Market reaction has been moderate because people are not pricing a prolonged war lasting more than a few weeks. Assumption is that domestic pressure (unpopular war, higher gasoline prices before midterms, falling equity markets, rising Treasury yields Trump dislikes) will force Trump to declare the war over successfully in the next couple of weeks.

Modeling different paths. De-escalation scenario possible, but in a riskier scenario, oil above $100; modeling $110 in worst case. If Strait closed for a long period, 20% of supply missing, not all replaceable quickly, so oil price above $100.

Fairly quickly. Market is willing to play the positive card. If the US pulls out and declares victory, and the region calms down, we'll be back to pre-war territory quickly in a more positive market environment.

Current environment very difficult for the Fed. Higher energy prices will impact inflation; central banks cannot look through this. If resolution is fairly quick, Fed can continue to cut as planned (timing might shift). In a scenario of longer-term price effects, the Fed will be under considerable strain and might have to reconsider cuts this year.

A mixture of factors: 1) Safe-haven moves more moderate than expected (look at gold). 2) The SNB has made clear it does not want a stronger currency. 3) Lowering rates into negative territory hurts domestic financial sector. 4) Intervention is difficult and would anger President Trump.

Comments from the finance minister about 'deflation' didn't help. Complicated domestic story. However, Japan imports all its oil, so higher oil prices will push inflation in Japan and could change the story for the Yen.