The war continues to rage on but it looks like we’re on the cusp of some form of agreement or memorandum of understanding (MOU) being signed off between both sides. While on the surface it is billed as “a deal to end the conflict”, let’s be reminded of what the stakes are here.

This framework agreement or MOU is mainly to set out new terms for how the conflict is going to take shape next. It is mostly to try and allow for a more peaceful transition as both sides deal with nuclear discussions next. The timeline for this “deal” is likely going to be two months or 60 days.

If there isn’t any breakthrough during that period, we could see things revert back to where they were before. That or unless both sides want to keep prolonging the status quo by kicking the can down the road.

Now, the key issue with this transition is that it could still all easily break down as well. I highlighted in detail the important terms that need to be adhered to here and one key sticking point is that Iran will surely not give up control of the Strait of Hormuz.

“I don’t see how Iran will ever agree to that as this remains their biggest leverage in negotiations. However, what I feel might happen is that Iran will show some gesture of goodwill in clearing out some mines and allow a conditional reopening – one that they will still be in charge and manage.”

And that looks to be what both sides are leaning towards from the latest news here.

As such, markets are having to pull back on the optimism and lean in with more caution. However, what I fear is that market players have priced in an overly optimistic scenario in recent weeks expecting things to change in the Middle East.

But come announcement day (expected some time this week), I reckon we might get a case of buy the rumour, sell the fact. That could play out considering that whatever is going to be announced is merely pressing the pause button and extending the conflict for another two months while only seeing a minor uptick in traffic flow along the Strait of Hormuz.

So far today, European futures are pointing lower in cutting back some of the gains from yesterday. DAX futures are down 0.3% with CAC 40 futures down 0.2% currently. Meanwhile, S&P 500 futures are also pulling back a little from the highs yesterday before Wall Street returns to the fray later today.

Elsewhere, oil prices are keeping lower still but at least the bleeding has stopped. WTI crude is at $91.95 but well off the overnight lows of $89.40. The same goes for Treasury yields in returning back to trading earlier today. 10-year Treasury yields are sitting at 4.51% but off earlier lows of 4.49%. Meanwhile, precious metals have also dropped back off with gold down 0.9% to $4,530.

This article was written by Justin Low at investinglive.com.