Friday's reopening of the critical Hormuz Strait waterway triggered widespread risk-on sentiment in the markets: U.S. stocks soared, crude oil prices plummeted, U.S. Treasury yields fell, as the belief spread that the worst was over and the disruption to global energy supplies had eased.
However, these moves may prove to be premature.
At 9:20 AM on the 18th (Saturday), reports broke that two oil tankers had been denied passage through the Strait of Hormuz. Trump immediately applied public pressure: if no deal was reached by Wednesday, the U.S. would continue blockading Iranian ports. At 16:00 that day, Iran announced the re-imposition of restrictions on the Strait and opened fire on vessels attempting to pass—two Indian ships turned back into the Persian Gulf after being shelled, bringing shipping traffic in the Strait to a near standstill.
Traders reacted swiftly on TradeXYZ, with crude oil contracts gaining about 4.52% compared to the weekend closing price, and S&P index contracts falling nearly 0.8%.
Trump then shifted his stance, revealing that envoy Steve Witkoff would travel to Pakistan for talks with the Iranian side on Tuesday, potentially extending the negotiation window until Wednesday.
He then turned around and posted on Truth Social, stating, "The deal we offered is very fair and reasonable, I hope they accept it, because if they don't, the U.S. will destroy every power plant and every bridge in Iran."
Iran was clearly not buying it. At 1:53 AM on the 20th, the Iranian side announced its refusal to participate in a second round of talks; according to Axios, Tehran's assessment was that the U.S. might launch an attack before the Tuesday night ceasefire expiration.
Driven by this news, crude oil surged again, clearing the highs from the 18th, while the S&P index correspondingly broke below the lows from the 18th.
On the individual stock front, three crypto-related stocks significantly underperformed others.
Predictably, the spreading optimism in the market last week will be punished. This week's market movements will largely depend on whether Iran can maintain its no-negotiation stance.
