Daily Brief – Iran War Outcomes

Iran War Outcomes

A useful UBS report was published at the end of last week which sets out 3 separate outcomes for the Iran War with attendant implications: the first is a de-escalation in 1 week: prices would revert in the short term and growth prospects would be relatively small. The second is a 5-week disruption to shipping passing through the Strait of Hormuz resulting in oil flow being cut in half to 10 million barrels per day with the price rising to USD 120 before declining to USD 100 in Q3. Annualised EU inflation would rise beyond current expectations to 3.2% in Q2 and EU growth would fall by 0.2%. The third and most serious outcome would see oil exports being restricted for 2 months and the price rising to USD150. That would mean US and EU inflation rising to 3.5% and 3.6% respectively and US Q2 Growth falling 0.6% and that of the EU 0.3%. ECB President Lagarde separately captured the headlines by suggesting that the Iran War and its effects would last way beyond UBS’ worst outcome in fact for “years” which markets did not like one bit.

EUR/USD 1.1510.

Currencies

As we know the Iran War has driven up the US Dollar with the Dollar index up 2.4% and so it is timely to look at how other currencies have fared (so far). Sterling has performed best down 1.5% in March; EUR is down 2.5%; Yen down 2.4% but CHF has done worst down 3.6%. On that basis and given the thinking that the UK and therefore GBP is one of the most exposed of the G7 to the Iran War, it could be argued that Sterling is vulnerable to a further fall.

GBP/USD 1.3275.

Gold

Doubtless, Gold bugs will be pondering if not worrying when Gold is going to return to its recent pre–Iran War highs of USD 5400 from its current USD 4533 at the time of writing. A cogently argued recent research paper suggested that Gold will indeed grind up back to its high due to ongoing Central Bank and particularly Chinese People’s Bank of China buying, while USD will retrace a bit but can and will remain firm in the light of ongoing geopolitical uncertainty. Spare a thought though for the managers of those stablecoin which are backed by Gold. For example, PAX Gold, Tether Gold, VNX Gold, Kinesis Gold, and Comtech Gold are all backed 100% or 1:1 with Gold. These are of course all large and have been around for some time so longer-term holders will have enjoyed the dizzy rise of Gold and conversely, they will have enjoyed rather less the 20% fall in Gold in the past 4 weeks. Stablecoin are meant to be both asset backed and mostly stable in price but the last month will have challenged the hedging skills of stablecoin managers.

EUR/GBP 0.8670.

World Air Quality Report

Covering 2,303 cities across the world this report is simply too big to report on in detail but within it, 43 European cities are included but only 3 countries meet the stipulated Air Quality standards and they are Andorra, Estonia, and Iceland. At the other end of the report, 5 of the 10 most polluted cities in Europe are in Turkey despite the efforts of the Turkish Tourist Board which currently gives an entirely different picture in advertisements that appear on UK terrestrial TV nightly more than once.

EUR/JPY 184.43.

You Can’t Always Get What You Want

This day in 2000 Mick Jagger was invited back to his old school in Dartford Kent to open a new arts centre. Things seemed to be going well until it came to Mick’s dedication speech which fell short of what the teaching body was hoping for,  but doubtless delighted the listening students. Mick Jagger summarized his time at the school as being the worst years of his life.

I saw her today at the reception
A glass of wine in her hand
I knew she would meet her connection
At her feet was a foot-loose man
No, you can’t always get what you want
You can’t always get what you want
You can’t always get what you want
But if you try sometime, you’ll find
You get what you need

I saw her today at the reception
A glass of wine in her hand
I knew she was gonna meet her connection
At her feet was a foot-loose man

You can’t always get what you want
You can’t always get what you want
You can’t always get what you want
But if you try, sometimes
Well, you might find
You get what you need
Ah, yeah
Oh

Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter