US-Iran Ceasefire Rally Explained: Why Markets Are Ignoring Risk (Oil, Bonds & Bitcoin)

Hello and welcome back to the Market Maker podcast, and we're going to start the episode with a question for Piers Curran. Piers Curran, do you like tacos?

I love a taco. I love a Trump taco.

Quick episode for you. We are talking about, of course, about the ceasefire bounce. And so a little bit of an update there in terms of how the market has reacted and a couple of things as how different asset classes are moving. And what it could mean for the longer term. So maybe a little bit about the bounce first, Piers.

Yeah, so the bounce, obviously this ceasefire has been announced. I mean, I would caution right up front that the first day of the ceasefire, there was an attack on Saudi Arabia's key east-west oil pipeline. We had, well, it's not funny, we had the heaviest Israeli airstrike on Beirut ever. And the, and Iran reclosed the straits.

This was something we covered in a recent episode, which was perhaps what's happened through the aggressiveness of the US actions is a split and division within the power center of Iran between the military, the Iranian Revolutionary Arms, and then the actual center of decision-making from a policy perspective in government. They could be doing two separate different things, right?

Exactly. So it's just interesting from a market reaction perspective then what's happened, because I mean, the reaction across markets was generally incredibly positive. And actually, if you just look at things like the S&P 500, the low of this whole thing a couple of days back was at 6,340. It's now trading 6,700. And 70. All right, so you've had a really big— and the crazy thing, I think, given what I've just said, that what happened on the first day of the ceasefire and the ceasefire talks, they're scheduled for this weekend, right? So the talking hasn't started yet, but given that the S&P's had a massive rebound and it's actually trading what, just 1% below the pre-war level. I think that's just absolutely ridiculous personally, but hey, what do I know? So S&P was up 2.5% on the ceasefire news itself. It had a rebound off the lows a couple of days prior at the end of last week. But so look, that's stocks, right? Or at least US stocks are super positive about this. They're seemingly like this ceasefire is the end. Of the conflict, you kind of go down the list of other assets. So from, let's take US 10-year government bonds, for example. So long treasury yields, they have not returned to the low point that they were at before the hostilities broke out. Remember that these bond yields have been moving higher through this crisis because we're worried about the inflationary impact. And so generally if inflation expectations rise, then bond yields rise. But so the 10-year, so if you think the S&P's almost returned back to pre-war levels, the 10-year yield has not. However, it was an incredibly low level pre-war. Some say artificially low. So maybe you could argue the 10-year yield is also back to pre-war levels if you go back to the February levels that it was trading at. But when you look at the short end of the yield curve, then this is really where you're seeing a big difference. It has definitely not reversed back to pre-war levels. So this is, let's say, 2-year US government bond yields remain much more elevated. And I'm talking pre-war levels were 3.5%, we're now 3.8%, virtually no movement. Off the back of this ceasefire news in short duration bond yields. So what does that tell you? It tells you that, all right, sure, maybe the Straits of Hormuz are reopened, except we'll talk about traffic flow through there in a second. But it tells you that the inflation risk is very much still there. It's telling you that central banks are not going to be cutting rates. Forget about rate cuts this year. You could, the devil's advocate could say, well, maybe the market was too ambitiously pricing in rate cuts pre-war. And so, but anyway, that yield situation tells me that the inflation concern remains. And then if you look at crude oil, well, remember it started off pre-war at $70. This is Brent crude. Fine. Hit $120 as a peak, right? And yes, sold off sharply yesterday. And it's finally, I talked last week about this key support level at $100. Well, that's broken and we're below $100.

Okay.

So that's obviously really important. But Brent's trading at $98 as I speak. So it hasn't gone back to $70 is my point. And so, you know, obviously it's still a risk, supply risk premium is still embedded in that price, albeit a much lower supply risk premium than we were seeing a couple of weeks back. Okay.

And then, and looking at the art of the deal, so you go from the total annihilation of a, what was the words he used? The erasing of a civilization.

Yeah.

To having a conversation and this 10-point plan and looking at the 10-point plan, there's lots of things there that that, you know, the US are not going to accept. And so from a timing perspective, this weekend is going to be super interesting because there's a big meeting happening on Friday. I was just looking at the Wall Street Journal. Iran has told regional mediators its participation in talks with US officials in Islamabad is conditional on a ceasefire in Lebanon, warning it might also reverse its decision on reopening the Hormuz According to sources, and Iranian mediators have also warned that they would continue to carry out attacks on regional countries, including Israel, if attacks on Lebanon and Iran by Israel continue. Because it's, it's that part that Israel continued to, this bombardment on Lebanon, right?

That they're now trying to say after the ceasefire, not only continued, increased the level of, of bombardment. So look, obviously, obviously there's a lot of things in the way of this ceasefire actually being meaningful and sustainable. Anyway, everyone's saying, ah, the Straits of Hormuz are back open. Well, I mean, basically what we've seen on day one, at least there was 10 to 15 ships that were going through per day, right? That's, that's the Straits being reopened. Problem being, pre-conflict, the volume of traffic was 135 ships per day. So we're obviously nowhere near back to anything like full capacity. So basically on that rate, 15 ships a day, we basically got a, an 187-tanker backlog. So 15 ships a day. Yeah, it's gonna take a month to clear, you know, just, just the backlog. The ceasefire's only 2 weeks long. So look, it's open, but it's open at an absolute trickle. And hence why, I mean, I don't know, is oil price below $100? I mean, are we going to stay below $100 for very long? I'm not so sure, to be honest, because the supply risk still to me seems fairly elevated.

And then maybe finally a quick word on Bitcoin and why is Bitcoin coming to the conversation around this subject?

Well, one of the, one of the kind of 10-point plan is, is that Iran basically charge a toll. So post-conflict, they're, one of their, their kind of items on their list, their wishlist is that after this conflict, every ship going through the Straits of Hormuz will pay a $1 per barrel toll. Okay. Interestingly, they said, and we want to get paid in Bitcoin. And one of the comments from Hamid Hosseini, who was a spokesman for, or is a spokesman for Iran's Oil, Gas and Petrochemical Products Exporters Union, basically said, look, we want to get paid in Bitcoin, ensuring that they can't be traced or confiscated due to sanctions. That was the comment. The problem with that is that that's kind of wrong. I think there seems to be a complete failure of understanding of what digital currencies are here because one of the key characteristics of Bitcoin is precisely its traceability. So every transaction on the Bitcoin ledger is transparent and permanent. So funds passing along the chain will probably require, you know, ultimately if Iran want to use this money to buy stuff, they're going to have to convert the Bitcoin to US dollars.

Exactly. It's like, it's like if I'm a criminal, let's say, and I receive, I don't know, $100,000 in cash. Like, how do I get that? How do I clean that money and get it into the system without setting off alarm bells? It's kind of like, if you've not really thought about the follow-on thing of like, okay, can you buy multimillion-dollar ballistic missiles with cryptocurrency? I mean, I don't know, maybe there's sellers somewhere in Russia or something that would accept crypto as a form of exchange.

Yeah. So no, we'll see. The jury's, well, my jury is still out on this. Obviously big talks over the weekend. Your man JD Vance is making the trip over Obviously lots of ways this can break down quickly and we're kind of back to the straits being shut again. So you've obviously gotta watch that monitoring crude oil, of course currently trades $98, but if that goes back above $100, I think nervousness will creep back into those other assets. And then look outside of this conflict, 'cause look, it's not just all about what's going on in the Persian Gulf. It's earnings season. People have obviously no chat about that given column inches being dominated by the Iran situation. But earnings season properly kicks off next week. I mean, it started already, but kicks off on Tuesday next week. You got JP Morgan and all the big banks. Well, actually, I think Goldman's are on Monday, but then really JP and all the big banks start coming through on Tuesday next week. You get all the big tech starting to come through the week after. And actually right now analysts are pretty bullish on Q1 earnings. They're saying 13% earnings per share growth for the S&P. And actually wildly, I don't know what's going on here, but second and third and fourth quarter earnings expectations for the full year 2026 are even better. They're expecting 19% earnings growth in quarter 2, 21% in quarter 3, 19% in quarter 4. This is uber bullish.

Sell-side analysts, isn't that their objective to remain bullish?

That's right.

Sure.

It's to pump the expectations and then slowly downgrade them as we approach the earnings season. But there you go.

Okay. Well, look, quick, short, sharp episode. So hopefully that was useful. We'll be back again next week. So remember, if you're not subscribed to the channel, please make sure you do and hit the bell icon so you get notifications when new episodes drop. Just to recap, we have the global markets episode at the end of every week, backward looking, just reviewing and doing a deep dive on what's happened that week in markets. And then the beginning of the week, an M&A deep dive into some of the latest deals that have just come out. All right. Thanks very much everyone, and have a great weekend ahead.

Thanks a lot.