Capitulation...or a ruse?
In a dramatic turn of events that occurred just hours before Trump’s 8 pm EST deadline, Trump agreed to a ceasefire with Iran, which in turn was confirmed by the Iranian side.
To my surprise, after threatening to wipe out Iran’s civilization a day earlier, Trump agreed to Iran’s 10-point proposal, which amounts to a total and utter capitulation that leaves Iran in a more powerful place than before the war started. Not only will sanctions be lifted on Iran, but Iran will control the Strait of Hormuz, charge a toll, and use the funds for reconstruction of their country.
Equities surged and oil collapsed on the news, and markets are moving quickly to price in the most optimistic scenario possible. Anticipating that yesterday would end in a volatile and binary outcome for the market, I trailed my stop in May WTI futures to 110.50 ($7 off last night’s high). That fateful decision allowed me to lock in gains instead of allowing a winner turn into a losing trade. Meanwhile, gold and June 2027 SOFRs rallied on relief from the stagflation regime that was dominating the market due to the war. Even though my view on the war was totally wrong, I somehow still enjoyed a large pnl up day thanks to solid risk management.
Where do we go from here? What if this is all a ruse by Trump to buy time for his military assets to get into position? The truce feels fragile, and I find it hard to believe that Trump will agree to all ten of Iran’s points. Doing so would crystalize a significant loss of global hegemony and leave America’s allies (Israel and Gulf countries) in a position worse than when the war started. Drones and projectiles are still flying, and Israel is already trying to drag the US back into the war by attacking Lebanon. Even if these ceasefire talks eventually lead to the end of the war, it won’t happen in a straight line. The market feels more uncertain today than it did last week.
