Global markets after Donald Trump announces Strait of Hormuz blockade

The U.S. move to blockade the critical Strait of Hormuz has led to a familiar market response: surging crude prices, rising bond yields and a firmer dollar.

But this time, the reaction has been notably restrained, barring oil movements. Equities fell relatively modestly Monday, suggesting investors have priced in much of the geopolitical risks and are growing less reactive to headlines.

“There’s a belief that a lot of this is negotiation tactics,” said Billy Leung, investment strategist at Global X ETFs, referring to Trump’s announcement. “Markets have reached peak uncertainty. The reaction function is no longer as extreme as before.”

Asia stock markets were trading broadly lower, but the magnitude of moves was notably muted, with most major benchmarks down around 1%. Futures for key U.S. indexes were also down under 1%.

Spot gold prices lost about 0.5% to $4,720.28 per ounce, while the U.S. dollar index added 0.38%. A stronger dollar makes greenback-priced gold expensive for holders of other currencies, reducing bullion’s appeal.

Leung said recent market moves suggest investors are becoming more accustomed to geopolitical shocks, with volatility easing compared to earlier weeks. “So I think the market now has a better price and better understanding of the Trump motive,” he said.

Similarly, Ten Cap’s lead portfolio manager, Jun Bei Liu, said that volatility indicators suggest the worst of the panic may have passed. “We saw the VIX pick up a few weeks ago, and that’s probably the peak fear and sell off… from here on, it’s really the market trying to work [itself] out.”

A key near-term risk, however, lies in the political timeline surrounding the U.S. military action. Leung pointed to the war powers resolution, which effectively gives the administration a limited window to secure congressional approval. “In the next few weeks, we are going to see a rising desperation from Trump’s administration,” he said, adding that markets may not yet fully appreciate this constraint.

U.S. lawmakers are reportedly again looking to pass a resolution to stop the Iran war and force Trump to seek ​Congress’ approval before any more attacks.

Oil expected to fall, equities to recover

The U.S. move to blockade the Strait of Hormuz, which has already seen traffic drop to a trickle since the war started, has reinforced expectations of tighter energy supplies, pushing crude prices higher and lifting inflation concerns globally.

Inflation concerns have also clouded rate-cut expectations, driving bond yields higher while the U.S. dollar has strengthened and equities have declined. Yields on the 10-year Treasury added more than 333 basis points since the war started. The dollar index has gained about 1.4% over the same period.

U.S. oil prices have surged over 55% since the war…