The Iran Peace Deal
Thanks to Emad Mostaque at Noah Capital Markets for this critique of the deal announced over the weekend. The report is posted in the Subscriber's Area but here is a section;
The key outcome of the deal agreed by Zarifand Kerry over the weekend on Iran's nuclear program is to show that the P5+1 has approximately zero interest in military conflict in Iran and the US has realised that sanctions won't really get anywhere in this issue. This syncs with our prediction 2 months ago in"Middle East Geopolitical Risk Waning, 22nd September", when we put forward that a dramatic shift on Iran was a lot closer than many expected, with our expectation being that an initial agreement and roadmap could be concluded around now.
We had previously seen that the probability of a strike on Iran, which had heightened in the wake of the Arab Spring as regional powers felt unsteady, peaked at the first quarter of last year and has been minimal since. Now it is almost zero as despite much public bellicosity from Netanyahu, who apparently scuppered a deal a few weeks ago by threatening via the French that he would attack Iran, it is unlikely Israel will do so when Iran's nuclear facilities have even more IAEA inspectors wandering around and Israel's own positioning politically has taken several body blows due to regional shifts. Others who have urged strikes behind the scenes have also been put on the back foot due to events in Syria and elsewhere, as their ties with the P5+1 nations have started to fray as interests have become misaligned.
In a region as culturally, ethnically and religiously diverse as the Middle East, the implications of this deal will be parsed over for some time. However, from a markets perspective, we can conclude that the risk premium attached to Israel, in particular, has decreased since the possibility of an outright conflagration between the two countries has been removed, at least for the moment,
Enthusiasm that this type of positive outcome was a possibility was evident in the performance of the Israeli stock market as early as September. Having rallied for 9 of the last 11 weeks, the Tel Aviv 100 is now testing the region of the 2011 peak and some consolidation of recent gains appears likely. However, a sustained move below the 200-day MA, currently near 1125, would be required to question medium-term scope for additional upside.
The largest weighting on the Index is generic drug manufacturer Perrigo. The pace of the US listing's advance picked up over the last month but a clear downward dynamic would be required to check momentum and signal the onset of mean reversion.Back to top