GeoMacro

The US-Iran deal is a marginal improvement in global commodity supply risk, but we still give a 60% chance of renewed fighting later this year or in 2027.

Tensions between Iran, the US, and Israel have reached their highest point since mid-March – or at least since the ceasefire announcement on April 8 – this week. President Trump responded to the downing of an AH-64 Apache helicopter with air strikes on Iran on June 9. Subsequently, Iran and Israel exchanged fire for the first time since the ceasefire. The latest statements from President Trump are increasingly escalatory. Claiming that the US would renew attacks on Iran and that the invasion of Kharg Island – where Iran’s energy infrastructure sits – is back on the menu of options.

Midterms matter but geopolitics are the main risk this year. Markets will eventually refocus on geopolitical and inflation risks, raising Fed rate hike odds and supporting US dollar and stocks over global counterparts this year.

For the first time since… 2022… the GeoMacro team is starting to contemplate the end of the cycle in a serious way.

The populist backlash against AI could result in bipartisan regulation in 2027, but is especially likely to prompt tax hikes from 2029.

Bears will fold like lawn chairs this summer as traffic returns to Hormuz, allowing markets to overcome seasonal malaise. But we are starting to see how the expansion ends. A macro brew of global central bank tightening due to stickier-than-expected inflation, negative second derivative in AI capex, and surging supply of equities due to Monster IPOs. Expect a blow-off rally until midterms, uncertainty after, calamity in 2027.

The odds of a near-term US-Iran deal have gone up slightly, but the odds of a Russian provocation that divides NATO have also gone up.

I spent the last week in London, speaking to a wide array of BCA Research clients. Throughout the early part of the week, well connected friends and sources in the Middle East warned me that a renewed US attack on Iran was imminent (by Friday, May 22, after the market close, bien sûr). Several clients with hefty AUM’s – and thus an impressive geopolitical consulting budget – in London confirmed that the US attack was all but assured.

Special Report

The US-China trade truce is getting bigger and better, but a grand strategic bargain on Iran and Taiwan is not happening.

Equities have thrown caution to the wind for much of April and early May. We do not disagree with the sanguine mood, but caution that the Hormuz saga is far from over. Still, the AI capex mania continues and the labor market is firming in the US, suggesting that there is more upside to equities.