Risk sentiment has improved following the G7 signalling it will release enough reserve crude oil to bridge the Hormuz shortage.
- Risk-on sentiment has improved nicely in the market in recent hours despite the crisis over the Strait of Hormuz, effectively stopping 20% of the world's crude oil distribution. This is likely due to two reasons:
- Iran announced a blockade and President Trump made a strong threat over any mining. However, it seems that both parties are trying to avoid taking the final step of an all-out clash in the Strait.
- The G7 as expected will be releasing enough crude oil to make up the Hormuz deficit for about 30 days, which is roughly the amount of time that the war is likely to continue for. US strategy seems to be to avoid Hormuz rather than confront it, probably to avoid casualties.
- The improvement in risk sentiment and the oil reserve release news have sent crude oil lower and stock markets higher. WTI Crude Oil is now trading well below $85. Major US indices are holding up so far with yesterday's gains, while Asian indices like the Nikkei 225 and the KOSPI Composite are about to close well over 1% higher on the day.
- Iran announced that no nation in Europe or North America will be able to send an oil tanker through Hormuz unless they closed their embassies in the USA and Israel. President Trump responded by saying that if the Strait has been mined, he would hit Iran even harder. It seems that almost no ships are crossing anyway, but so far, there are no reports of any mined, although ships have been attacked by Iran in the Strait during this war.
- According to prediction markets such as Polymarket, the war is expected to last until April. This contradicts President Trump's recent statement hinting the war is almost complete, although his comments were (probably purposefully) ambiguous.
- The big event in the financial markets today, as it has been every month for several years now, is the release of US CPI (inflation) data. The data is expected to show annualised inflation steady at 2.4% and core CPI ticking lower at a 0.2% month-on-month increase. Higher than expected data will likely boost the USD and send the US stock market lower.
- In the Forex market, the strongest major currency since today's Tokyo open has been the Australian Dollar, while the weakest has again been the Swiss Franc. The AUD/JPY currency cross is reaching new 35-year high prices. The US Dollar has also weakened with the improvement in risk sentiment reducing demand for it as a safe haven vehicle.
- Wheat futures made a strong bullish breakout earlier this week, reaching a new 1.5-year high price, Trend traders mostly went long of wheat . If you want to do that but can't afford the expensive Wheat futures, there is a Wheat ETF called WEAT that could give you exposure to the grain.