Unconditional Surrender

The Israeli–Iranian conflict enters its sixth day, with missile exchanges continuing unabated and no diplomatic breakthrough in sight. G7 leaders have issued multiple appeals urging Iran to re-engage in nuclear negotiations with the United States. These talks were slated for this Sunday but now appear unlikely.

Markets are increasingly focused on a potential realignment in Middle Eastern power structures, and the implications this may have for regional geopolitics as the US, Russia and China are all involved by proxy. Of immediate concern is the Strait of Hormuz. If Tehran is cornered, a disruption or full blockade of this critical chokepoint becomes a credible tail risk. The strait accounts for a significant share of global crude oil flows, and any supply shock would have a pronounced inflationary impact.

President Trump has taken an especially hawkish stance, publicly calling for Iran’s Unconditional Surrender. With much of Iran’s military leadership under strain and key installations neutralised, market consensus appears to lean towards a capitulation, either partial or total, to Israeli and US demands. Nevertheless, the outcome remains highly uncertain. Ultimately, whichever way it goes, the spice must flow.

This geopolitical stress is layered atop an already fraught global macro environment, marked by stubbornly elevated inflation and a global reset in tariff regimes. The so-called Tariff War may have fizzled with little fanfare, but investor attention has swiftly migrated to the Middle East.

The FOMC Meets Tonight

With geo-conflict flaring and inflationary pressures gradually rising, the FOMC convenes tonight under challenging circumstances. First tariffs, now missiles. This is no ordinary inflation fight.

Our expectation is for the Fed to hold rates steady while striking a hawkish tone, acknowledging the fresh upside risks to inflation stemming from geopolitical instability.

The market currently prices in two rate cuts in 2025 and two more in 2026. However, our base case is that the Fed may adopt a more cautious tone in its SEP, potentially indicating a single rate cut for 2025, in contrast to market pricing.

Such a revision would likely pressure risk assets, including Bitcoin and broader digital assets, as liquidity expectations are pared back.