GeoMacro

In the short term, there is plenty to be worried about in macro beyond the Middle East. The market was on thin ice before the Iran conflict. In the long term, the base case scenario remains bullish, but the war in the Middle East needs to be brief.

It is too soon to sell the rip in oil or buy the dip in stocks. Stick with risk-off trades for now.

Since our Saturday missive, there have been several developments in the ongoing conflict between Iran and the US-Israel coalition.

The fog of war is the thickest at the dawn of kinetic action. However, BCA’s GeoMacro Strategy has trade recommendations to manage and thus we send this missive despite the significant uncertainty.

The president did not announce significant new tax cuts or economic stimulus.

Trump is saving face with new tariffs but will avoid any major new tariff shock until 2027. For now, Iran risk will overshadow tariff volatility.

The “Chuck Norris Premium” is now fully in the market. Since the miraculously successful nabbing of President Nicolas Maduro on January 3, the odds of subsequent use of military against Iran increased.

The CNY is undervalued and highly competitive. This gives China room to let the currency appreciate while remaining an export-driven powerhouse, gradually shifting from export intensity toward stronger domestic consumption. This achieves two objectives. First, it narrows the capital account deficit and strengthens the CNY’s role as a global anchor. Second, it enhances Beijing’s geopolitical autonomy by reducing reliance on foreign final demand.

President Donald Trump’s political capital is moderate, as he frontloaded his most disruptive policies within the first year.

Beyond the imminent SCOTUS ruling, we revisit our bullish Europe thesis – with the Chart of the Month suggesting that Germany is so back – as well as our bearish USD view. Also, a few charts on oil and geopolitics.