Trading the Truce

Editor’s Note

In the past week, markets celebrated a pause in the conflict, even in the absence of a permanent resolution. The rally that followed Donald Trump’s announcement of a two-week ceasefire with Iran was strong and broad-based, with a predictable market reaction. Oil prices dropped, inflation worries eased, and investors felt more comfortable in riskier assets.

However, the rally was built on diplomatic speculation and not a confirmed resolution. Shipping through the Strait of Hormuz remained largely restricted. Actual oil supply remained limited even as oil prices initially fell. At the same time, short-term funding markets and private credit continued to show signs of stress. By the end of the trading week, the warning signs were clear, with oil rising following its sell off as stocks tried to hold on to their gains, and inflation coming in high enough to keep central banks cautious.

The uncertainty has now increased following the collapse of the Islamabad talks and the move toward a naval blockade over the week. They are a reminder that the earlier market rally depended on a very fragile situation holding together, with peace ensuing, agreements being actualised, and supply routes becoming functional again. That has not happened. The fact that markets rallied is now less important than whether the rally can last.

The week’s price action was not orderly, as markets were caught between threats of escalation and hopes of a ceasefire. Early in the week, Trump ramped up his deadline rhetoric, explicitly threatening Iranian civilian infrastructure, including power plants and bridges, if the strait was not reopened by his set deadline. The framing was important because it raised the probability of a structural energy shock rather than a transient risk premium, and markets traded accordingly.

The inflection came with a two-week ceasefire announcement brokered through Pakistan’s Field Marshall Asim Munir and Prime Minister Shehbaz Sharif. Equities rallied sharply the following day, with the S&P 500 rising 2.51%. The announcement prompted a broad market reaction, as investors began pricing in lower energy-related inflation, a more supportive backdrop for equities, and a reduced need for defensive positioning.

Oil told a more complicated story. Prices in the futures market fell sharply as soon as the ceasefire was announced, dropping from above $100 a barrel to the mid-$90s. That reinforced the view that inflation pressure from energy could ease quickly. But that optimism did not fully hold as oil prices rose later in the week as doubts grew over whether the ceasefire would work in practice, especially as uncertainty remained around shipping and enforcement.

Inflation made it more difficult for markets to treat the ceasefire as an easy win for investors. The March U.S. CPI report showed prices rising 0.9% from the previous month and 3.3% from a year earlier, with energy prices up 10.9% in the month and gasoline up 21.2%. At first, markets seemed willing to view this as a temporary shock that would fade if oil and gas prices came back down. However, policymakers are less likely to take that view when the geopolitical situation is still unresolved. The Federal Reserve’s latest minutes reinforced this point, as Fed officials highlighted how they are increasingly open to hike rates again if conflict-driven inflation proves more lasting than expected.

This weekend’s developments now influence how markets are likely to open and trade in the coming week. The U.S.-Iran talks in Islamabad ended without an agreement after negotiations led by JD Vance, with Steve Witkoff and Jared Kushner also involved in the negotiations. Following the collapse of the talks, Trump announced that the U.S. Navy would move to blockade the strait, including targeting vessels that pay transit tolls to Iran whilst beginning mine-clearing operations. This now raises the risk that the energy shock becomes something more lasting.

_{^{Here, we recommend reducing exposure to equities, whilst being ready to invest at the sign of a more concrete resolution.}}

Kenyan markets also rallied on the back of the ceasefire. The NSE All Share Index (NASI) closed Friday at 207.01, gaining 3.89%. The NSE 20 rose to 3,590.25, reflecting an increase of 3.17%, while the NSE 25 rose to 5,742.68, a gain of approximately 3.98%.

Part of the rally was led by the global relief rally that followed the truce headline, which lifted risk appetite across frontier markets. However, when looking at the data keenly, Kenya’s market microstructure points to caution from foreign investors rather than a return to Kenya. On April 10, foreign participation recorded a net foreign outflow of KSh 75.08 million. Stocks like Equity Group Holdings, featured among the main sells, with Equity seeing a net outflow of about KSh 13.71 million. Thursday was particularly weak, with total net foreign outflows rising to KSh 534.70 million. That is consistent with a market where domestic buying can support prices, but foreign risk capital remains highly sensitive to global conflict.

During the April 8th meeting, the Central Bank of Kenya held the policy rate at 8.75% and made clear that it wants to first assess the secondary effects of the global oil shock before resuming any further easing. That messaging is important for equities because it shows that the rate-cut cycle is no longer a guaranteed tailwind for equity prices, and instead shifts investors focus toward inflation as the key variable that will influence market direction.

For now, that inflation pressure has not fully appeared in the data, largely because fuel prices have held within the current EPRA regulatory window running from March 15th to April 14th. Because of this, the April 15th maximum price announcement by EPRA will be important in giving markets a clearer guide on the path of inflation. If pump prices are raised materially, the oil shock is more likely to feed through into the wider economy, increasing the risk of higher inflation and prompting markets to reprice Kenyan stocks lower.

_{^{With this, we recommend watching select names that are overly discounted and could rally from here, with our preferred names being Equity Group Holdings and KCB Group.}}

_{Last Week’s Review}

Last week, for our global trade, we recommended investing in a global equal weighted basket comprising of Microsoft (-0.69%), Meta Platforms (+9.64%), and Nike (-3.55%), produced a +1.80% return for the week.

For Kenya, our recommendation was to buy a basket of two banks stocks. We recommended allocating more to Equity Group Holdings (+7.22%) and KCB Group (+4.03%), which returned 5.62% on an equal weight basis.

_{This Week’s Trade Ideas}

_{- Global Trade}

_{JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C)}
The trade idea for the week is led by the major banks reporting earnings. JPMorgan Chase reports on April 14, and its results and commentary often help set the tone for both financial markets and the broader market. A strong beat and upbeat guidance would likely push the share price higher and improve market sentiment more broadly.

Citigroup, which also reports on April 14, offers a slightly different catalyst. The main issue is whether the bank is showing enough progress toward its 2026 target of a 10 to 11% RoTCE (Return on Tangible Common Equity). If management can show that it is moving toward that goal, the stock could rally. This is uniquely possible for Citi because it trades at just 1.11 times book value, well below the big six bank average of 1.95, making it a clear rerating candidate.

_{- Kenya Trade}

_{Equity Group Holdings (NSE:EQTY), KCB Group (NSE:KCB), Absa Bank Kenya Plc (NSE:ABSA)}
Here, the thesis remains unchanged, with the trade still focused on allocating toward banks, but this time with a slightly more diversified allocation. The basket is weighted toward Absa Bank Kenya Plc at 45%, KCB Group at 35%, and Equity Group Holdings at 20%.

Our focus this week centres on three themes.

The Middle East Conflict and the Resumption of Talks - The first is whether the talks resume between the U.S. and Iran. As of this weekend, talks have ended without a deal, leaving markets highly sensitive to any sign that negotiations could restart. If they do, risk appetite should improve. If they do not, oil will continue to be a macro pressure point.

U.S. Bank Earnings and their Commentary - The second is U.S. bank earnings. The six largest U.S. banks report this week and their results will matter both for themselves and the broader market as their earnings often set the tone of the market. The main focus will be on management commentary, especially on credit conditions, the state of private credit, how corporates are navigating a more uncertain backdrop, and the resilience of the U.S. consumer.

EPRA Repricing and Kenya’s Inflation Path - The third is the EPRA repricing in Kenya. With the current fuel pricing window ending on April 14th, the next review will be the main domestic test of whether the global energy shock is beginning to feed more clearly into inflation. This matters for both the CBK outlook and the direction of Kenyan equities.

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