...certainly Trump's decision to join the war has added a new layer of uncertainty into markets that could persist for some time.
...initially the markets may want to believe that 'successful bombing' tantamount to an end to hostilities. BTC's slight recovery seem to suggest so. But retaliations and responses may arrive later than many would expect.
...weekend Gold has crossed past $3,400. Trump’s attack on Iran could wipe up to 10pc off equity markets
The powerful rally of the past two months is very vulnerable to serious shock. The US president may have just provided it.
AFR Chanticleer
Jun 22, 2025 – 4.30pm
US President Donald Trump’s decision to join the Israeli attacks on Iran on Sunday represents a wild card that many investors didn’t expect, and certainly are not positioned for. This will rattle markets, and the scale of the damage depends almost entirely on Iran’s next move, not America’s.
As we’ve argued consistently in the past week, investors were heavily leveraged to three TACO trades: that the tariff war was over, that Trump’s threats against Federal Reserve chairman Jerome Powell were hot air, and that the United States wouldn’t risk expanding the conflict with Iran.
But despite all his election promises – remember, this is the president who wanted to end America’s “forever wars” – Trump has joined the Israel attack, against the wishes of many prominent Republicans.
So what now for markets?
The first reaction, of course, is likely to be in oil. The weekend oil options market run by IG saw an immediate rise which, if it holds, will see crude leap about 9 per cent on Monday in Asia, to a touch over $US80 a barrel.
Now, that’s not the end of the world, given oil peaked at $US80.77 a barrel in the middle of January. But starting points and rates of change are what matters in the markets, at least in the short term, and oil had fallen as low as $US55 a barrel near the start of May, providing a lovely little tailwind to corporate earnings, the fight against inflation and consumer spending.
Investors had all but baked low oil prices into share prices – and now they’ll have to change course.
“The biggest thing investors need to watch is Iranian attacks on shipping in Strait of Hormuz.” BCA Research chief strategist Marko Papic sees the potential for oil to test $US85 a barrel in the coming days, and believes the S&P 500 – the global proxy for market risk – is likely to fall between 5 per cent and 10 per cent.
To be clear, Papic believes that both moves will be relatively short-lived, and he says there may be a chance in the coming weeks to go long the S&P 500 and short oil. But in the next few days, the market will be guided by how Iran reacts to these attacks.
Trump seems to have ordered relatively surgical strikes against Iran, and his attacks on the country’s nuclear facilities have been immediately followed up by calls for peace. Trump at least doesn’t seem to be trying to overthrow the Iranian regime or crush its entire military complex.
With this in mind, Papic sees three options for Iranian retaliation.
The first is that Iran strikes US military installations in Iraq; Papic argues this is almost a given, but Trump could be prepared to almost accept this and continue to push for peace. The second is that Iran strikes US military installations in other parts of the Middle East, including Qatar and Bahrain.
“This is unlikely to be acceptable,” Papic says. “US re-retaliation would likely occur, endangering a potential tit-for-tat cycle of more conflict.”
That would hardly be welcomed by markets, but the biggest thing investors need to watch is Iranian attacks on shipping in Strait of Hormuz, through which tankers carrying 20 per cent of the world’s oil – and plenty of US warships – regularly travel. Should this happen, Papic says, “investors should expect the US re-retaliation to be massive, punitive, and prolonged”.
Iran can do this. While mining the strait wouldn’t be easy, drone and missile attacks on shipping would be – and it would be extremely difficult for the US to stop, potentially leaving Trump little choice but to hit Iran harder.
But there’s one saving grace: Iran hasn’t tried to shut down the strait in 46 years of Middle East conflict for the very reason that it knows how hard the US (and others) would come down on it, Papic says.
Investors face a nervous wait to see which way Iran plays this. While they can take comfort that history says war-driven pain on markets is usually short-lived, they should realise that market positioning, where investors have crowded into a small group of expensive stocks, with little risk priced, leaves the rally of the past two months very vulnerable to serious shock.
