Will The Hawks, The Doves, Or The Cuckoos Win

By Michael Every of Rabobank

The hawks and doves are split. Tehran rejected US calls for its unconditional surrender while insulting President Trump, who stated “Nobody knows what I’m going to do,” but wants, “total and complete victory” rather than a ceasefire. The Wall Street Journal claims he’s approved attack plans but is holding the final order to see if Tehran surrenders; the New York Times suggests that might still happen, and the UK, France, and Germany are meeting Iran’s foreign minister tomorrow. Axios notes: “Trump wants to make sure such an attack is really needed, wouldn’t drag the US into a prolonged war in the Middle East – and most of all, would actually achieve the objective of destroying Iran’s nuclear program.” Others suggest he has gotten cold feet, as Israel implied it could take out the Fordow nuclear facility alone with special forces if needs be.

Yet the US is withdrawing some embassy staff from Israel and joins Russia, China, and India in telling its citizens to leave. It’s also moving regional military assets that could be hit by retaliation, as Hezbollah warned it would attack Israel and other targets if the US hits Iran. The UK –whose PM was convinced Trump wouldn’t attack days ago– is now sure he will, and The Times says he may join in, rural broadband locked and loaded, even though the attorney general who said the UK had to give the Chagos Islands to Mauritius says it could be illegal to do so. 

Russian President Putin offered to mediate over Iran, but Trump told him to focus on Ukraine. There, Putin says he’s ready for substantive peace talks –after another massive drone attack– and has no plans to attack the EU or NATO, so there’s no need for anyone to spend 5% of GDP on defence. I suspect there will be few buyers – and I don’t mean for military goods.

While oil is in a holding pattern, the benchmark rate for tankers moving it from the Middle East to China has risen 40% since June 13 on a higher risk premium, with further increases expected, lifting rates in other regions in tandem. Likewise, around 40% of global urea exports are at risk as Iran has shut all seven of its ammonia-urea facilities and Egypt urea production remains halted due to halted gas supply from Israel. Prices are already climbing there too.

The Fed left rates on hold at 4.50% as expected and we also have a hawk-dove clash – as Trump pondered pre-meeting if he could replace “too late” Powell as Fed Chair himself. The FOMC statement indicated uncertainty about the economic outlook has diminished(!) but remains elevated. Their projections are finally recognizing the stagflationary effects of tariffs: GDP growth was revised downward; unemployment and inflation upward. The median rate projections still showed two rate cuts in 2025, but only one cut in 2026 (down from two), but the dot plot revealed a more complicated story with two camps emerging. During the press conference Powell repeated the Committee is waiting for more clarity about trade policy and the impact of tariffs. When asked how the FOMC can state that uncertainty has diminished when there’s a war between Israel and Iran going on, Powell answered, “because of the surveys.” If that doesn’t show you the disconnect between central banks and reality, nothing will. (

Meanwhile, the world is waiting to see if the US topples the Iranian regime and physically remakes the Middle East (again), locking its oil into the dollar system: and somehow that means the dollar is ‘over’? The disconnect in Powell’s press conference comments on Iran-Israel is replicated in the parts of the market that doesn’t see where true power sits: ‘on you, if needed’.

For example, dealmakers are unhappy that (only?) the US will use the economic statecraft Golden Share it insisted on in the Nippon Steel merger as a benchmark ahead.

The ‘EU eyes higher fees on US, British tourists to repay post-Covid debts’ (Politico), which I am *sure* won’t see a decline in visitor numbers, honest. The same article breezily notes that the EU might tax lots of other things more instead – such as small parcels coming from China. Wasn’t that the kind of thing that saw everyone selling the dollar?

China’s COSCO is in talks to join the $19bn CK Hutchison port sale: so, rather than a Hong Kong firm controlling a swathe of global ports, including at both ends of the Panama Canal, they might go to a consortium that includes a European ocean carrier (MSC) and a state-owned Chinese one? You can’t see the (geo)political issues in that “because markets” proposal?

And as New Zealand pauses funding for the Cook Islands over its recent China deal, the Australian carries Investors ignore world-changing news. Rightly” in “The Nothing Ever Happens Market”. Until it does, on multiple fronts, from Iran to the Fed, and from trade flows to financial architecture, and then investors can’t. To be frank, this 30-something, smug, DM financial market/media argument sounds like the kind of stereotypical self-satisfied, privileged echo-chamber babble that EM banana republic elites live in right up until the peasants start revolting – which they always think they are. I’m with the FT op-ed on what this means for central bankers.

That’s as Brazil hiked rates 25bps to 15% against market expectations, and today has the BOE, which will attempt to Keep Calm and Rates On Hold: but will it again Tyler Durden Thu, 06/19/2025 – 18:55

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