keep doing business with Iran, but apart from weapons and nuclear deals, it has little to offer, and the dreams about the modernization of the Iranian oil industry are dead in the water. 2. While it is true that the direct impact on the oil market is limited – Iran’s exports are estimated to fall by 500,000 barrels a day from 2 million – after this Trump speech it would be naive to think the US will just stop here: Bolton has hinted new sanctions yesterday and I suspect the CIA will be quite busy this year, working a bit on the already quite unhappy Iranian population. (We will now know how the supposedly rational Iranian leadership really thinks – if they make good on their threat to re-start the nuclear program, ’two dozen air sorties will destroy the entire electricity generation and oil refining capacity of the country’, as veteran geopolitical strategist David Goldman put it). 3. It’s worth mentioning that Washington seems to be already unhappy with the high oil prices, and Treasury Secretary Mnuchin talked about the US ’having conversations with various parties’ to increase oil supplies. If WTI approaches 80 USD, expect some ’oil prices are too high, we will see to that’ tweets from Trump, in my opinion.


  • Otherwise, globally-thinking markets cared little about the news, and focused more on the US yields ticking higher   (SPX -0.03%, DAX -0.28%, Nikkei -0.45%, Shanghai -0.15%, US 10Y yield 2.99%), pushing forward the US Dollar (EURUSD 1.1840) and punishing emerging currencies further (EURHUF 315, USDHUF 266, EURPLN 4.29, USDPLN 3.615, since mid-April Thai Baht -3%, Mexican Peso -9%, Argentine Peso -12%, Brazilian Real -8%, Indian Rupee -4%, with the Turkish Lira scoring a fresh record low, 4.351 against the Dollar – and Turkish stocks dropping almost 30% in USD terms YTD – after the US threatened with sanctions.) Traders targeted Italian markets, too (MIB -1.64%, Unicredit -3%, Italian 10Y yield +10 basis points) after top Italian politicians began to talk about snap elections- with anti-Brussels parties more popular than ever – and Unicredit ran into capital calculation issues.


Have a nice day,



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