Markets reverse after Trump’s speech

​​​‘Back to the Stone Age’

​Last night’s speech didn’t sound like a president that was keen to end the war swiftly. Instead it looks like there are another 2-3 weeks of bombing to come, and ground troops continue to arrive in the Middle East. Talk of a ceasefire seems premature, and while some negotiations appear to be going on, the Straits of Hormuz remain closed.

​Trump’s goals to end the war remain unclear, and keep changing. This leaves markets confused, but every day that the Straits remain closed continues to pile the pressure on the global economy, boosting the prospects of higher and more sustained inflation, and a downturn in economic growth.

​Long weekend complicates the situation for investors 

​US markets face a three-day weekend, while UK investors have a four-day weekend ahead of them. Since the war in the Middle East began, markets have weakened on Thursdays and Fridays. The S&P 500 has gained over the first three days of the week since the war began, but has then posted losses of 9% on the final two days. 

​This long weekend and the potential for more military action may well mean that the selling is brought forward into Thursday’s session. Trump’s warning about bombing Iran to the ‘Stone Age’ suggests a more intense period of operations ahead, particularly if no deal is forthcoming. 

​Oil prices to keep rising

​Another few weeks of conflict intensifies the energy crisis hitting the global economy. It means more disruption from a lack of oil supplies, and a greater shutdown of energy infrastructure.  

​Oil prices moved higher after the US president’s speech, with Brent back above $100. Reports of more shortages will continue to push the price higher, amplifying the duration and magnitude of the crisis. 

​No resolution in sight

​Ultimately, markets are still awaiting an actual ceasefire that reopens the Straits of Hormuz. But Iran refuses to play ball with the US. This raises the risk that Washington will escalate to bring Iran to the table, and that could see more destruction across the Middle East.