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GM. This is Milk Road, the crypto newsletter that gives you signal in a sea of noise. |
It’s Thursday. You know what that means: |
Tomas is giving us a breakdown on everything we need to know about the current macro environment! |
Here’s what we’ve got for you today: |
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Nexo is back in the U.S. - and new clients get 30 days of Wealth Club Premier perks! Higher yields, lower borrowing rates, and crypto cashback - start here. |
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WHAT’S THE LATEST WITH THE IRAN WAR? 🤛 |
I covered the latest on the war in detail in today’s macro newsletter - but here’s the short story… |
Beneath a mountain of headlines, there now appears to be “negotiations of a sort” happening between the two sides of the conflict, via third-party mediators. |
America proposed a “15-point plan” for a ceasefire. Iranian officials then appeared to publicly reject that plan and proposed a “5-point plan” of their own. |
Neither side appears to be close to agreeing to a deal at this point in time. |
Meanwhile, thousands of elite U.S. troops are en route to the Middle East. |
It looks likely that the U.S. might have to initiate a ground invasion of the strategically important Kharg Island if it wants to attempt to reopen the vital Strait of Hormuz shipping route by force. |
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Iranian officials are not very happy with this and have vowed significant escalations if the U.S. attempts a ground invasion. |
Meanwhile, the Strait of Hormuz remains closed, with hundreds of tankers clogged up and a huge chunk of the world’s energy supply still frozen. |
And this is the most important thing for markets. |
What does it all mean for asset markets? |
Crude oil - the most important market in the world right now - continues to edge slowly upwards. Brent crude oil dipped lower earlier this week as hopes of a de-escalation were raised. |
But it’s now pushing higher again, back into the “stagflation zone”. |
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We haven’t yet hit the “danger zone” at any point ($120+) - which is where commentary would likely shift from “serious macro drag” to “heightened global recession fears”. |
Unfortunately, as long as the Strait of Hormuz remains closed, it’s likely that crude oil and other energy prices will continue to creep up over time. With a massive gap in the global oil supply, growing larger with every day that passes, there’s simply not enough oil for everyone. |
Trump administration officials are actively examining what a potential spike in oil prices as high as $200 a barrel would mean for the economy, according to Bloomberg. |
Meanwhile, the S&P 500 continues to trade in almost perfect inverse lockstep with oil: |
Oil up = stocks down. Oil down = stocks up.
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Since the conflict began, risk asset markets have settled into a bit of a rhythm. |
A “stair-step down” week-by-week. |
For equities, more clearly, but also Bitcoin and crypto too, that rhythm has generally been: |
A gap lower to start the week. “Dip buyers” emerge, often resulting in notable gains on Monday/Tuesday. Pessimism creeps back in as the week progresses, before a broad-based de-risking into the weekend.
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This week, though, seems like it might be a little different…. |
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WHAT’S THE LATEST WITH THE IRAN WAR? (P2) 🤛 |
The market hasn’t faded as much as in previous weeks, and equities have largely treaded water (so far at least - at the time of writing) after the Monday pop. |
This change in dynamic might suggest that, despite all the noise, investors are focusing on the key signal that this week’s developments have sent. |
At face value, the Trump team seems more open to finding an “off-ramp” and is attempting to find a way of de-escalating the conflict. |
That said, we still appear to be some way off a ceasefire, and kinetic action is continuing in the Middle East. |
All the while, the Strait of Hormuz is still essentially impassable, and the impact of the energy price shock continues to mount. |
In a note, JP Morgan’s market intel desk wrote: |
“The thinking this week is that escalation is what will drive markets lower from here: |
Attacks on energy infrastructure, especially Saudi oil production and refining. U.S. boots on the ground or an attempt to use military force to reopen the Strait. U.S./Israel targeting civilian infrastructure in Iran. Any attacks on water supply in the region.
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“Barring escalation, we expect markets to chop sideways, but it does seem more likely that we will get a decisive move shortly, either steps toward a ceasefire or another wave of escalation.” |
Some people have been comparing the current risk-off environment to the “tariff tantrum” correction in April 2025. |
But this current environment appears to be different from April 2025, from a retail investor perspective (non-professional investors). |
Back then, retail traders jumped into the market and “bought the dip” amid the tariff chaos, correctly anticipating the Trump tariff U-turn and helping to form the rapid “V-bottom” in risk assets in early April. |
However, this time, retail investor flows are waning, according to JP Morgan. |
Retail dollars invested shrank 15% week-over-week - and have dropped 43% since the start of the conflict. |
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So, what happens next? |
On the geopolitical front, nobody knows. I’m certainly not going to pretend that I do. |
I think there’s still a lot of hope priced into both energy markets and risk asset markets. |
That might be correctly placed hope - but it’s still hope nonetheless. |
If the Strait of Hormuz remains closed for a prolonged period, we’re heading for a serious global growth slowdown/recession. |
This is clear. |
That is the path we are currently on. |
Right now, markets are pricing in a high probability that this path changes, and soon. |
This may be true - I don’t know - I have as much insight as anybody else on what will happen next with the war. |
There are big incentives on both sides to wrap this war up quickly. |
But the growing risk here is a looming “tipping point” when the market starts to lose hope of an imminent resolution. |
There’s only so much “verbal jawboning” that can be done by U.S. officials before the market realizes this mess might not be ending soon. |
And the longer the Strait remains closed, the more widespread and lasting the global economic damage will become. |
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