The U.S. announcement of a blockade on the Strait of Hormuz has driven a significant surge in crude oil prices, yet the decline in stock markets has been unexpectedly moderate. This divergence is sending a clear signal: investors are viewing the geopolitical shock as part of negotiation tactics rather than the beginning of an escalation in systemic risk.
On Monday, Brent crude recorded a single-day increase of 7.4%, rising above $102 per barrel, while U.S. crude futures surpassed $104. Concurrently, S&P 500 index futures fell by 0.7%, and European stock markets were projected to open approximately 1.4% lower. The U.S. President stated on April 12 via social media that U.S.-Iran talks were "progressing well, with most issues agreed upon," but a key nuclear issue remained unresolved. He declared that, effective immediately, U.S. forces would "begin blocking all vessels attempting to enter or exit the Strait of Hormuz."
Last week, global stock markets recorded their largest weekly gain in over two years, while Brent crude experienced its most significant weekly decline since 2022. In contrast, Monday's restrained pullback suggests the market perceives the breakdown in talks as still part of the bargaining process. Pepperstone strategist Dilin Wu noted in a report that after the initial reaction to weekend headlines, market sentiment has stabilized somewhat but remains cautiously resilient, with traders currently focused on whether diplomatic channels can persist, despite a lack of clear progress signals.
Global X ETFs investment strategist Billy Leung attributed this phenomenon to the market's renewed understanding of the U.S. President's style. "There is a belief that this is all part of the negotiation strategy," he said. "The market has reached peak uncertainty, and the reaction function is not as extreme as before."
The market structure on Monday showed clear internal divergence: crude oil prices surged unilaterally, while the sell-off in risk assets was relatively restrained. The Brent crude June contract rose 7% to $102.17 per barrel, and the U.S. crude May contract increased over 8% to $104.93 per barrel.
Billy Leung indicated that recent market movements show investors are gradually adapting to geopolitical shocks, with volatility收敛 compared to previous weeks. "I think the market now has a better pricing and understanding of the President's motivations," he stated.
Ten Cap Chief Portfolio Manager Jun Bei Liu suggested that volatility indicators imply the worst period of panic may be over. "We saw a significant spike in the VIX a few weeks ago; that was likely the peak of panic and selling... From now on, what the market really needs to do is find its direction," Liu commented.
Billy Leung holds a similar view but highlighted a key near-term risk: the political timeline of a potential War Powers Resolution. This resolution effectively leaves the administration a limited window to obtain congressional authorization. "In the coming weeks, we will see increasing urgency from the administration," he said. "The market may not yet fully appreciate this constraint." It was reported that U.S. lawmakers are again seeking to pass a resolution to prevent an expansion of conflict with Iran and require congressional approval before further military action is taken.
The Hormuz blockade has heightened inflation expectations, keeping sustained pressure on bonds. The Strait of Hormuz is a critical chokepoint for approximately one-fifth of global crude oil flow. Following the U.S. announcement, shipping volume through the strait has plummeted to a trickle, further strengthening expectations of supply tightening and intensifying global inflation concerns.
Since the onset of the current conflict, U.S. oil prices have accumulated a gain of over 55%. Rising inflation expectations have delayed market anticipations of interest rate cuts and pushed bond yields steadily higher—the 10-year U.S. Treasury yield has risen over 333 basis points since the conflict began, while the U.S. Dollar Index has gained approximately 1.4% over the same period.
Standard Chartered's Steve Brice stated that higher oil prices will delay the timing of monetary policy easing, exerting upward pressure on bond yields and the dollar. "However, we view these as temporary phenomena because we believe the U.S. is seeking a path to de-escalate the situation," he added.
Some analysts hold a more optimistic view on the medium-term trajectory of oil prices, anticipating that a negotiated solution will ultimately be reached between the U.S. and Iran, which would quickly dissolve the current risk premium. Destination Wealth Management's Michael Yoshikami said, "I am fairly confident oil prices will decline from here... We will see oil prices return to $80 per barrel again."
Steve Brice from Standard Chartered pointed out that the current structure of stock market positioning itself supports a rebound logic. "We believe that, barring a substantive deterioration in the situation, stocks should continue to rise in the near term," he noted, adding that investors currently maintain defensive positions, and against a relatively positive macroeconomic backdrop, equities are well-positioned for further gains once the conflict begins to cool.
Regarding gold's weak performance amid high geopolitical risk, Steve Brice attributed it to emerging market central banks selling gold to stabilize their currencies. However, he expects gold demand to return if the Middle East situation gradually eases.
Michael Yoshikami concluded, "This is not an either/or outcome; it will remain in a grey area for some time." This also accurately depicts the current market environment—geopolitical shocks remain significant but no longer trigger the degree of panic selling seen in the initial stages of the conflict.
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