'Fast Money' traders talk impact of rising Middle Eastern tension on markets

Key Concepts:

• Geopolitical Risk (Iran-Israel conflict)
• VIX (Volatility Index)
• Gold as a safe-haven asset
• Oil price dynamics (supply surplus, geopolitical impact)
• Inflation expectations
• Treasury market reaction
• Dollar strength/weakness
• Impact of potential US fiscal stimulus (big bill) and deregulation

Market Reaction to Geopolitical Tensions

• The market reaction to the Iran retaliation was notable. The VIX, which had been grinding lower, jumped up near 20.
• Gold saw a fresh all-time high, trading around the May 6th highs. The speaker believes gold will continue to trade higher regardless of Middle East events.
• Treasuries did not see the typical bid, indicating uncertainty about the impact of the events.

Oil Market Dynamics

• While historically, oil prices don't sustain spikes due to disruptions like hurricanes or war, the current dynamic is different.
• Traders are reacting to the geopolitical risk, making it unwise to short oil into the weekend.
• The fundamentals of oil, including a supply surplus, are still considered important.
• Higher energy prices, especially for Europe, are seen as a headwind for a fragile economy.

Oil Price Uptrend

• One speaker believes oil was poised to turn around regardless of the geopolitical tensions.
• A weaker dollar is cited as a factor that could support higher oil prices.
• Potential US fiscal stimulus (a "big beautiful bill") and deregulation could boost the economy and increase oil demand.
• The speaker suggests the bottom is in for oil prices.

Inflation Implications

• The big question is what the geopolitical events and rising oil prices will do to inflation.
• The treasury market is trying to "sniff out" the impact on inflation.
• Previously, lower oil prices were expected to offset some inflationary pressure from tariffs.
• Rising oil prices combined with tariffs could change the inflation story.
• Recent consumer sentiment numbers showed inflation expectations coming down, but this may change after the current events.

Conclusion

The market reaction to the geopolitical tensions is complex, with gold benefiting as a safe haven. The oil market is particularly sensitive, with potential for higher prices due to both geopolitical risk and underlying economic factors. The key concern is the impact on inflation, which could be exacerbated by rising oil prices and existing tariffs. The treasury market is closely watching these developments to assess the overall economic outlook.