The State of Markets:  “Price Action Resilient; Pain Trade Up!” 

“Israeli shekel jumps as investors sketch post-Iran conflict landscape”

Source: Reuters, 16th June 2025,  https://www.timesofisrael.com/liveblog_entry/israeli-shekel-jumps-as-investors-sketch-post-iran-conflict-landscape/

This week we completed our quarterly global asset allocation process. The analysis has been ongoing for the past 3 weeks. During that time, we have updated our US, Chinese and EZ macro views, published our global cross asset valuation analysis and updated our global asset allocation recommended portfolio (i.e. with its 6 month to 2 year timeframe).

Throughout the latter part of that process, we/markets have also had to contend with the start (or relaunch) of the Iranian-Israeli war. As with all major (Middle Eastern) conflicts, it adds a high level of uncertainty about the near-term outlook for most key global asset prices (given the importance of the oil price).

The price action, though, throughout the past week (i.e. since the war’s start at the end of last week) has been remarkable. The oil price, whilst up meaningfully from its recent lows, has struggled to break above last Friday’s intraday highs (and to break out of its 2 year downtrend – as we wrote about in our recent commodity fundamentals report);  Gold, a classic hedge against geopolitical uncertainty remains below its record 22^nd April highs (and has been rangebound since that time); while US 10 year yields are 6bps higher than their close on Thursday last week and the S&P500 has continued to move sideways (now up 1% in June).

The resilience of risk assets, in that respect, as well as an absence of a bid on hedging assets (Gold, USTs), is impressive (and carries a key message with it).

That message is at least twofold: i) Iran’s military is weak (this was initially obvious during the attacks in October last year); and, with that, the likelihood of escalation across the Middle East region is low (i.e. other actors across the region don’t appear to have any appetite to get involved – other than the US potentially); & ii) the pain trade in US/global equity markets is upwards.

Interestingly, that also seems to be the message of the key Israeli asset prices, i.e. the Israeli stock exchange and its currency. Both have been strong of late. On Wednesday, the New Israeli Shekel reached its highest/strongest level since early 2023, while the stock market closed at record highs yesterday. Headlines like the one above are being laid out as the reason for the move (i.e. that markets are pricing in the weakening (or loss) of Iranian nuclear capability, and therefore a more stable/less vulnerable Israel).

As such, whilst risks remain in this conflict (e.g. an unsuccessful attempt of the US bunker busting bomb; bombing of Iran’s key export refinery; widening of the regional nature of the conflict etc), for now it seems as though the market has the measure of the situation. Equally, it’s not impossible that the Iranian regime topples and is replaced with a more benign one with the prospect of much more oil coming out of Iran in future years (and therefore cheaper global energy – i.e. a bullish tail risk scenario).

Key chart: Israel equity index shown with Israeli recessions

Upcoming important data/events this week:

Key Research

 The SHORT VIEW (& market positioning), 17th June 2025 :

“US Dollar: Secular Bear Market Underway”

The dollar has made new multi-year lows in recent trading days (FIG A), even as the Israel-Iran conflict has escalated. In other words, despite a significant geopolitical shock (and oil price spike), the dollar has continued to trend down and break below key support levels. Normally, the opposite occurs: shocks and rising uncertainty typically generate a safe haven bid in the dollar. This time that’s happened for gold (see below), not the dollar.

Regarding oil, the recent price spike is probably advanced. The market is well supplied; there have been no production outages from the recent Iran-Israel conflict; and, while supply disruption remains a key risk, portfolios are largely hedged against further oil price strength.

Key North American macro data & events:

Fig B:  US Conference Board consumer confidence (index)

Key European macro data & events

Fig C:  S&P Global Eurozone manufacturing & services sector PMIs 

Key UK macro data & events

Fig D:  UK GDP growth (Q-o-Q%) 

Key Asia-Pacific macro data & events

Fig E: Japanese Jibun Bank manufacturing & services sector PMIs 

This week:

Longview on Friday, 20^th June 2025:

“Oil, War & Our Latest Strategic Asset Allocation Update” 

Quarterly Global Asset Allocation:

“Reflation & Climbing The Wall of Worry” 

The SHORT VIEW (& market positioning), 17^th June 2025:

“US Dollar: Secular Bear Market Underway” 

Prior week:

Longview on Friday, 13^th June 2025:

“Is the US Tightening Fiscal Policy? Should the Fed be Cutting? PLUS Implications of the Overnight Oil Price Move (BUY or SELL?)”

China Quarterly Asset Allocation No. 62, 12^th June 2025:

“China’s Policy Engine: Revving Up a.k.a. Not Out Of The Woods, But...”

Tactical Equity Asset Allocation No. 62, 10^th June 2025:

“Start Re-Building Tactical Equity OW Positions” 

The SHORT VIEW (& market positioning), 10^th June 2025:

“Copper: Upside Breakout Ahead”