Markets continue to be whipsawed by fallout from the war with Iran. Stocks have hit a fresh low for the year, while the inflation concerns caused by spiking energy prices means supposed havens like Treasurys have been tumbling too, sending yields sharply higher.
Not even gold has provided sanctuary, with bullion on Thursday dropping to its cheapest since the early-February precious metal implosion.
But independent investment research provider Variant Perception alludes to a looming shift in market psyche as they reckon “the next couple of days will mark ‘peak uncertainty’ about the Iran war.”
In a research note sent late Thursday, the firm agrees that action in some parts of the market has become disorderly of late, a sign that some traders are being forced to exit positions.
“A very simple rule of thumb for tactical liquidation is when gold and equities crash together, which usually signals margin call / liquidation-esque behavior,” they say. “We are in the zone where tactical liquidations are occurring.”
The firm adds that investors are also being rattled by sharply higher short-term interest rates, as the market switches from betting on a number of rate cuts this year to pricing in the possibility of a hike. The Cboe Volatility Index VIX in recent days trading above VIX futures also speaks to the intensity of the current de-risking, they say.
All this has coincided with the Iran war spreading and intensifying as the bombing of Middle East oil and gas facilities this week — with Qatar shutting down much of its gas production — means the worst case scenarios have started to be realized.
“The significant damage to critical energy infrastructure alongside the collapse in ship volume through the Strait of Hormuz were both unthinkable 3 weeks ago. Both are now realities,” the firm says. The news “seems plausible as the event that marks peak uncertainty for markets over the next couple of days.”
Now that China, which gets 30% of its liquid natural gas from Qatar, is impacted, the country will be more likely to work with the U.S. to find a resolution. Back when markets were spooked by President Donald Trump’s “Liberation Day” reciprocal tariffs, an announcement that he had spoken with Chinese President Xi Jinping on April 25 helped quell turmoil. A comment that China will work with the U.S. to help end the Iran war could be a similar catalyst.
