Trump rejects Iran ceasefire; Strait tensions spike

After weeks of indirect peace negotiations via Pakistan, the latest Iranian proposal to end the 10-week war has collapsed. Trump's Sunday evening rejection came after Iran's government outlined demands including an immediate end to hostilities on all fronts, sanctions relief, unfreezing of assets, and control over the Strait of Hormuz. The timing torpedoed what had been a tentative rally in risk assets and crude.

Oil prices jumped immediately, with WTI crude surging as traders repriced closure-of-Hormuz scenarios. A single Qatari LNG tanker had briefly transited the strait on Friday, offering hope for normalization, but Trump's stance reversed sentiment. Aramco reported Q1 profit up 26% on war-driven oil premiums, confirming the supply shock is real and persistent. Pimco's Dan Ivascyn warned that an extended conflict could force the Federal Reserve to hike rates rather than cut, countering market expectations for monetary ease.

The geopolitical backdrop complicates a planned Trump-Xi summit in Beijing scheduled for May 13-15. Trump has signaled he will use the meeting to pressure China on Iran, seeking Beijing's influence to end hostilities. Japan's Bank intervened heavily to support the yen, reportedly selling nearly $54.7 billion in US Treasuries to fund yen support after the currency weakened past 160 per dollar amid renewed safe-haven flows. Malaysia, the Philippines, and other energy importers face margin pressure and currency weakness as oil remains elevated.

Market participants are split on whether extended conflict is priced into valuations or remains a tail risk. Energy names and defense contractors have benefited, while imports-heavy sectors face pressure. A rapid ceasefire would lift risk sentiment dramatically, but any widening of hostilities (Israel-Iran direct engagement, blocked tankers, Hormuz closure) could trigger a sharp equity correction and energy spike. The Trump-Xi summit outcome will be closely watched as a signal of whether diplomatic pressure can unlock a deal.