Daily Commentary

MarketMinder’s View: Whether the tentative two-week ceasefire announced Tuesday evening holds or not, look longer term. Businesses and markets are nothing if not relentless at navigating barriers to commerce (see tariffs with any questions). Given the uncertainty of seaborne traffic through the Strait of Hormuz, this piece looks at other historical “chokepoints”—and how maritime disputes over them resolved. Cutting to the chase: The bottlenecks didn’t stay that way for long as motivated parties found workarounds even as countries claimed “control” over the waterways. These provide potential starting points for Iran and the US to agree on a framework both sides find acceptable (since neither country ratified the UN Conventions on the Law of the Sea), like giving potential tolls a palatable branding—should both countries pursue a diplomatic end, rather than a military one. Yet even here, the longer-term economic implications are limited. “Saudi Arabia and the United Arab Emirates managed to circumvent the chokepoint to a limited degree via their bypass pipelines. Riyadh and Abu Dhabi are almost certain to double down, expanding those emergency conduits further. Kuwait would doubtless join forces with the Saudis to build its own bypass pipeline.” The upshot? “Iran’s stranglehold over energy supplies will therefore loosen over time. Five years from now, the Persian Gulf will have far better bypass options than it does today. No matter what the US and Iran agree over the future of Hormuz, the strait’s status will change. But the waterway will never be as critical to the global economy as it was when the fighting started six weeks ago.” Capitalism finds a way, which is one reason why global stocks rose—and energy prices fell—before the ceasefire and even after it immediately began looking tenuous. When in doubt trust markets, which are several steps ahead of headlines, looking 3 to 30 months out. Of course, the breaking news everyone is glued to may swing sentiment short term, but that doesn’t confer any long-term advantage. Investors fare better weighing future fundamentals.

MarketMinder’s View: The latest growthy data to be dismissed as pre-war are US durable goods orders, which revealed healthy and stronger-than-forecast business investment in equipment a month before the conflict broke out. “Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 0.6% after a downwardly revised 0.4% drop in January, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders would increase 0.4% after a previously reported 0.1% gain in January. There were increases in orders for primary metals and fabricated metal products. Orders for machinery jumped 1.5%. Orders for computers and electronic products were unchanged as an increase in the computers and related products category was offset by a decline in communications equipment. Orders for electrical equipment, appliances and components dipped 0.1%. Core capital goods shipments increased 0.9% in February after being unchanged in January. These shipments are among the components that go into the calculation of the business spending on equipment component in the gross domestic product report.” It all suggests the economy was on fine footing before the war, which likely hasn’t changed conditions as much as commonly feared. This piece, rather unusually, hints at that in quotations from an economist who notes businesses may have temporarily retrenched from investment, but it really amounts to a blip. But the common view is war-fixated, which widens the gap between reality and expectations, likely facilitating positive surprise ahead.

MarketMinder’s View: This piece is a flawed look at the oil market that casts pre-existing developments in the futures market and Asian nations as new signs oil supply is at risk globally, not merely costing more. For example, it claims: “Contracts for delivery at the end of this month are trading at a hefty premium compared to contracts for subsequent months. It’s a situation known as backwardation, and it suggests the market believes oil supply is at risk, particularly for longer-term contracts.” But backwardation has existed more or less since the start of the war, and it doesn’t mean what this implies. It usually implies the market sees the factors driving prices up as likely to be short-lived. If longer-term supply were at risk, you should see prices further out in time higher, not lower. The rest of the piece details regional premiums producers are charging and measures in places like Southeast Asia to constrain demand. Those will have an economic cost, for sure. And yes, measures there will affect prices in America. But they are also well known and have existed for weeks—hence, rising US oil and gas prices. Markets pre-price matters like this—and likely did so long ago, which is why many Asian markets are among the world’s worst performers during the war. In short, this is fear-based reporting that adds little of value for investors.