By Michael O’Neill

A little more than ten years ago, euphoric supporters of Hillary Clinton were walking on air and counting down the minutes to the 2016 election win, making her the first female President of the United States. We all know how that turned out.

However, it appears traders have forgotten how premature euphoria not only makes them look stupid but can also cost them a lot of money. Today, global financial markets are behaving as if the US and Iran war is over, taking Trump’s statement that the war is “very close to being over” at face value.

Traders have “drunk the Kool-Aid.” West Texas Intermediate (WTI) has retraced more than 50% of the post-Operation EPIC Fury rally, with the bulk of the move happening in the past week. The US dollar index (DXY) has given back almost all of its Iran war gains, and the S&P index is posting a record high.

What Could Go Wrong?

The US and Iran war is only paused. A durable diplomatic settlement is lacking and is made more difficult because the peace/ceasefire talks have not been confirmed. That disconnect matters because markets are pricing a narrative built on optimism rather than facts.

And one of those overlooked facts is that the US has blockaded the Strait of Hormuz and Iranian ports, hitting roughly 90% of Iran’s economy. That’s escalation, not evidence that hostilities have ended. An Iranian spokesperson protested that the blockade was “piracy” and warned that threatening Iranian ports means no port in the Gulf of Oman would be secure.

The White House claims Iran’s military is “combat ineffective,” yet the steady flow of additional troops and another carrier strike group into the region suggests otherwise.

Another curiosity is that if a key goal of Operation Epic Fury was to ensure Iran never achieves the ability to make nuclear weapons, why is the US debating the duration of a uranium enrichment ban?

Traders would be well served if they heeded the words of former President Ronald Reagan: “Trust but verify.”

Eye on Inflation

There is also a broader macroeconomic problem. Equity markets have shrugged off the war because they believe it is largely over. But bond markets and central banks tend to focus on second-round effects. Energy is not just another commodity; it feeds directly into transport costs, producer prices, consumer inflation expectations, and ultimately monetary policy.

The Iran/US war has put a serious dent in global energy supply, and Iran’s missile attack on Qatar’s LNG assets is pushing natural gas prices higher. The International Energy Agency’s April 2026 outlook said that the conflict sparked the largest oil supply disruption in history. It forecasts that global oil supply will fall by 1.5 million barrels per day.

That does not bode well for inflation. The Reserve Bank of Australia was the first major central bank to hike rates when it lifted its benchmark to 5.10% from 3.85% on March 17. Governor Michele Bullock blamed rising inflation for the move. Yesterday, ECB President Christine Lagarde warned that the outlook is drifting toward an “adverse scenario,” underscoring how fragile the policy path has become.

Inflation is not an issue for the Bank of Canada. Its key metrics, CPI-trim and CPI-median, are at 2.3%, well inside the mandated 1–3% inflation target band. However, weak domestic growth is front and centre, and the Canada-United States-Mexico Agreement on trade is being renegotiated. Policymakers will provide more clarity on the economy on April 29 when the monetary policy decision is announced.

The Fed in Flux

The 800-lb monkey in the room is the Federal Open Market Committee (FOMC) meeting at month-end. No one expects a rate cut, but the question is whether it will be Jerome Powell’s last meeting as Fed Chair.

Trump thinks so. He said he would fire Powell if he does not leave his post on time, although he probably does not have the authority. Furthermore, Mr. Powell’s term as a Fed Governor does not end until 2028, so even if another Chair gets confirmed, he could still hang around to irk the president. And confirming another Chair is problematic. Senator Thom Tillis has pledged to block confirmation hearings until the Justice Department’s investigation into the Fed is resolved. Trump said he has no plans to drop the probe.

The Fed drama could be a catalyst for further US dollar losses, but Canadian dollar gains may be limited due to domestic economic growth concerns.

Markets are celebrating an outcome that hasn’t been secured. That is the essence of premature euphoria, and it may not end well.