6:00 A gentle tremor, the world has not yet completely surrendered

Source: Wall Street Intelligence Circle

At 6:00 a.m. Beijing time on Monday, global markets opened amid turbulence:

• Oil prices and the dollar surged then plummeted; U.S. crude oil broke through $100 but then fell below that level;

• Gold opened lower but quickly rebounded to recover $4,500;

• U.S. stock futures gapped lower at the open but did not fully recover all losses like gold did.

First, this war has already lasted four weeks with no signs of easing. Trump and Iran exchanged threats of war, shifting the conflict from a “local skirmish” to a “strategic showdown.”

Trump set a two-day deadline for Iran to reopen the Strait of Hormuz, or he will destroy its power plants. This deadline expires Monday evening (New York time).

Iran responded that if its electrical facilities are attacked, it will “completely” close the Strait of Hormuz.

Second, the market is currently pricing in only about “one-third” of the risk—that is, only the risk of closing the Strait of Hormuz. The other “two-thirds” of the risk has not been priced in, which include:

· Stagflation risk: inflation could resurface, rate cut expectations might disappear, and there are even discussions of rate hikes (this part is only partially priced in)

· Recession risk: if the war drags on, chain reactions will start to show in economic data. It will first undermine rate cut expectations, then the overvaluation logic, then corporate earnings confidence, and finally, the word “recession” will be officially reflected in prices.

The Fed fears repeating the mistakes of 2021–2022, when it thought inflation was temporary. As a result, they delayed tightening, but inflation became stubborn, forcing more aggressive rate hikes later. Now, they pretend to be tough (defensive deception) to make rate cut expectations disappear.

Third, the most dangerous thing in the market now is not panic, but “not truly panicking yet”—because risk assets have not experienced a “panic-driven crash,” but are instead gradually reducing positions day by day, which is even more dangerous. Even if people don’t sell, they won’t buy (no incremental buying).

The market has not fully surrendered because it is still hoping for a “last-minute trade.”