The world is once again greeted with a hot morning

Source: Wall Street Intelligence Circle

The global markets seem to be迎来 another hot morning, with major markets all experiencing “gap openings.”

• Oil prices surged, with Brent crude briefly rising to the 108 level;

• Gold prices initially fell then rose, surpassing $4,500;

• U.S. Treasury yields edged lower but still remain above 4.40%;

• U.S. stock futures opened slightly lower with a gap down.

The Iran war has entered its fifth week.

First, the most panic-stricken moment in the market has not yet arrived; the sell-off has reached a point where only a liquidation event can stabilize it. At least, we need to see the S&P 500 drop more than 2% at once, and the Nasdaq index fall over 3%.

The mainstream view among Wall Street analysts remains that—this war is likely to last longer than investors expect, so oil prices will stay high, and other markets may weaken further.

Second, a new variable has appeared in the oil market.

The Washington Post, citing an unnamed U.S. official, reports that the U.S. is preparing for possible ground operations in Iran that could last several weeks, with the primary goal likely being to open the Strait of Hormuz.

“Ground operations” and “lasting several weeks” present a situation completely different from the past, implying three scenarios for the market:

· Scenario 1, quick reopening (ideal case): Hormuz reopens, oil prices fall back, and the market rebounds violently;

· Scenario 2, short-term escalation (more realistic): the conflict escalates, oil prices soar, and both stocks and bonds continue to be wiped out, leading to a “second decline”;

· Scenario 3, long-term conflict (most dangerous): oil prices stay high for a long time, inflation re-spirals out of control, and the world enters a “stagflation-like” state—this is the real major risk.

Even if U.S. actions aim to “open” the strait, at the moment the operation begins, the risk to the strait skyrockets exponentially. No oil tankers will be willing to pass through during a ground war, and before scenario one occurs, the market must first experience scenario two.

Third, it is worth noting that the market volatility at this Monday’s open was significantly lower than last Monday’s, giving some traders the idea of finding buying opportunities. Many have been watching, waiting for the so-called retail sell-off, pondering whether last Friday’s sharp decline was just an opportunity.