Wk40 MacroTechnicals - Macro Backdrop Still Bearish For risk

Trump has no good options, Energy relief still out of sight

I outline my thoughts on why I think Trump's best move is to go on the offensive, and also provide my views and analysis on the widespread discussion of whether stocks can handle higher yields; this section will be a good preview to any non-premium readers of today's note as it provides a glipse of the tools we use to decipher the market on a fundamental level with both longer-term and shorter-term applications to assist with trading. We then finish with some correlation analysis and my scenario-based trading plan with preferred trades.

Offense is the Best Defense

NO CLOSER TO A DEAL

The UN meetings provided a chance for diplomats to exchange thoughts and ideas, and to briefly raise hopes for the two sides to find their way back towards a deal. Yet we've seen sharply contrasting accounts of what was said or achieved from either side. US portrayed the meetings as productive, while Iran continues to insist that its conditions must be met before Hormuz reopening, and more recently, rejected the idea (first put forward by Pezeshkian) that it has made meaningful nuclear concessions which is what spurned some optimism in markets last week.

BROADENING MILITARY CONFLICT

Shipping has faced new attacks amid reports of Iranian missile, drone and naval activity around the strait. Though much of it remains unconfirmed, Iran continues to demonstrate its ability to threaten shipping. We've also seen the impact of Houthis attacks against Saudia Arabian cities and oil instrastructure, to the extent that it is threatening supplies to Europe and giving European governments a reason to get involved. UK offered RAF refuelling support, while France has plans of deploying military assets and personnel to the Yanbu oil port.

OFFENSE IS THE BEST MOVE

I still believe the best move available to Trump is to go on the offensive against Iran and its regional network, namely the Houthis. With just over five weeks until midterms, I doubt there is enough time to reach a ceasefire or a return to the MoU, let alone those being a sufficiently satisfactory outcome to swing the tide in favour of the Republicans. Moreover, Iran understands the political pressure facing Trump and has every incentive to retain maximalist demands for as long as possible. Meanwhile, Trump believes Iran will have no leverage after midterms but I doubt Iran will see it the same way. And progress, even beyond the midterms or later this year remains difficult to forsee. This is why I think the best option is for Trump to move against the Houthis, commit greater defensive support for Saudi Arabia, and secure the Bab Al Mandab strait at the very least. If not within the coming weeks, in the coming months.