US-Iran tensions continue to be the main story for markets as we get into August trading. It seemed like things were taking a turn for the better late on the weekend, after US president Trump said that a deal on the Strait of Hormuz was “done” and that nuclear talks will then begin again “tomorrow afternoon”. All of that was of course refuted by Iran the day after and so far, there hasn’t been anything to suggest that both sides are sitting down to talk just yet.
The situation is putting markets in a bit of a bind, as we have seen how this story played out before.
Trump talking about a deal and talks taking place is his way of de-escalating, even if the truth of the situation is not quite there yet. He once again said yesterday that “talks are now ongoing” at Iran’s request and that the Strait of Hormuz could even open tomorrow. He did check back some optimism on nuclear talks as he said that “denuclearisation will take a little while”.
Oil prices fell sharply and opened with a gap lower for a second week running yesterday. However, we are seeing prices come up a bit today with WTI crude now up 1% on the day to $81.20 levels:
[WTI crude oil hourly chart ($/bbl)]
So, what’s next for the oil market this week?
The next signal now falls on Iran. Trump talking up his side of the story is nothing new. Typically, it is accompanied by some resistance from the other party before both sides eventually agreeing to keep the peace. And that seems to be the ideal scenario for markets. That is to let things go back to where they were one month ago.
Whether or not nuclear talks will actually begin or succeed (spoiler alert: it won’t), is a different story.
The narrative now is whether or not Iran will even go back to the negotiating table soon. So far, Tehran is insisting that it is only in talks with Oman. That while reaffirming the Strait of Hormuz will not reopen in a manner that it was before the war, so long as the US threat and naval blockade remains.
All this while there is still constant threat to vessels crossing the Strait of Hormuz. From earlier today: UKMTO reports vessel hit near Hormuz as Iran strike reports emerge
Will the US turn a blind eye to these threats and attacks while hoping to play to the optics of a “deal”. And even after that, can they tolerate further attacks on the strait as Iran did even after the ceasefire agreement at the end of June?
There is still much uncertainty up in the air. And I reckon that will be enough to keep markets on edge, even if we do see further optimistic signals flow through in the days/weeks ahead.
As seen in July, it doesn’t take much to bring back the jitters to a market that is already so fed up with the constant circling between the US and Iran.
This article was written by Justin Low at investinglive.com.