Daily Commentary

MarketMinder’s View: By now, many may be aware “Saudi Arabia and the United Arab Emirates [UAE] have diverted a sizeable portion of the 20mn-plus barrels a day of crude that previously transited Hormuz by maxing out existing pipelines.” For example, the former’s East-West pipeline is now handling seven million barrels per day (mbpd)—about 70% of daily production—more than doubling from two mbpd (or less—some reports put it at 800,000 bpd) pre-war, while the UAE is looking “to enlarge Abu Dhabi’s pipeline to Fujairah, outside the Strait of Hormuz” (and pump even more now that it is also outside OPEC). The eventual result: “Completing all planned oil links would lift Hormuz ‘bypass’ capacity from 40 per cent to perhaps two-thirds of prewar flows—enough to make a future closure less calamitous.” But that isn’t all: “for the one-fifth of global liquefied natural gas, mostly from Qatar, that transited the strait ... exporters are improvising workarounds and fast-tracking new connections. Plans are being dusted off for gas pipelines from Qatar to Turkey via Saudi Arabia, Jordan and Syria, or through Saudi Arabia, Kuwait and Iraq, and another to Egypt.” Then, beyond oil and gas, “other commodities, often reliant on specialised port terminals and container shipping, are being transported instead by rail and truck to Omani and Red Sea ports [with] expanding capacity at ports away from the strait, accelerating rail links and potentially building dedicated chemical pipelines.” This won’t happen overnight, but it does mean energy and commodity transportation is becoming more stable longer term. All this goes to show what global stocks spied well before a potential peace deal was making headlines: Regional conflict typically doesn’t disrupt for long—reality 3 to 30 months ahead is likely better than many currently fathom. As for the rest of this article, which advocates launching similar projects to address “the vulnerability of other maritime chokepoints” (e.g., the Red Sea’s Bab al-Mandab Strait, the Southeast Asia’s Malacca Strait and East Asia’s Taiwan Strait), it is a matter of opinion whether that is “an economic and geopolitical necessity.” We suggest not getting bogged down with such speculation from an investment standpoint, as markets move most on probabilities, not possibilities. This largely seems like an early example of investors fighting the last war, in the sense they are applying Hormuz logic to other places.

MarketMinder’s View: Citing an excessively weak yen (versus the dollar, chiefly), Japanese officials have conducted several days’ worth of interventions in currency markets, buying up yen and selling other reserve assets like dollars in an effort to prop it up. The government aims to do so to limit the weak yen’s potentially inflationary impact on import costs, particularly for energy. This article notes IMF rules allow governments to intervene three times in six months and still qualify as having a “free-floating currency,” so the fact the present multiday effort is tabulated as one move gives them some leeway to intervene again later. But here is the thing: Unilateral yentervention like this has a spotty record of success. Look at the four-year graph included. Both prior interventions since the pandemic needed two rounds to have “success,” which likely came as a result of broader market conditions and not the intervention itself. In 2022, for example, the yen began strengthening in October … as the dollar weakened against a basket of currencies. Ditto in 2024. Sure, the yen may play a role in that. But it is only 5.2% of the broad currency basket (source: Federal Reserve). It didn’t sway the whole basket. People make a lot out of currency interventions, but unless they are coordinated and global, they rarely have much identifiable and lasting effect. They are noise more than news for markets.

MarketMinder’s View: The Institute for Supply Management’s Services purchasing managers’ index—a survey-based gauge of business leaders that aims to estimate the breadth of growth across the US’s chief economic sector—ticked down from 54.0 in March to 53.6 in April. Now, readings above 50 indicate more companies reported growth than contraction, so this downtick really isn’t very significant. But this article spends more time on the -7.1 point drop in the “new order” gauge. And yes, the 53.5 read is a notable cooling from March’s 60.6. But here again, this is still an expansionary read and some volatility is typical. Finally, the other area where this coverage focuses is prices paid, which was at 70.7—meaning a large majority of firms saw rising costs. But this is a breadth gauge. So is that surprising? We think not, considering oil and gas prices’ rise is so, so, so widely known. It doesn’t really tell you where things are heading … or even how much prices rose.