Trump extension shows his weak hand, as Iran play the long game

A mixed start to the day in Europe, as Trumps latest TACO move saw the President extend the ceasefire seemingly without any request from the Iranians. With the decision to avoid any hard deadline this time around, there is a feeling that the chance of additional conflict could be easing. Nonetheless, for Europe time is of the essence, with airlines such as Lufthansa, SAS, KLM, and Iberia cancelling flights owing to the growing Jet Fuel shortages. Unsurprisingly, IAG trades lower on the FTSE, with concerns growing around fuel supplies at Heathrow which stands as the primary British Airways hub.

On the economic-front, the latest UK inflation report brought about a 0.7% rise in headline CPI, taking the annual figure up to 3.3%. Between February and March, we have seen inflation of 1.1%, standing at over half the 2% target sought by the Bank of England. Unsurprisingly transport costs and rising fuel prices brought the biggest upward contributors, with more of the same expected in April. However, the most notable shift from this report came from the PPI input prices metric, which surged to 4.4% for the month of March alone; the highest monthly figure since the inception of the Russia-Ukraine conflict back in 2022. With business input prices on the rise, they are also passing those costs on to the consumer, with PPI output prices up 0.9% for the month (another multi-year high).

Yesterday’s ceasefire extension brought a somewhat mixed response from markets, with Trump’s decision to extend in the absence of any tangible talks serving to highlight just how weak his position currently is. Despite warning that he won't extend, this time around he cant even say that he has seen any progress that provides the basis for this concession. While the US could continue to strike Iranian positions, they are seemingly incapable of securing much more when it comes to the objectives of destroying the nuclear and ballistic capabilities of Iran. Hence the threats against civilian infrastructure such as bridges and power plants. His threats appear empty and in the absence of any negotiations, it is down the Trump to concede further or escalate. For Iran, there is a clarity that each passing day deals additional damage to the global economy, with US inflation on the rise and Trump’s popularity waning. 

While Trump’s first year of this second Presidency has been dominated by continuous tariff threats owing to the obvious global importance of the US economy, it appears he may have met his match against a disjointed Iran that knows it can withstand pain longer than any of its adversaries. While there is a hope that the blockade will bring the Iranians to the table as oil well shut-ins threaten future revenues, that is far from guaranteed. In which case, perhaps Trump’s best move is to head home and hope the coalition of forces gathered by Starmer and Macron can ensure safe passage through the Straits of Hormuz.