Victory Dance

One of the enduring traditions of modern warfare is that, eventually, everyone claims to be a winner. The latest US-Iran agreement appears to be no exception. Washington can point to military success and the reopening of the Strait of Hormuz. Tehran remains in power and will no doubt portray its survival as a triumph. Israel can argue that it has significantly weakened a long-standing threat. Everyone gets their headline. Whether anyone achieved their original objective is another matter.

Financial markets have been considerably less interested in political narratives than economic ones. Oil prices have retreated, equities have rallied, and much of the geopolitical risk premium has evaporated almost as quickly as it appeared. For markets, the free flow of oil matters far more than speeches from politicians. The biggest winner may simply be the global consumer, spared another inflation shock. The biggest loser may be those confidently predicting $150 oil.

The more cynical observer might ask what has actually been accomplished. Iran's nuclear ambitions have hardly disappeared overnight. Sanctions remain contentious and hardliners on both sides remain deeply sceptical. Regional proxy networks have not magically vanished, and many of the most difficult negotiations have merely been postponed into a 60-day diplomatic window. In other words, the ceasefire may prove to be less an end than an expensive intermission.

For investors, the lesson is a familiar one. Markets often react dramatically to geopolitical events but possess remarkably short memories. Unless conflicts permanently alter earnings, inflation or liquidity, attention usually returns to what mattered before the first missile was fired. Politicians may declare history has changed. Investors, meanwhile, are likely to go back to worrying about interest rates by next Tuesday.