*Update: Trump has extended the 48-hour deadline to 5-days - sparking fresh volatility across markets.*
Trump on Saturday gave Iran a 48-hour deadline to reopen the Strait of Hormuz.
If not, the US will start destroying Iranian power plants.
Iran threatened to retaliate by striking energy and water systems of its Gulf neighbors.
What’s at stake?
A short closure of this critical energy chokepoint is an oil shock.
But an extended closure becomes an inflation and growth shock that threatens the global economy.
What does this mean for the United States?
The outlook for the US economy hinges on how long the Strait of Hormuz remains shut.
Inflation is rising with US March CPI expected to jump to 1% month-on-month.
Runaway inflation is coming at a time when US labour markets are showing significant weakness.
To be clear, the US economy retains a few pillars of strength.
However, chatter around stagflation may reduce attraction for US assets.
Note: Stagflation = stagnant economic growth + high unemployment + high inflation
Asset watch:
Last week, the terrible combination of geopolitical risk and bet around higher rates thrashed US equities:
(Performance last week)
- US500 ↓ 1.2%
- US30 ↓ 1.5%
- NAS100 ↓ 1.6%
Losses may be extended this week if the war escalates further with both sides attacking key energy infrastructure.