Didn’t expect that with the midterm election approaching, Trump would corner himself over the Iran issue, leaving him with no good options. Expanding military action further could cause oil prices and inflation to spiral out of control; backing down would mean that the tough pressure previously placed on Iran has failed. Either way, he will have to pay a political price.
Brent crude has already been trading above $100 for four straight days, and the impact of Trump’s verbal remarks on the market is also becoming increasingly weaker. In the interest-rate meeting a few days from now, whether to raise rates may only affect short-term fluctuations. What truly determines the direction of risk assets is whether tensions in the Middle East can cool and whether oil prices can retreat. If high oil prices persist, inflation, interest rates, and economic growth will all come under simultaneous pressure—and a weakening in risk assets is only a matter of time.
Brent crude has already been trading above $100 for four straight days, and the impact of Trump’s verbal remarks on the market is also becoming increasingly weaker. In the interest-rate meeting a few days from now, whether to raise rates may only affect short-term fluctuations. What truly determines the direction of risk assets is whether tensions in the Middle East can cool and whether oil prices can retreat. If high oil prices persist, inflation, interest rates, and economic growth will all come under simultaneous pressure—and a weakening in risk assets is only a matter of time.