US Withdrawal Without Hormuz Reopening Poses Issue for Stocks: 3-Minutes MLIV

Summary

• French CPI came in line with estimates, confirming a jump from the prior month, with the eurozone-wide harmonized figure expected around 2.6%.
• ECB is not alarmed by current inflation levels; the messaging calls for patience and waiting for more information, making an April rate cut unlikely.
• Analyst is skeptical of an ECB rate cut even in June, citing restrictive policy, a less disorderly gas market, a weaker labor market, and a fading post-COVID activity bounce.
• US bond market concerns have pivoted from inflation to growth, with yields moving lower; the Fed is seen taking a more balanced view due to its dual mandate.
• The US economy is viewed as less exposed to inflation than the eurozone, supporting the potential for the Fed to cut rates "substantially ahead" of other central banks.
• A key market risk is a softer US labor market print (JOLTS, ADP, non-farm payrolls), which could extend the recent bond moves.
• S&P futures jumped on a WSJ report about a potential US withdrawal from the Middle East conflict, but the analyst is cynical about the report's implications.
• The critical caveat is the potential for the Strait of Hormuz to remain closed despite any US withdrawal, which is the primary source of global economic pain.
• Iran may have little incentive to reopen the strait with Brent crude up ~50% from pre-conflict levels, suggesting crude would retain a significant geopolitical risk premium.
• The report is second-hand, and the actual stance and actions of the US administration remain unknown, adding to uncertainty.