Trump’s Delay Fails to Calm Jitters Over War as Funds Trim Risk

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(Bloomberg) — President Donald Trump set off a rebound across markets by delaying planned air strikes against Iran’s energy assets, but many investors say the latest unpredictability just confirms their bias to cut back risk exposure.

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US equity gauges jumped about 1% on Monday, and oil slid more than 10%, following Trump’s announcement of a five-day delay. Despite the rally, many fund managers are sticking to their view that investors should remain defensive due to the ongoing unpredictability. 

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“I’m not sure if this is really the end of the Iran situation,” said Chauwei Yak, chief executive officer at hedge fund GAO Capital in Singapore, adding that she hasn’t changed positions in size. “We think things might stretch on for a bit more. We are generally cautious until there is an even bigger drop, then it becomes cheap, or there are clearer signs of the war ending.”

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The outbreak of the US-Israeli war on Iran in late February has added a deep dose of uncertainty to global markets, with headlines creating a succession of intraday swings for financial assets. Far from being the short conflict that some originally envisaged, it’s continued to escalate, with surging energy costs raising the specter of stagflation for the global economy.

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Trump’s decision to delay his ultimatum hasn’t changed the preferred trading strategy of Matthew Haupt, a fund manager at Wilson Asset Management in Sydney. Haupt had trimmed risk exposure ahead of the original deadline and still recommends smaller trading sizes until there are real signs of de-escalation. 

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“The ‘sell the de-escalation’ and ‘buy the escalation’ seems to be right way to trade it still,” he said, adding that he expects there to be plenty of back-and-forth moves during any negotiations. “People are waiting to see Iran’s reaction. Then that will be the buy time, potentially.”

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Asia’s benchmark stock index rose about 2% Tuesday following Trump’s decision. That still failed to recoup Monday’s drop of 3.4%.

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At least some though are taking Trump’s decision to postpone his deadline as a positive.   

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“We are actually a lot more constructive,” said Michael Brown, a senior research strategist at Pepperstone Group Ltd. in London. “There’s still a lot of uncertainty, but what’s important here is that we’ve now seen the first concrete sign from Trump since conflict began that he is seeking to find an off ramp and de-escalate the situation.”

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The violent risk-positive reaction to Trump’s post in Monday’s session offers a bit of a teaser as to how markets might react if and when further concrete steps toward a ceasefire and commodity flow normalization take place, he said.

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Many fund managers are maintaining hedges, holding higher cash levels and closely tracking oil prices and Federal Reserve policy signals. The shared view is that any near-term relief rally is fragile and largely driven by hopes of some de-escalation rather than a decisive resolution or shift in fundamental