U.S. Indexes closed lower on Tuesday, albeit off morning lows, as the escalating Middle Eastern conflict continues to dominate trade, and newsflow. The Israel/Iran/US war shows no signs of slowing down, as from all sides the attacks continued far and wide, with Iran continuing to attack US bases in the Middle East; Axios reported that the UAE is considering taking military action to stop Iranian missile and drone strikes on the country. Note, reports suggested Iran hit the US consulate in Dubai. As such, WTI and Brent saw extensive gains, but are currently well off earlier peaks as US President Trump confirmed actions to attempt to resume shipping in the Strait of Hormuz, which is currently “closed”. Trump said, effective immediately, US is to provide political risk insurance and guarantees (at a very reasonable price) for financial security of all maritime trade, especially energy, travelling through the Gulf, and if necessary, US Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible. Prior to this, and in this morning trade, Bloomberg’s Javier Blas wrote an article titled, “The US Has to Reopen the Strait of Hormuz as Soon as Possible”, and within it said, “whether Trump wins the Third Gulf War will depend a lot on whether the Pentagon can effectively reopen the Strait of Hormuz for oil shipping, and soon. The American military does not have weeks to do so — only days”. Elsewhere, the Dollar saw heavy gains, again, to the detriment of G10 FX peers as Antipodeans lagged given the risk environment and also heavy metal selling, while the Canadian Dollar was the clear G10 outperformer, and even eked out gains versus the US Dollar amid the surge in oil prices. As mentioned, spot Gold was heavily sold, and briefly breached USD 5000/oz to the downside. Treasuries ultimately settled flat in two-way trade as eyes remain glued to the Middle East, and while there was no data yesterday, there was plenty of Fedspeak, but for obvious reasons took a back seat. In summary, Williams (voter, neutral) said further cuts will be warranted if inflation ebbs, policy is currently well-positioned. Schmid (2028 voter, hawk) opposes further cuts. Kashkari (2026 voter, neutral) said policy is in a good place; it is too soon to assess the impact of the Iran conflict on inflation, but it could have an impact on monetary policy. Meanwhile, reports in FT suggested that Fed Chair Nominee Warsh’s attempt to shrink the balance sheet would proceed only slowly due to resistance over his plan. However, he would be unlikely to push for a return to the size of the Fed’s balance sheet before it ballooned in response to the 2008 financial crisis. For the record, all sectors were in negative territory with Materials and Industrials sitting at the bottom of the pile. Ahead, traders, of course, await Middle Eastern updates which shows no sign of slowing down. Elsewhere, Oil closed higher by 3.55% while a well overdue correction saw Gold end Tuesday’s session with a 4% fall.
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