Citadel: Global stocks and bonds are expected to rise in sync as the risk of escalation in the conflict between the US and Iran is avoided.

On Monday, Citadel Securities stated that as the US-Iran conflict approaches a de-escalation resolution path, even though the deadlock around the Strait of Hormuz has not been completely resolved, global stock and bond markets are expected to rise in tandem. Nohshad Shah, Head of Fixed Income Sales for Europe, the Middle East, and Africa at Citadel Securities, pointed out that although a formal agreement is difficult to reach, both the United States and Iran have the incentive to eventually reach some sort of arrangement because the cost of further escalation is too high. Shah believes that President Trump has signaled a hope to gradually de-escalate the conflict and shift focus back to domestic issues before the midterm elections, while Iran may prioritize economic reconstruction and internal stability. The most likely outcome is a limited framework agreement: Iran accepts partial limits on nuclear enrichment in exchange for moderate and reversible easing of sanctions. He noted that this arrangement is more like a "freeze agreement" rather than a comprehensive solution, aiming to buy time, lower short-term escalation risks, stabilize the oil market, rather than truly resolving the core dispute. For the market, this is enough to support risk appetite, especially as investors closely monitor prospects for the reopening of the Strait of Hormuz. In this scenario, Citadel Securities believes that risk assets and bond prices have simultaneous benefit space. Geopolitical easing will help alleviate risk aversion, reduce expectations of energy price shocks, support stock valuations, and be positive for bond performance. Shah further stated that for the European and British central banks, geopolitical easing means that policymakers may have less scope for interest rate hikes in the future than currently priced in by the market, or may be "lower than expected" in actual policy paths. However, Citadel Securities also warned that easing financial conditions themselves could re-ignite inflation, especially in the United States, where artificial intelligence investment frenzy, fiscal stimulus, and tightening labor supply already support price pressures. If liquidity loosens further, inflation risks may reaccumulate. The report also mentioned the risks posed by potential changes in the leadership of the Federal Reserve. The nominee for Federal Reserve Chairman chosen by Trump, Wall, tends to focus on inflation measures excluding extreme price fluctuations. Shah warned that this approach may lead to policymakers reacting slowly to changes in inflation dynamics, as price inflection points often first appear in the so-called "tails of distributions," which are the portions excluded by trimmed mean indicators. Shah pointed out that Wall's chosen measure of inflation contradicts his past criticism of the Federal Reserve's slow response to inflation during the COVID-19 pandemic.