What if Hormuz Reopens Market Implications

The report explores the market normalization following a hypothetical reopening of the Strait of Hormuz, forecasting a drop in oil to $75, downward pressure on global interest rates, and a rotation from US AI equities to European markets.

Key Takeaways

• 1.The reopening of the Strait of Hormuz would likely compress the oil risk premium by $10, with prices converging toward $70-$75 per barrel.
• 2.Lower energy prices would allow headline inflation to fall back to target in the US and Euro area by mid-2027, potentially triggering 25-35bp in rate cuts.
• 3.The event would likely trigger a rotation from extended US AI-themed equities into European equities, which have been subdued by the crisis.

Table of Contents

• Summary – What if Hormuz reopens?
• Oil, Rates & Equity implication
• FX Views
• Oil: Risk premium normalization
• Rates (1): Repricing lower on easing inflation pressures
• Rates (2): Monetary Policy divergence on reopening
• Equities: Looking extended but still some room to add long positions
• Equities: Rotation in the cards?
• FX: Factor Drivers – notable observations
• FX: Trading implication – Hormuz reopening & beyond
• FX: Asia FX to catch up if a peak in USD
• FX: Hormuz reopening - Trading themes
• FX: Views summarized
• Disclaimer

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