What's The Trade? JPMorgan Traders' Thoughts Ahead Of 'Another Action-Packed Weekend?'

Immediately after yesterday’s close, Trump announced another delay in the ceasefire deal from today to April 6th. Futs went up after the announcement but have been quickly reversing and now in the red.

Unlike the initial 5-day ceasefire window, yesterday’s statement failed to support price actions in equities, oil, or rates.

The jawboning is failing as investors are now shifting from full reactions to any Trump’s “TACO” headlines, to pricing in the consensus views of a prolonged geopolitical conflicts and focusing on actual movements in military activities and the Strait for indicators.

Hence, the WSJ article overnight that the Pentagon is considering sending another 10k troops to the Middle East was not helpful for price action.

Moreover, we are still facing lingering issues from tariffs as well.

Ahead of the delayed Trump-Xi Summit, China started trade investigations and is preparing for retaliation policies on Trump’s sectoral tariffs investigations.

With all that in mind, JPMorgan's Market Intel desk traders warn that despite the delay in the ceasefire window, they still see meaningful headline risks around military actions and narrative shift.

THOUGHTS INTO THE WEEKEND

A few additional thoughts as we look towards what may be another action-packed weekend.

MILITARIES

It seems that the strategy is ‘escalate to de-escalate’ but this may quickly morph into full scale ground assault or a deal.

While both US and Israel declare Iran an enemy that has been defeated, this is not without damage.

As ZeroHedge detailed here, the 13 US military bases in the Middle are effectively uninhabitable with the Kuwait-based facility the worst hit. Before the war there were an estimated 40k – 50k US troops in-region which have now been dispersed both across the region and to Europe. This complicates efforts for a longer duration ground assault.

Keep an eye on the status of the emergency $200bn Dept of War funding request. At current pace, this would fund US efforts into August or possibly September.

However, Trump maintains a 4 – 6 week time period. Today is day 27.

WHO ELSE JUMPS IN

Saudi Arabia, UAE, and Lebanon have declared Iranian diplomats persona non grata effectively halting diplomatic relations.

Bloomberg reports that Turkey is urging Gulf States to NOT enter the war. Presumably, the fear is an ‘us vs. the world” mentality that Iran would target all energy infrastructure plus desalination plants.

On the Iranian side, the Houthis stand ready to block off the Bab el-Mandeb Strait which controls as much as 12% of daily, global oil flows and would cut off Red Sea / Suez Canal access.

The alternative route is going around Africa’s Cape of Good Hope adding maybe 2 weeks to a ship’s journey plus fuel, freight, and insurance costs.

While Russia is actively delivering intelligence, and potentially weaponry, there is no indication that troops or other equipment are being delivered.

Separately, in 2021, China and Iran signed a 25-year Strategic Partnership which is essentially an oil for military / tech deal but does not necessarily imply a defense pact.

In January, China, Iran, and Russia signed a trilateral strategic pact.

Again, this is not a formal defense pact like NATO but does solidify cooperation to counter the West.

DEAL TO BE DONE

There is limited communication between the sides, but initial demands have exchanged.

Danny Citrinowicz, former Head of Iran Branch for Israeli Military Intelligence says that there are two alternatives, (i) nuclear-focused deal or (ii) an all out war.

That said, Iran’s “present” to Trump was allowing tankers through SoH.

It is possible that we could see traffic partially normalize to alleviate the energy crisis but a return to normalcy has been ruled out by Iran.

NEAR-TERM FALLOUT

When considering the impact of energy shortages, Natasha tells us Asia got hit first, next will be Africa in early April. Next, Europe will feel these impacts by mid-April. US will be last thought the magnitude will be lower.

This occurs in a backdrop of price caps and rations across APAC. China has moved to cut exports of refined products including jet fuel (China is Australia’s largest jet fuel supplier).

There was previous chatter that the US may halt crude / LNG exports, including to EU, but that was dismissed by Trump.

Does this sentiment return if the conflict looks to stretch beyond 6 weeks?

WHAT’S THE TRADE

The most important part of this missive but the most difficult.

Energy (cmdtys and Eqys) is the only obvious Long.

Traditional Defensive plays may work in the very near-term, but HC remains at-risk of losing the precedents to pharma. Staples are at-risk of margin compression.

So that could be a core pairs trade but in the event of an actual ceasefire, that trade will fail.

Tech is unlikely to be a safety haven if bond yields continue to spike.

LONG-TERM FALLOUT

The multi-$bn investments by Saudi Arabia and UAE using US tech may be at-risk.

Politico reports that Gulf States are weeks away from having to repatriate US investments given their economies are cratering.

We have seen the Saudi’s cancel part of the Neom megaproject. For those interested in engineering, Neom is one of the built-from-scratch cities similar to Jubail which took about 20 years in concert with US-based Bechtel.

Another question is who becomes the leading protective force in the Middle East after the conclusion of this conflict.

If a deal is done, with US bases in shambles, does Iran attempt to force a Middle East defense pact, or do we see China and/or Russia attempt to fill the gap?

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Markets are shifting into the next phase of the Iran crisis even as President Trump extended the negotiations period before resuming strikes. The fast rush out of crowded trades is fading, and a slower risk-off pulse is taking over as traders accept a longer stretch of geopolitical uncertainty, higher energy costs and a more stagflationary global backdrop.

Professional subscribers can read the full JPMorgan Market Intel Briefing note here at our new Marketdesk.ai portal