Trump says its all over,

On Monday, Trump declared, ” The war is almost complete, despite Pete Hegseth’s warning that Tuesday and Wednesday would see the most intense day of strikes. Just as the stock market falling 20% last year on tariff fears got him to row in his threats, earning Mr Trump the nickname the TACO man, the consequences of $120 a barrel appear to have been too great for him to bear, and he had to do something. Following his declaration, oil quickly fell to $90 and is currently trading in the mid-80s, and stocks in the US rallied late on Monday evening, encouraging something of a rally in Europe on Tuesday.

When it comes to the drivers of the oil price, it is fair to say that Middle East producers are rowing back on production as they lack storage, whilst tankers remain idle. However, fundamentally, we have to remember this spike in oil prices has not, so far, been driven by a fundamental change in production and supply, but by the means of delivery, as a result of the interruption to the Strait of Hormuz, probably why the price fell back rather than anything Trump said. The fundamentals for oil prices are closer to $65, and if that waterway is opened up again, one could see it back there pretty quickly. Although not sure how quickly that would be reflected in your petrol station. Th

Investor sentiment, so positive at the start of the year, will have taken a knock. The CNN fear-and-greed index is now close to the extreme fear level. We will shortly receive the latest reports from the monthly Merrill Lynch fund manager survey and the S&P GlobalInvestment Manager Index™. February’s ML survey continued to reflect optimism for the year ahead, but the S&P Global IMI had begun to show some moderation in bullish sentiment. I expect both will show further moderation, just how much.

 The Vix index, one of the best indicators of risk appetite, has spiked as expected, but maybe not as much as one might have foreseen. Currently trading marginally above its long-term average. In times of market stress, for example, in April last year, as Trump was throwing tariffs around like confetti, the VIX fear index reached 50, a clear signal that fear had completely taken over from greed. 10-year US Treasury yields have spiked, but the 2-year yield, which is much more sensitive to changes in interest rate sentiment, has moved up only modestly.  UK 2-year gilt yields have risen from about 3.5% to closer to 3.8%, reflecting the market’s reduced expectation of a UK rate cut this month.

This period of consolidation or volatility may continue for a while; some would say it has already lasted several months. Despite the events of the past week or so, the drivers of the bull market remain in place. Tax cuts in the US should help offset higher oil prices. The increased deployment of AI in some industries may well account for some of last week’s jobs report, but productivity gains are likely to continue, allowing earnings to grow. A combination of a decent Q4 earnings season and a modest correction in US equity prices has seen some moderation in stock valuations.