Risk sentiment on the up but is it another false dawn?

The big news as we get into the new day is this one here: Trump open to ending Iran war without reopening Strait of Hormuz – WSJ

The report says that the US might look to wind down military activity in the Middle East. That after it accomplishes in degrading Iran’s naval and missile capabilities. It might be one that is tough to imagine though, as it would see US president Trump still not get what he wants exactly. That being said, is it all an attempted diversion though?

There’s still talk of ground forces moving in over the past few days and that is something to be mindful of. Despite whatever reports, Trump will still need to frame this war in a way where he walks out as the victor – whatever that means.

In this case, he can boast about taking Iran down a notch or two. But come what may, nothing changes for markets until something changes on the Strait of Hormuz. I’ve said it already all throughout this war episode.

The issue with effectively handing over control of the strait to Iran means that the US does not hold the ace card here. From an economic perspective, Iran is the one firmly in the driver’s seat unless their ability to control the strait diminishes significantly.

But as long as the threats are there and it remains in de facto closure, Iran has leverage to work with to push back against Trump. That especially as we know that this war has everything that Trump hates in markets.

So S&P 500 futures may be up 0.9% on the day now with bond yields also coming off the boil this week. But as we’ve seen with previous incidences, this might just be a false dawn as it doesn’t mean anything to global markets and major economies unless passage along the Strait of Hormuz returns to normal.

Otherwise, this is going to be just another temporary respite. That before oil prices start to ramp higher again and we see that cascade to broader markets and bite at risk sentiment.

This article was written by Justin Low at investinglive.com.