Macro outlook: Iran deal, Fed, and risk assets (with Carol Massar, Tim Stenbeck)

Trejo argues the reopening of the Strait of Hormuz truncates the upside tail risk for oil, lowering inflation pressure and allowing the Fed to cut (UBS expects two cuts in 2027). This supports risk assets and IPO activity; markets price the base-case normalization, not tail risks like Israel escalation.

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UBS 8.8
Investment Bank $4300.00B
Jason Trejo 9.0

Macro outlook: Iran deal, Fed, and risk assets (with Carol Massar, Tim Stenbeck)

ndx

Trejo sees lower inflation and Fed cuts as supportive for risk assets. The IPO market is strong, and AI/tech is a key theme. The Nasdaq 100 is up 3% on the day, and he endorses the risk-on trade.

wti

Trejo says the upside tail risk for oil is truncated, and the path is gradually better. He mentions $70-75 Brent as a plausible range, implying a downward bias from current elevated levels as normalization occurs.

yields

Trejo expects the Fed to cut in 2027, which implies lower yields. He notes that inflation pressure is easing, which supports a downward trajectory for yields.

Tim Stenbeck

Asks about the optimism in today's trade regarding the Iran war, noting markets have been looking past this conflict since end of March.
Jason Trejo

Markets care about how many ships go through the Strait of Hormuz; if they start flowing later this week and normalize by end of summer, that's what matters. The upside tail risk of oil going much higher has been truncated, which lowers inflation risk and shifts Fed expectations.
Carol Massar

Asks if the Fed's next move will be a cut, and whether the risk premium on oil will persist even after a deal.
Jason Trejo

UBS calls for two cuts in 2027 (March and June). A geopolitical risk premium on oil is likely, but an extra $5/barrel is not a game changer for the overall economic outlook.
Carol Massar

Asks about Israel as a remaining risk to the Iran deal.
Jason Trejo

Israel is a risk, but both the US and Iran have incentives to reach a deal. The fact that details are not worked out but both sides publicly acknowledge it suggests they are trying to get there.
Tim Stenbeck

Asks whether the new deal has to be better than the JCPOA, and whether Iran will be fundamentally different going forward.
Jason Trejo

From a market perspective, the deal doesn't have to be better or worse than JCPOA. The key is whether lingering uncertainty remains. There is a change in leadership in Iran, and experts see more pragmatism, but time will tell.
Carol Massar

Notes that geopolitics and war are now a bigger factor in financial models, referencing a Bloomberg story about catastrophe models for the age of war.
Jason Trejo

We are in a multipolar world with geopolitical conflicts and trade tensions. Politics and geopolitics now factor into market thinking, unlike the last 20 years when central banks drove markets.

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