There were little surprises from the US Fed Chair, Kevin Warsh, at the post-decision press conference after the FOMC kept interest rates unchanged. Warsh danced around questions that might lead to any other interest rate hikes, instead pointing out that the very short-term will be laden with information for them to base any decisions, which all but enforces his previous stance where he saw a future Fed not compelled to advertise its forward planning. 

In the other overnight potential big movers Alphabet and Microsoft posted their earnings. Alphabet shares have dived by 10 percent post-close as not only did revenue miss expectation, but the company is also still set to embark on massive capex increasing its Q3 negative free cashflow to $9.07 billion from -$5.85 billion in Q2. Microsoft on the other hand showed quarterly revenue rose to $92.3bn, up 19 percent from a year earlier. It seems investors are now looking for more fiscal discipline because Microsoft shares rallied 4 percent in the after market inspired mainly by it generating $18.6 billion in free cash flow. 

Neither the Fed decision nor Mega Cap results have succeeded in moving the dial very much in the wider suite, therefore there is little infection to influence the price of oil at first look. Appetite to take prices higher in our market has waned a little as diplomatic thrusts, rather than speculated attacks next week, are curbing enthusiasm. The noisy efforts of Qatar along with separate meetings between Saudi, Türkiye and Pakistan with Iran offer a glimmer of peace talk resumption. This notion is backed up by sources of the ‘Wall Street Journal’ informing that the US Vice President, J.D. Vance, sent a letter to Mohsen Rezaei, the secretary of Iran’s top security body, the Supreme National Security Council, seeking common ground in which further military conflict might be avoided.

Post-election attacks

Yesterday, ‘Wall Street Journal’ sources informed on how the United States had briefed several Gulf Arab countries to be prepared for a short, intense military campaign after the US midterm elections. This comes after Donald Trump’s crass and belittling comments on the campaign trail last week that, “we may do another little ‘Epic Fury’,” the so named initial joint military attack by Israel and the US on Iran at the end of February. For someone so intent on bringing down oil prices in his home country that he has abhorrently entered into a diesel deal with Russia, he is almost trash talking his own efforts to tame oil and energy prices. 

It is tempting to consider that the US President’s mandate to wage ‘conflict’ (he is told time and again not to call it a ‘war’) might be scuppered if there is truth to the Democrat blue wave which pollsters suppose will sweep away Republican majorities in both chambers of Congress. After all, it is only Congress which may declare war, hence the reluctance to use the term by the current Administration. Could then Democrats use the voting power gained in the Senate and House of Representatives to quell its President’s ability to attack Iran? Well, no, any President remains the Commander-in-Chief of the Armed Forces regardless of which political party wins or loses congressional seats although political capital will drain, and the office be subject to greater legislative scrutiny; retention of foreign policy control and the deployment of US forces will remain in President Trump’s remit. Therefore, the military dance with Iran will be deemed as ongoing.

This is likewise true in Israel. The election result is so close that its final sorting might take days, if not longer, but there is a ‘caretaker’ caveat built into law in which the incumbent retains control to avoid any sort of power vacuum. This includes executive authority to commit to military operations be they ongoing or fresh. Where the outcome of the election is more acutely important than it might be for now in the US, is that if the main opposition leader, Gadi Eisenkot, is able to form a government, the interim might see a harried, domestically challenged Benjamin Netanyahu authorise new major military operations against Iran. When the new members of parliament finally get to take their seats in the Knesset, it will be much harder and indeed unprecedented to launch an all-out war without a vote. 

There is little doubt that heaping more missiles and bombs would be more politically expedient for the current Israeli Prime Minister, and if there is indeed a Trump trounce next week, his performative devil-may-care attitude, as hinted in “little Epic Fury”, might allow for a joining once again with the desire of his mate in Israel to dethrone the zealous autocrats of Tehran, but any military success would seem transitory. The last eight months have proved that airstrikes will not overthrow anyone. One can only assume that in retaliation, the attacks by Iran on shipping in and around Hormuz, including the seas East and West of it, will only increase as the effect on global trade is now a well-trodden path, and there will be no hesitation from Tehran to share its country's suffering. Additionally, the success enjoyed by Houthi strikes on the oil infrastructure in Saudi must then rightly have expectations of widening. More importantly, the stabilisers used previously to quell runaway prices such as releasing strategic reserves and the workarounds of pipelines, STS transfers and even road haulage will have little extra capacity. The global shortage of distillate fuels will come to the fore, and at a time when peak seasonal demand is about to kick in. 

The elections in Israel and the US have brought the market to an important marker. But it will not be a marker of inflection, just a signposting of ‘same old, same old’. If we do see a short sharp spate of fireworks, it will not be sustainable, not only in terms of military capability and success, but how an election failure felt in Tel Aviv and Washington will question any mandate there is for further war. President Trump might be able at present to cock a snoot at his supposed international allies as the prices of everything once again start to scream higher, but not so much to the domestic affordability debate within his own country. Inflation has not quite infected all of America’s multi-faceted economy, but new year-to-date highs for energy costs will have detrimental knock-ons everywhere, including the founder of current US wealth, the stock market. A move well above $120/barrel in Brent will only then be halted as it hits the demand destruction such a price ultimately deserves to deliver. Mr Trump knows all of this which is why we suspect, as his words of “a little Epic Fury” suggest, will be just that, limited, anymore would be geoeconomically intolerable.

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