A two-week ceasefire has sent global stocks surging, but with violations already being claimed, I’m not ready to celebrate just yet.
While it was the TACO (Trump Always Chickens Out) that the world economy had to digest, is this ceasefire only an entrée before a main course that might or might not come? That’s the question someone like me — a financial adviser who manages other people’s money — has to grapple with over the next two weeks.
Of course, Trump often chickens out because his threats, be it in business, world economics or geopolitics, tend to be so extreme that no one wants to believe them. Most of us are relieved when he relents on his big, scary, audacious promises — such as “a whole civilisation will die tonight”.
By the way, while this has led to impeachment demands from Democrats and even some Republicans, smarter Democrats think this episode, on top of its inflation effect, will be enough to help them win the mid-term elections in November. Those strategists don’t want any impeachment distractions dominating the news cycle for now — but if the mid-terms go their way, demands for impeachment next year may find far greater support from the top of the party.
But for now, financial markets are celebrating the ceasefire we had to have. Global stock markets rallied and oil prices plunged below US$100 a barrel on news of the deal. Yep, it was the TACO we had to devour too.
In Europe, stock market indexes posted huge gains: travel and leisure stocks led the way, notching a 7.1% rise, while industrials added 6.6% and construction names climbed 6.2%.
| Economy | Index | Change |
|---|---|---|
| France | CAC 40 | +4.49% |
| UK | FTSE 100 | +2.51% |
| Germany | DAX | +5.06% |
| Spain | IBEX 35 | +3.94% |
| Italy | FTSE MIB | +3.70% |
US markets followed suit, albeit with a little less enthusiasm. Here at home, however, our S&P/ASX 200 index was tipped to open down 49 points, despite the Australian dollar — a pretty reliable gauge of international economic confidence — rising to 70.40 US cents.
This surprise dip in futures could be a reaction to news reported by CNBC: “Iran’s parliamentary speaker Mohammad Bagher Ghalibaf accused the US on Wednesday of violating the two-week ceasefire agreement. Three parts of Iran’s 10-point ceasefire proposal have been violated, Ghalibaf said — Israel’s continued attacks on Lebanon, the entry of a drone into Iranian airspace, and the denial of the Islamic Republic’s right to enrich uranium”.
It’s worth noting that the ceasefire news broke before 10am on the day, just before our market opened, which explains why the S&P/ASX 200 surged 236 points (2.71%). In a sense, we were the first to feast on the last-minute deal for temporary peace.
Given the inclination of both sides to play media politics and fake news, these accusations of ceasefire violations may well be the pattern we’re in for over the next two weeks. That would dampen market enthusiasm for a lasting deal — that would see oil prices fall in a sustained way, lock in lower-than-expected inflation, prevent a global slowdown from tipping into recession, and put stock markets back on a rising trajectory.
But for now, let’s celebrate.
Overnight, travel and leisure stocks gained 7% on European markets, industrials and construction stocks spiked, and gold and bitcoin enjoyed overdue recoveries. The ceasefire also gave tech stocks a lift: the ATEC exchange traded fund, which groups together many of our best tech names, rose 6.81% — a sizeable rebound for a sector that has been hammered since the bombing began on February 28. WiseTech, for example, surged 10.70% in a single session, having already fallen 25% since the Middle East conflict escalated.
Locally, resource stocks had a good day, with BHP up 3.26% to $54.53. These stocks were always going to be supported on ceasefire and hopefully a peace deal. They’re leveraged to a strong world economy that would be helped by lower oil prices and a healthier global economy. This chart of BHP’s share price graphically captures the market celebration of the ceasefire.
While that one-day spike says a great deal, we now have to hope the ceasefire holds and evolves into a genuine peace deal. If it doesn’t, oil will head back above US$100 a barrel, petrol prices will climb, inflation will follow, and the Reserve Bank will likely have cause to deliver two rate rises before long.
Given what a prolonged war could do to our economy, our share portfolios and our superannuation, hoping for peace is not just a noble ideal — as I often argue, anything worth doing is worth doing for money!
And as I do help others grow their wealth, peace will be very profitable for my clients, and you. That’s why we need this TACO of Trumps to be the best backdown he’s ever done. Given his poor polling since this war drove gasoline prices through the roof, it needs to be his best ever TACO for purely his own political purposes. Peace being aligned with Trump’s vested interest is a very good thing.
