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Iran and Israel have been at odds for more than 45 years, but about 10 days ago, the long-simmering conflict boiled over massively into barrage after missile barrage between the two countries – thousands of missiles have flown.
Over the weekend, the US military entered the fray when it dropped as many as 14 bunker-busters and lobbed up to 24 Tomahawk cruise missiles at “sensitive” Iranian targets.
Iran’s parliament has demanded the closure of the geopolitically critical Strait of Hormuz. It’s not their call, but this 21-mile-wide chokepoint sees around 20% of global crude production flow through to markets in China, India, Japan, and beyond.
And as of this afternoon, there are credible reports the Iranians have attacked US military installations across the Gulf in Qatar.
The markets’ overall reaction may seem muted, but, when you zoom in, it’s anything but that. Look closer and you find energy (especially crude oil), bonds, and the dollar have been very much in play since last Tuesday. At one point crude futures blasted several percentage points higher in just a few hours.
From where I’m standing, it looks like the market got the events right, but missed on direction and magnitude.
As you’ll see in a minute, there’s a lot of value to be gained from parsing out the markets’ reaction to these events.
Let’s examine what they got right, what they got wrong, and, most importantly, how to get ready for what’s next…
