As we head toward August, here in the UK it is known as the ‘silly season’ or more deliciously, ‘cucumber time’ in Europe. The summer period sees major public institutions such as Parliaments, courts and other news drivers closed leading to a period when light-hearted or oddball news dominates the headlines through a lack of anything serious. This is likely mirrored globally and with financial markets seeing its populace making for places of holiday, all points of investment and trading experience a calming and a thinning in volumes. 

However, as with nearly everything deemed routine or normal, it reckons not with the fascinating presidency of one Donald J Trump. While the trading centres of the Northern Hemisphere lighten their desk population, the US President is not about to give everyone an easy summer to recharge. The nondescript ceasefire that has suddenly broken out in Iran drops into a period of lower volumes in oil derivatives and those that act as the ‘curve police’ are reluctant to stop the excesses of the extravagant moves of late. Given that one of the other bullish oil drivers, the lack of CPC loadings in the Black Sea, is close to being solved, not too many fancy catching this particular falling knife of correction.

With echoes of some awful movie franchise, Trump Tariff 3 is the new incarnation in how the US now feels its international trading relationships ought to be levelled up. Global markets hate trade uncertainty. Adding to the anxiety of the depleted decision makers left to manage risk is tomorrow’s Fed setting of interest rates. The idea that a Trump nominated Federal Reserve Chair will preside over a meeting that might go ‘either way’ on interest rates is as astonishing as it is sentimentally bearish. The results of Microsoft and Meta tomorrow, with Apple and Amazon on Thursday, are about to have very serious repercussions in the tech and A.I. story and woe betide if investors smell overstretching of investment into buildouts at a time of intense competition from Chinese companies and in some areas, overcapacity. Seriousness, not silliness is all around.

Short-term is as short-term gets

It should really come as little surprise in the reaction to oil prices as the US and Iran blessed us with a weekend of not shooting at each other across the geography of the Persian Gulf. The uncommon need for a resolution in geopolitical misgivings stems from how it distracts myopic eyes from the high-yielding investments within equities that have delivered continued bounty for many-consecutive years since the pandemic. We have been chatting here recently on how so many modern investors have never really endured a bear market in equities and consequently conversations regarding stock market trading invariably mean long-side positioning with selling used only for booking profits or evacuation. This is taken up in an aligning opinion piece seen on Reuters. Post-pandemic stimulus, and, in historical terms, benign interest rates “means many younger U.S. retail investors have never experienced a deep, multi-year bear market. They have ⁠been conditioned to rely on the Fed and the government to bail them out before stock prices fall too far – and that has likely only encouraged more risk-taking.”

Our collective all has by now conceded on how correlative relationships once relied upon are bust and likely changed for good. Skirting a forensic look into this with the example on how it is no longer recognised that a higher US Dollar would mean a weaker oil price, it is the current assumption that a falling oil price frees up monies to be about its default business of buying stocks and shares. It is oddly sobering that our market is a place of flight rather than that of preference. With it being so, the movement in oil prices becomes even more exaggerated, if that is possible, with a circular reasoning from the very inconsistent, but heavy-touched tourists insisting oil prices cannot be trusted even as they add to the whole debacle. 

Flat price trading in oil futures has become a plaything of the unworthy. It has no choice in being readily receptive to news, and by being so reactive is noticed by the politicians creating the headlines, with interference no longer even the slightest nuanced. We will let you into one of our correlation trackers. When crude prices travel above $100/barrel one must expect a TACO. No matter last Friday, that the US President, with all the straight face that he could muster, told the world that there would be a “massive attack” on Iran, it was the triple-digit Brent price flashing across every mode of communication around the globe that stayed the threatened hand with a whimpering excuse on how a pause was needed for a diplomatic solution to possibly emerge. Nothing to do then Mr President with an approaching mid-term election, US gasoline prices accelerating again and by doing so tickling the fancy of those predicting higher inflation? Mr Trump is not alone in fairness. The Iranian regime hides behind a tit-for-tat state of war, but the reintroduction of the Houthis to run interference in the Red Sea is a significant development and completely designed to elevate oil prices, levering the US into a more conciliatory position. It has worked for now. 

Perception and political expediency will police oil prices until our market works out whether China, the arbiter of demand, will once again holster its oil appetite due to price. While this conundrum’s solving is waited upon, we will have to rely on disingenuous geopolitics and the disruptive entries and exits from fast money. All markets are subject at one time or another to the recent phenomenon of ‘all in’ buying from investment tourists with the obvious bouts of ‘throwing the baby out with the bath water’ during times of correction. This has become almost niche within oil flat price trading, and every time rallies ensue, involvement from tourists is a portfolio necessity rather than that of any oil-peculiar view. Their positioning sits uncomfortably and they would much rather be expressing themselves in equities. We wish you no ill, you admirable ladies and gentlemen of fortune, but at present, we would rather you be elsewhere too.

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