“One of the price-driving factors present on the market recently was the expectation that the disastrous consumer sentiment and the labor market would suppress inflation. However, if the labor market begins to strengthen, as the latest data show (a surprising increase in employment – editor's note), then this the calculation begins to reverse” – comments Kamil Szczepański, XTB analyst.
See also: New data from the US labor market. One sector is not slowing down
No resolution in the conflict with Iran. What scenarios?
As he points out, the inflation we are seeing is a direct result of the Gulf War and will not disappear as a factor until the conflict ends. However, the way the US conducted its operation left both the US and the entire world in an almost hopeless situation.
“The Iranian regime, despite its insignificant ability to actually reduce US forces in the region, remains with maximalist negotiation options and is almost completely insensitive to human or material losses. However, the US, even despite its ability and willingness to make compromises, cannot afford to legitimize Iran's control over the strait,” says Kamil Szczepański.
See also: Donald Trump commented on Iran's decision. “We talked too much”
He points out that while the US has the military capabilities to occupy part of Iran's territory and overthrow the regime by force, this would involve a number of losses that the US administration does not seem ready for. He suggests that the scenario for the market and the region is: a “new normal” scenario in which cross-strait shipping volumes are reduced to less than half of pre-war levelsand the transfer is decided by entities willing to risk attacks by Iran and entities related to Iran.
The XTB expert emphasizes that this is the base scenario, but not the only one. Iran operates in conditions of permanent economic cataclysm and the de facto collapse of the state's financial system, which may induce government representatives to make (intended) temporary concessions.
“We should also not rule out the possibility of concessions from the US, which, under the pressure of consumer inflation, may temporarily make significant concessions, assuming some variant of addressing the issue of Iran and the strait when the US is better prepared for it,” he points out.
Conflict in the Middle East. Investors should be careful
“The market will painfully squeeze through further bottlenecks in global supply chains. It is likely that investors should prepare for a slow-motion avalanche, not a spectacular collapse or crisis“- warns Kamil Szczepański.
He adds that “shortages of oil, gasoline and gas in the long term mean a moderate recession in Europe — which could have far-reaching consequences ahead of possible elections in Spain, Italy and France. The US may see a crisis that is more inflationary than recessionary, which will also have political consequences.
