USD Flows - mkt unwilling to commit amid broader escalation, hugs familiar figures
Battle becoming more entrenched over Strait control
Mkt unwilling to commit and be whipsawed again though
Minor USD haven skew but sticks to the familiar figures, risks do seem to be growing
Back to a moderate risk-off and haven USD support skew, as the weekend sees fresh and perhaps wider escalation in Iran, leaving oil back to the rebound highs (Brent front month up $3 ½ to just off $80 again) and equities softer (the highest beta Kospi off almost 10%, Nikkei off around 2%~).
The latest outbreak followed the same pattern of Iran firing on shipping not on its authorises route as it seeks to exert control over the Strait followed by a wider and broader exchange of strikes. The challenge for markets is that it is hard to see the way out of the current impasse that effectively leaves the flow frozen or at best limited to minor escorted transit. Market reaction nonetheless continues to hold to only the slightly defensive side of a wait and see range and current pricing. Familiar levels like 1.14~ and even 0.69~ on AUD, 9.7~ on SEK, still continue to anchor as the market avoids being whipsawed at all cost.
It’s an otherwise quiet Monday leaves little else to focus on until US CPI data on Tuesday. The geopolitical backdrop will tend to colour how the CPI data is then viewed (a 0.3% on core is different in the middle of a fresh supply blockade than it is in a swift return to normal).