Between War and Wishful Thinking

When two sides go to war, expecting a deal after the first negotiation was always going to be optimistic. We do not know what was said behind closed doors, but the US threat to close the Strait of Hormuz looks as much like a message to China as it does to Iran. At the very least, it raises the stakes well beyond the region itself.

Discounted Iranian oil, increasingly settled outside the Dollar system, has become a quiet but important dynamic. Threatening that flow is not just about energy, it is about influence. Markets may not be fully pricing in that layer of complexity yet, but Washington clearly is.

Then there are the Hungarian elections. The result nudges Europe toward a more pragmatic stance, improving cohesion at a time when it matters. A more unified Europe is not a solution, but it is a stabiliser. It is also a reminder that the global backdrop is not uniformly deteriorating.

Meanwhile, financial markets are struggling to find the right valuation in the face of persistent uncertainty. Oil is back above $100, the Dollar is firmer, and bond yields are edging higher as inflation proves sticky. Yet equities are only modestly lower this morning, liquidity remains intact, and credit markets continue to be orderly. For now, this still looks like cautious optimism in a market that tends to test conviction before offering any reward.

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