04.05.2026 - Battle around the Strait
The Middle East situation continues to dominate global markets. The Strait of Hormuz remains effectively closed, with shipping activity still close to a standstill, despite political statements suggesting stabilization.
Donald Trump announced the launch of “Project Freedom”, under which the US will begin guiding neutral ships through the Strait starting today. The move comes after he signaled that Iran’s latest peace proposal may not be sufficient.
Iran immediately warned that such actions would breach the ceasefire.
Markets remain highly headline-driven. Oil prices spiked after unverified reports of missile strikes on a US patrol boat. Claims later denied by the US. Meanwhile, the United Arab Emirates condemned renewed Iranian missile and drone attacks.
On the supply side, major OPEC+ nations agreed on a symbolic production increase. However, actual supply remains dependent on the reopening of Hormuz, which has not happened.
Oil continues to move higher under these conditions. At the same time, the US 30-year Treasury yield crossed 5% for the first time in a year, reflecting rising inflation expectations and growing pressure on long-duration assets.
Markets: remain headline driven
Equities: mainly lower
Bonds: yields sideways to slightly higher - Japan 10y at 2.50%, US 10y at 4.4%, US 30y at 5.02%
Commodities: oiI prices continue to rise - USD 105/barrel and Brent at USD 114/barrel.
Precious metals lost some ground - silver around USD 73/oz and gold around USD 4’5250/ozCurrencies: USD rises slightly
Cryptos: higher - Bitcoin at USD 79k
Volatility: The VIX back above 18
My View: Investors remain in denial mode. Despite a constant flow of negative headlines, markets are holding up surprisingly well. Risk assets continue to be supported, not by fundamentals, but by liquidity.
This is the key driver: The Federal Reserve’s balance sheet expansion since January is supporting markets in the short term. But it is also laying the foundation for persistent inflation.
The energy shock is real and unresolved. The war is clearly not over. The fragile ceasefire is already being tested, with both sides engaging again in the Strait of Hormuz. This remains the critical point: No flow, no normalization.
At the same time, political messaging remains disconnected from reality. Announcements of “progress” or even an “end of the war” have had no impact on actual oil flows. The physical constraints remain fully in place.
All this leads to the next phase: Higher rates for longer.
With that, it is not the question if, but when the pressure on equities will increase.The upcoming transition from Jerome Powell to Kevin Warsh adds another layer of uncertainty. Leadership changes at the Fed are typically accompanied by volatility and often weaker equity markets.
My base case remains unchanged: Markets are still underpricing the downside.
What we see right now is a market driven by headlines and liquidity, not by reality.
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