What we know
Trading last week continued to be driven by news around the US-Israel war with Iran. Much of the trading last week was within a tight 10-cent range, barring Monday’s highs and a late rally on Friday afternoon.
On Friday afternoon, a flurry of news caused a knee-jerk reaction in the oil price, causing a drop of 10% in a few hours. Iran’s foreign minister declared that the Strait of Hormuz had been reopened and, for a few hours, it seemed we were heading in the direction of a resolution. However, this was short-lived as they backtracked on this statement the following day. The US seized an Iranian vessel, which has damaged trust and the already fragile ceasefire. This ceasefire has since been extended, although the blockade in the Strait remains in place whilst we await a decision from Iran on whether they are open to further peace talks.
After a week of what seemed like market consolidation, we are back to the expected volatility that comes with geopolitical conflict, seeing large swings in direction as the market attempts to adjust to new information, which at this stage is blurring the lines more than bringing clarity.
Looking at economic data flows, last week was muted in terms of high-impact data. Month-on-month US Producer Price Inflation was significantly lower than expected at 0.5%, compared to the 1.1% forecast. Despite the inflationary pressure expected to arise from the conflict, this does not seem to be reflected yet in production prices.
In the UK, GDP came out stronger than expected at 0.5% month-on-month.
What others say
Zero Hedge – Stocks say everything is fine. Gold disagrees
“Another record. Another milestone. Another signal that everything is fine. Right?“
Reuters – How 50 days of the Iran war led to the loss of $50 billion worth of oil
“Since the crisis began at the end of February, more than 500 million barrels of crude and condensate have been knocked out of the global market, according to Kpler data – the largest energy supply disruption in modern history.“
Visual Capitalist – Who Owns America’s $39T Debt
“Who really finances America’s $39T debt, and how much is held at home versus abroad?“
What we think
Last week we said that, “In this market, currencies aren’t moving based only on traditional fundamentals. They appear to be moving heavily on narratives, and right now the dominant narrative remains unchanged: The Dollar is strong when the world is uncertain, and the world is still very uncertain.”
It is clear that markets will remain uncertain as positive news seems to last only as long as it takes to read the headline.
In the week that lies ahead, we await to see if round two of peace talks takes place in Pakistan, with Iran stating that the US blockade in the Strait will prevent further negotiations. Should the current (reported) distance between the two sides be as wide as it seems, with neither willing to bend, the possibility of an imminent conclusion seems unlikely.
Economic data this week focuses on inflation, with data from Canada, the UK, Japan, and South Africa, which will provide insight into how the global shipping supply shock affects price levels. Inflation expectations across the board are significantly higher than previous releases.
If there’s been anything to learn from the past few weeks of announcements by Trump and the Iranians, it’s that the vast majority of what they have had to say is either bluff or bullsh*t. The lines between lying and negotiating are so blurred that we’re not sure if the parties concerned even know which they’re doing at any given point in time. Under such circumstances, trying to forecast the direction of markets is futile. Rather, we can simply provide a short-term range that we feel will encapsulate the outcomes of de-escalation versus an increase in tensions.
Our range for the week: R16.15 to R16.80.
Have a great week ahead.
