The tide goes out
Markets, Saudi Arabia, OPEC+, Israel, Yemen, Sudan, the DRC, and Rwanda.
The five things you need to know today:
GLOBAL MARKETS. Amid policy uncertainty, traders look for unhedged risks.
SAUDI ARABIA. OPEC+. A gift to Trump may become a poisoned chalice.
ISRAEL. YEMEN. Netanyahu raises the stakes in Gaza and Hodeidah.
SUDAN. The civil war settles into a clearer pattern.
CONGO. RWANDA. Economic compellence won't likely bring stability.
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GLOBAL MARKETS. Naked and afraid
Amid policy uncertainty, traders look for unhedged risks.
Asian currencies eased early Tuesday after the Hong Kong Monetary Authority spent a record $7.8 billion in interventions the day before and Taiwan's central bank slammed rumours of a revaluation. Jeffries warned of “something bigger”.
INTELLIGENCE. The reasons for the volatility in Asia's normally highly managed foreign exchange markets are still up for debate. The most likely reason, judging from the origin of US dollar sales, is the unwinding of unhedged risks, starting with Taiwanese life insurers. But there are plenty more unhedged dollar investors elsewhere. Ongoing US policy volatility, particularly ahead of the Fed’s expected decision to hold Wednesday, will be keeping them awake.
FOR BUSINESS. US stocks snapped their 9-day rally Monday after Donald Trump announced plans for tariffs on overseas film production (since somewhat walked-back). Gold was closing in on $3,400 Tuesday. But trade and tariff worries could soon morph into second-derivative risks should a maturity or currency mismatch in an obscure corner of the financial market lead to panic (as happened to some US lenders, including Silicon Valley Bank, in March 2023).
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SAUDI ARABIA. OPEC+. Glut and punishment
A gift to Trump may become a poisoned chalice.
Crude fell to four-year lows Monday after OPEC+ agreed to raise output from June by 411,000 barrels per day. West Texas Intermediate contracts fell to $56. Some analysts saw this as a “gift" to Donald Trump, ahead of his visit to Riyadh.
INTELLIGENCE. OPEC's increase went beyond the levels expected if the aim was to simply punish members who had exceeded their quota (Kazakhstan, Iraq). It was more likely a decision to cement market share ahead of Trump's plans for a "drill, baby, drill". And while it may be pitched to him as an inflation-busting encouragement to a hawkish Fed – or a way to increase negotiating leverage with Iran and Russia – ultimately it may harm the US heartland more.
FOR BUSINESS. If oil falls below $50, not only will new projects be canned but layoffs can be expected in Texas and elsewhere. After an irregular migrant crackdown improved jobs figures, Trump will not wish to see rising private sector unemployment. Rumours of a Shell-BP tie-up are another bearish indicator for oil sector jobs, which have been steadily falling despite record US production. Scott Bessent's claims of economic "antifragility" could soon be tested.
ISRAEL. YEMEN. Cruel intensifications
Netanyahu raises the stakes in Gaza and Hodeidah.
Benjamin Netanyahu said an "intensive" offensive would be launched after his cabinet approved plans to allow the seizure of all the Gaza Strip. Around 70% of Yemen's Hodeidah port was said to have been damaged after Israeli attacks.
INTELLIGENCE. Israel was expected to retaliate to Sunday’s Houthi strike on the Ben Gurion Airport. But the landing of a missile in a field, with a fifth of the usual charge, hardly justifies a 20-jet strike. Likewise, the call up of thousands of reservists to make another push into Gaza seems overkill. Netanyahu may want to finish destroying Iran’s remaining proxies before Tehran does a deal with Washington, but he risks also setting off uncontrolled escalation.
FOR BUSINESS. Increased conflict in the Middle East is one bullish factor for oil, but this is likely to be more than outweighed by the political costs. Still, the US has stood back, describing the Gaza plans as an internal matter and assisting with the attack on Hodeidah (indeed, this has saved it using its costly MQ-9 drones, which have been liable to being downed). Far from ending the forever wars in the Middle East, Washington risks creating new ones instead.
SUDAN. Drawing the line
The civil war settles into a clearer pattern.
Explosions rocked Port Sudan Tuesday after the rebel Rapid Support Forces attacked a military base there Sunday. The International Court of Justice dismissed a case accusing the UAE of fuelling genocide through its support to the RSF.
INTELLIGENCE. The ICJ ruled a lack of jurisdiction, but the UAE said it had been vindicated over longstanding accusations it was aiding the RSF. Irrespective, the RSF, having been kicked out of Khartoum, has shown it can still reach far beyond its territories in the south and west. But reach is different from control. Other evidence points to a de facto border developing between the military and RSF, loosely along the Nile, and backed by rival governments.
FOR BUSINESS. Despite attacking Port Sudan, the junta's de facto capital, the RSF seems keener on clearing the military from its remaining positions in Darfur and pivoting its forces to focus to this objective. A "Government of Peace and Unity" was declared last month. A region governed by the militia once known as the genocidal Janjaweed is a fearsome concept, but it may be more stable than an ongoing, evenly-matched war across Sudan's entire length.
DEMOCRATIC REPUBLIC OF THE CONGO. RWANDA. Peace of the action
Economic compellence won't likely bring stability.
Kigali and Kinshasa had submitted draft proposals to end the war in Congo's east, White House Africa adviser Massad Boulos said Monday. Rwanda was in talks to house migrants deported from the US, its foreign minister said Sunday.
INTELLIGENCE. Boulos, a Trump donor and father-in-law to Tiffany, has offered a broadly Ukraine-style minerals-for-security deal to Rwanda and the DRC. Rwanda's hosting of US deportees (alongside Libya) appears an added bonus. But this won't necessarily stop the Kigali-backed M23 rebel force from its campaign through the DRC’s east. The M23 claims to be fighting for control of Congo's entirety, not just the mountainous jungles along the Rwandan border.
FOR BUSINESS. US money and dealmaking could compound the crisis in Congo, which stems more from Rwanda's deep-seated sense of insecurity and a broader scramble for minerals across the region. If anything, the stakes could potentially be raised for M23 and other groups, including outfits linked to Islamic State. And while some intrepid US firms are already operating in the DRC, most will prefer to get their critical minerals from Canada and Australia.
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Best,
Michael Feller, Chief Strategist