Oil
Another Netanyahu-led government would raise the risk of Israeli escalation and a major oil supply shock, while an opposition victory would reduce, but not eliminate, this risk due to its greater coordination with and deference to the US.
Crude has led the latest rally, leaving refined product prices behind and crack spreads narrower. We explain why the spread compression is unlikely to continue and why product prices will follow crude.
Iran is effectively trying to create an “October surprise,” an adage that refers to a pre-election crisis that alters the trajectory of polling and the eventual outcome. It is likely to be successful, with oil prices likely to face upward momentum from here. The intention would be to ensure that oil prices do not see any significant decline from now until November 3.
The big risk for the markets remains a flare up in the Middle East conflict. The Fed appears to be targeting geopolitics as much as inflation fundamentals. By the logic of transitive properties, therefore, more war means more hikes. That’s negative. So why are we not bearish on equities and bonds? Because President Trump holds his own faith in his hands. With his unfavourability near all-time highs (Chart of the Month), the conflict in Iran is at its end. Our worry? A Democratic Party sweep that surprises in its intensity and thus forces markets to start pricing in a leftward tilt in 2028.
