Cathay Haitong: Short-term "Stagflation" trading may continue, focus on the "Trinity" inflection point

On April 7, Cathay Haitong released a macro research report stating that there are many points of conflict among the negotiation conditions currently proposed by both sides in the Iran-U.S. talks, and that reaching an agreement still faces substantial uncertainty. The Strait of Hormuz shows initial signs of easing through “tiered clearance.” However, even if geopolitical tensions ease significantly afterward, oil prices are still unlikely to return to their pre-conflict position, and the central level may rise noticeably. In the short term, watch Trump’s “war supplemental budget,” the status of the Strait of Mandeb, and the situation on Halk Island. If the conflict escalates, oil prices still have room to surge. Focus on the turning point from the “stagflation trade” to the “recovery trade,” where there is a “three-in-one” of the turning point in geopolitics, the turning point in expectations for Fed rate cuts, and the turning point in asset prices.

The Iran-U.S. negotiations still face a high degree of uncertainty. Previously, the United States proposed 15 ceasefire conditions: key U.S. demands include Iran’s complete abandonment of nuclear capabilities, restrictions on missiles, stopping support for regional armed groups, permanently opening the Strait of Hormuz, and so on, in exchange for sanctions relief. Iran proposed 5 ceasefire conditions: completely stopping aggression, a security assurance mechanism, full war reparations, a ceasefire across all fronts, and recognizing sovereignty over the strait. However, there are many conflicts among the ceasefire conditions proposed by both sides, leading to slow progress. In the short term, the possibility of reaching an agreement faces extremely high uncertainty.

The Strait of Hormuz shows initial signs of easing. On March 30, Iran’s parliament’s National Security and Foreign Policy Commission formally passed the “Strait of Hormuz Passage Tolls Bill,” making it national law. But in practice, toll collection has not yet been fully implemented; the current situation is one of “strict control, low tolls, and tiered clearance.” In recent days, Iran has shifted from “complete blockade” to “tiered approvals and clearance,” showing initial signs of easing.

However, we believe that even if geopolitical tensions ease significantly, oil prices are still unlikely to return to their position before the conflict, and the central oil price level may rise noticeably. First, even if the physical blockade of the Strait of Hormuz is lifted, the psychological blockade remains, making it difficult to return to the pre-conflict daily passage volume of around 120–140 vessels. Second, the supply chain and facilities have been damaged, and repairs are extremely slow: oil fields may require about 2–6 months, and pipelines about 3–12 months. Third, global inventories are at a low level, creating replenishment demand; the United States, the European Union, Japan, and India will urgently release oil reserves to cushion oil prices. The IEA government strategic reserves are about 1.2 billion barrels; the current plan is to release about 400 million barrels, to be delivered over 120 days (mid-March to July). We expect that in the next 1–2 years there will be continuous incremental demand. Fourth, OPEC+ actively locks in high oil prices through voluntary production cuts. Overall, we expect that after the conflict, the short-term new price central level will be $85–$95 per barrel, making it hard to return to the pre-war level of $50–$60.

If the conflict escalates in the short term, oil prices may continue to surge in the short term. Indicators to watch to see whether the conflict will escalate afterward: first, whether the U.S. $200 billion “war supplemental budget” for Iran can be approved. Second, the status of the Strait of Mandeb. Third, whether the U.S. military will land on Halk Island. If any of the above events occur, or if they imply a further escalation of the conflict, oil prices may face a significant risk of soaring.

Pay attention to the turning point from the “stagflation trade” to the “recovery trade”: the turning point in geopolitics, the turning point in the Fed’s rate-cut expectations, and the turning point in asset prices are “three-in-one.” In the short term, the “stagflation trade” is still continuing to build up. U.S. stocks and U.S. Treasuries have been hit significantly. If geopolitics eases afterward, oil prices will basically stabilize, and expectations for Fed rate cuts may reverse—from the current stance of no rate cuts, or even rate hikes, shifting to new expectations for rate cuts—then U.S. stocks and U.S. Treasuries may see a turning point. Under the current dominance of geopolitics, the turning point in geopolitics, the turning point in the Fed’s rate-cut expectations, and the turning point in asset prices are “three-in-one.” If extreme events occur—for example, if the conflict continues to escalate for far longer than expected—then the economy and markets could be dragged into a persistent “recession trade.” Under the baseline outlook, within the next 1–2 months, there may be a turning point from the “stagflation trade” to the “recovery trade.”

Performance of global major asset classes. Last week (2026.3.27–2026.4.3), crude oil fell, gold rose, and global stock markets diverged: Europe and the U.S. overall moved upward, while Asia-Pacific overall declined.

Economy: The U.S. economy still appears resilient, and inflation expectations have risen, which suppresses expectations for Fed rate cuts. Affected by geopolitics and oil prices, the Eurozone’s recovery momentum has slowed.