We believe today’s attack marks the end of Israel Iran direct hostilities in short term. We might even see return of the Israeli hostages and limiting the combat in both Lebanon and Gaza. With both Israel & Iran choosing a low conflict option today, (Israel choosing to attack only military targets & not attacking nuclear/crude facilities & Iran only verbally responding), we believe both parties recognise each other's vulnerabilities & strengths. It is the perfect set up for a status quo in diplomacy. We believe it is time for Israel to declare victory in it’s year long efforts to secure the northern border as well as dismantling the entire nuts & bolts of Hamas infrastructure. This we believe might be able to remove the geopolitical risk premium from the price of crude which we believe is currently 4-5 USD per barrel. Hence, we expect that Brent might soon test 70 levels as middle east tensions cool & a ceasefire announcement happens. A definite cease fire announcement is also +ve for rates globally as central banks globally will take a sigh of relief & focus on monetary policy easing with more certainty. This applies more to ECB & EM central banks. We continue to believe that ECB is likely to cut by 50 bps in it’s 12th Dec meeting. Risks to our view is if Iran chooses to retaliate further & Israel responds further with active involvement of US forces. But this we view as a low probability event considering how close we are to US presidential elections.
