Market reaction to Iran deal and Fed outlook (with Carol Massar, Tim Stenbeck)

Jason Trejo (UBS CIO) argues markets are already pricing in a reopening of the Strait of Hormuz, which truncates the upside tail risk for oil and reduces inflation fears. This supports a less hawkish Fed path (two cuts in 2027). He sees the geopolitical risk premium as manageable and not a game-changer for equities unless oil spikes much higher. He also notes a shift from central-bank-driven to policy-driven markets.

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Market reaction to Iran deal and Fed outlook (with Carol Massar, Tim Stenbeck)

ndx

Trejo says the truncated oil risk and lower inflation support equities. The Nasdaq is rallying 3% on the day, and he sees the market pricing a base case of gradual improvement.

wti

Trejo says the upside tail risk for oil is truncated, and if the strait reopens, oil flows normalize. He implies lower oil prices in the near term, though he notes it will take time to build reserves.

yields

Trejo says lower oil reduces inflation risk, which supports a less hawkish Fed (two cuts in 2027). This implies lower yields over the medium term.

Tim Stenbeck

Asks Jason Trejo about the market optimism on the Iran war and whether the details matter for markets.
Jason Trejo

Markets were already ready to move past the Iran story; what matters is 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 markets care about.
Carol Massar

Asks if the energy market will take time to return to pre-war levels and if the inflation impulse will dissipate.
Jason Trejo

The inflation shock from oil is a one-off level that will dissipate if oil stays or goes lower. Last week's CPI might be the peak year-over-year measure.
Carol Massar

Asks if the Fed will cut next week (Wednesday).
Jason Trejo

No cut this week; UBS is calling for two cuts in 2027 (March and June).
Tim Stenbeck

Asks if there will always be a risk premium on oil from now on, given potential tolls or ongoing uncertainty.
Jason Trejo

There will likely be some geopolitical risk premium, but the key is that the upside tail risk of oil going much higher has been truncated. Even if it's an extra $5/barrel, that's not a game changer for the overall economic outlook or equity markets.
Carol Massar

Asks about Israel as a remaining risk to the 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 progress suggests they are trying to get there.
Tim Stenbeck

Asks if the new deal has to be better than the JCPOA, which Trump walked away from.
Jason Trejo

From a market perspective, it doesn't have to be better or worse. The lingering uncertainty (Iran's ability to shut the strait) is an ongoing risk, but markets price a base case, not tail risks.
Carol Massar

Asks if this signals a fundamentally different Iran going forward.
Jason Trejo

There is clearly a change in leadership in Iran, and any change in leadership often brings policy shifts. Experts suggest more pragmatism among Iranian leadership, less ideologically driven.
Carol Massar

Asks if war and geopolitical risk are discussed more now than 5-10 years ago.
Jason Trejo

We are in a multipolar world with geopolitical conflicts and tensions over trade and resources. Politics and geopolitics now factor into market thinking more than in the 2010s, which were central-bank-driven. Now it's more policy-driven.

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