Oil prices rise in dollars, stock prices fall! The market begins to "pressure" Trump

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The conflict between the US and Iran is undermining the policy achievements that Trump has painstakingly established in the financial markets. Oil prices are soaring, US Treasury yields are jumping, and the dollar is making a strong comeback—these triple pressures are intensifying inflation expectations and obstructing the path of rate cuts, directly threatening several economic "barometers" that Trump values most.

After the US and Israel launched air strikes against Iran, international oil prices have risen by more than 10% this week, reigniting inflation concerns. Traders have begun to lower their expectations for the extent of Fed rate cuts this year—previously, the market had bet on three rate cuts within the year, but now even two seem uncertain. Meanwhile, the Bloomberg Dollar Spot Index rose by more than 1% this week, and the yield on the 10-year US Treasury climbed about 20 basis points.

In the stock market, US equities managed to remain stable overall this week, but the situation is still evolving. On Thursday, as the conflict entered its sixth day, oil prices, yields, and the dollar rose again, causing stocks to fall.

Schroder Investment portfolio manager Mina Krishnan warned,

These unintended consequences act as brakes on what Trump can achieve, particularly in a midterm election year. The barometers he watches are the S&P 500 Index, gasoline prices, and mortgage rates. He has attributed his success to these indicators, which means now he must also take responsibility for any failures.

Three Major Market Targets Simultaneously Damaged

Before the conflict with Iran broke out, Trump was reaping—whether intentionally or coincidentally—the outcomes he wanted in three key financial markets: falling oil prices, lower US Treasury yields, and a weaker dollar.

In January of this year, Trump publicly expressed satisfaction with the recent depreciation of the dollar, reinforcing market expectations that the White House wanted a weaker dollar to bolster exports. The dollar responded by falling until Treasury Secretary Besant reaffirmed a strong dollar policy, at which point stability returned.

However, with the outbreak of this conflict, the dollar rapidly regained its safe-haven status and strengthened across all major currencies. If this trend continues, it will undermine the competitiveness of US exports and run counter to Trump's core agenda of reviving manufacturing.

The US Treasury market is likewise suffering a blow. The yield on the 10-year US Treasury is an important benchmark for corporate loans and home mortgages, and the Trump administration clearly hopes to keep this rate low to lessen the burden of roughly $1 trillion in annual federal debt interest.

However, on the day the conflict broke out, the 10-year US Treasury experienced its largest single-day drop since last October, putting pressure on the bond market indicator most valued by Besant. Ed Yardeni, president of Yardeni Research, bluntly stated, "Market trends reflect geopolitical realities, and these are not always aligned with domestic policy objectives."

What Is the Risk of a Repeat of the 2022 Nightmare?

Investors are already referencing the painful precedent of 2022. When the Russia-Ukraine conflict erupted, international oil prices briefly surpassed $100 per barrel, driving up inflation, forcing the Fed into aggressive rate hikes, and causing the dollar to strengthen significantly, with both bond and equity markets suffering severe losses.

Currently, traders see this scenario as a tail risk rather than a baseline expectation. Scott Ladner, Chief Investment Officer at Horizon Investments, says current asset price movements "are consistent with the market's pricing logic that the conflict with Iran will be 'relatively short-lived.'"

It is notable that, as a net oil exporter, US assets have outperformed those in Europe and Asia, which are highly dependent on imported energy, with US equities' excess return relative to other global markets reaching the largest weekly gap since April.

However, if the conflict drags on and energy prices remain high for a prolonged period, consumer confidence and corporate investment prospects will suffer in tandem. Last month in his State of the Union address, Trump was still loudly claiming that gasoline prices were falling and inflation was "plummeting," but now the sharp rebound in oil prices poses a severe challenge to this narrative.

Ayako Yoshioka, Director and Senior Investment Strategist at Wealth Enhancement Group, noted, "This war may undermine market expectations for falling inflation and lower interest rates."

Risk Disclosure and DisclaimerThe market has risks; investment requires caution. This article does not constitute personalized investment advice and has not considered the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions contained herein suit their specific circumstances. Investing based on this article is at your own risk. ```