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Risk assets are on a tear despite the oil price increasing thanks to the latest development in the Iran war.

President Trump has instigated a blockade on Iran’s existing blockade of the Straights of Hormuz. That’s a lot of blockading!

But Why?

Last week’s chat with Anthony Scaramucci (head to Ben’s Market Chat on our YouTube channel to watch the full interview) gave us a sneak peak into the logic. China receives 90% of its oil needs from Iran through the Straight. The US needed to prevent Iran from blockading all shipping bar those heading to China to force China to negotiate with Iran.

China is Iran’s paymaster thanks to its oil purchases and as such would have the biggest influence on getting Iran to bend to US’s will. Anthony was spot on on that one.

US banks report this week. The US Banks ETF has been in a funk. The worst performance since 2023. However, Goldman’s report yesterday indicated a strong investment banking fee flow. We would also suggest that a potentially steepening yield curve going forward would play into the hands of the sector as this would imply higher Net Interest Margins (NIMs).

Whilst the Iran war impact on inflation is likely to be negative, the Fed, under a new head appointed by Trump is still keen to reduce rates, be it later than initially anticipated.

Fixed Income investors will not take well to this as concerns of stagflation re-surface. The Fed controls the narrative at the short end of the yield curve but the long end is firmly in the hands of investors.

Investors may well continue to drive rates higher for 10 year treasuries whilst the Fed aims to put a lid on rates at the 2 year maturity.

This means a steepening yield curve implying recession concerns.

Banks generally borrow in the short end and lend on the long. Most mortgages are set at the 10 and 30 year rates. The widening rate horizon improves bank margins but is not great for homebuyers seeking a new mortgage.

After this week’s results, expect a potential bounce back in financials.

Always do your own research or seek the advice of your professional financial advisor.

You can find us on LinkedIn and YouTube, Money Matters, Ben Hakham CEO at Traderoutes Capital.

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Few investors expect a swift resolution to the Iran conflagration. But that's not what the oil markets are telling us. Spot is in excess of $115 per Brent barrel whilst December futures are still hovering at $85.

The key concern is that the US get 'bored' with the lack of a swift solution and simply walk away. This would leave the straits of Hormuz at the beck and call of the Iranian authorities and would suggest that the transport of oil would remain imperilled for the foreseeable future. That scenario would suggest that despite a potential US withdrawal, the oil price shock does not go away.

The S&P500 Index is trading below the all crucial 200 day moving average and the Nasdaq is in correction territory. The S&P500 Index Put:Call ratio is at 1.3. Decidedly bearish but not in capitulation territory having reached 2.3 in 2022. Conditions can get worse but worth noting that post the 2022 decline, the subsequent rally returned 55% trough to peak.

Inflation fears abound, investors fear a hike in rates and the OECD had reduced growth assumptions for the global economy to 2.9% and suggesting that the UK will be the worst hit if all G20 countries.

We do not believe that a Kevin Warsh led Fed will raise rates. Moreover, we continue to view the Fed as a soothing layer for an economy whose growth characteristics are becoming murkier. The next Fed move remains downward in our view.

Having said that, inflationary pressure is a real threat. Transportation costs will increase and stay elevated longer than markets believe even if the US walk away from the conflict. But to us, that means rates fall 25bps this year and potentially a further 25bps in 27. Ie a much slower decline than forecasts pre war.

Meta's tobacco moment? Two key court cases have gone against them. They have been found guilty of creating addictive algorithms (Google has been inculcated in this too) and that Meta had not sufficiently protected youngsters against predators.

For us, the key are the advertisers. We don't believe that brands will abandon Meta. With pattern recognition becoming so much more granular thanks to AI adoption, brands have 1. Limited access to consumers digitally and 2. Their ROI on marketing budgets are improving daily. Meta's platforms play a crucial role.

Furthermore, under 18's account for less than 10% of the user base. Better age verification and controls are required. This is a relatively low cost to business for Meta. We do not believe this is that Tobacco moment.

Always do your own research or seek the advice of your professional financial advisor.

You can find us on LinkedIn and YouTube, Money Matters, Ben Hakham CEO at Traderoutes Capital.

Please check out our YouTube Channel @BensMarketChat for this week’s comment. Don’t forget to like, subscribe, and tell a friend.

Three key related factors dominate our discussion this week; Oil Shocks/Stagflation, midterm elections & Trump’s ‘offramps’.

Investors are getting increasingly concerned that oil at over $100 per Brent barrel is going to lead the global economy into Stagflation not too dissimilar to the oil shocks of the 1970’s post the Yom Kippur War of 1973. Whilst the key factor in fulfilling this investor prophesy is duration ie the longer the oil price remains elevated the more likely more of the price escalation seeps into the logistics infrastructure, other considerations play their roles too. None more so than, impact.

Impact refers to the role that oil now plays in a modern economy. In the case of the US, the amount of oil required to generate $1M of GDP growth has fallen by 70% since the 1970’s. Furthermore, oil in the energy mix in the US peaked at 48% in 1978 and is now down to less than 38%. In other words, it will take longer duration compared to the 1970’s for the oil price hike to seep into inflationary pressure.

This is where the mid term election issues kick in. President Trump is already significantly under water in terms of approval rating at below 40%. In this scenario, historically, the incumbent party in the House has generally lost its control. This is likely to be repeated again in this cycle. However, the administration could take succour in that of the 35 seats in the Senate up for grabs, 22 of those Republicans are defending and in the main, they are secure Red seats. However, the war with Iran and the subsequent effects on growth, interest rates and inflation, threaten at least four of those seats ie Maine, North Carolina, Texas and Ohio.

The longer the war continues, the more marginal these seats become. This would turn a 53-47 Republican Senate into a stalemate, taking into account the VP vote. It could get uglier for the Republicans if the next 4 seats begin to marginalise in Alaska, Iowa, Florida (Rubio’s former seat) and Montana.

For this reason, Trump’s administration is no doubt spending all its efforts looking for viable off ramps from this conflict. We list a number of potential ‘outs’:

1. The process has already begun in outlining met objectives that would allow for cessation of hostilities. Whether actually met or not, the very fact that the administration have said they’re met would be sufficient to allow for retracement.

2. Let Iran know that any re-armament or proxy financing would result in a re-visit of US military - this might create the conditions for a long term ‘forever’ war. Whether future administrations would agree to this is a moot point.

3. Regime change is now off the table, so this goes on the back burner as a condition for cessation.

4. Blame Congress and the Dems for not allowing the administration to conduct the war without the approval of the $200B defence package.

All in all, the TACO trade is not far away!

NVDIA announced a $1T pipeline of orders from the hyperscalers through 2027. The real spoiler here could be the reduction of Ad spend thanks to economic slowdown. Ad spend is at the heart of the cashflow story. The better the AI targeting process of customer spending habits, the better ROI for brands and advertisers, the more revenue to the giant digital advertisers that is getting used in funding the AI capex. Slowdown in this base cashflow generator and the AI story unwinds somewhat.

Always do your own research or seek the advice of your professional financial advisor.

You can find us on LinkedIn and YouTube, Money Matters, Ben Hakham CEO at Traderoutes Capital.