Why BCA says Trump ’faces a tough trade-off’

Investing.com -- The escalating conflict involving Iran could place President Donald Trump in a difficult position as geopolitical objectives collide with domestic economic priorities, according to analysts at BCA Research.

Arthur Budaghyan, chief strategist for emerging markets and China at BCA Research, said in a note that the administration is confronting competing goals as the conflict develops.

“President Trump faces a tough trade-off. His geopolitical objective – regime change in Iran – cuts against his domestic imperatives to keep US growth strong, sustain the equity bull market, and keep oil prices low,” Budaghyan wrote.

The firm believes the current conflict could last longer than previous regional flare-ups, potentially prolonging disruptions to oil supply and weighing on financial markets.

BCA Research warned that the situation may resemble earlier energy shocks, noting that during the 1990 Iraqi invasion of Kuwait crude prices surged sharply while equities declined.

“Crude prices rose by 170% while the S&P 500 dropped by 20% between June and October of that year,” the firm wrote, adding that U.S. equities only stabilised once oil prices peaked.

The analysts also cautioned that investors may be overestimating the government’s ability to shield markets from volatility.

According to BCA, “the biggest surprise could be that the Trump put proves ineffective,” as markets cannot be controlled indefinitely.

“A de-escalatory pivot from Trump can work a few times,” the firm said, but “at some point, investors should expect the Trump put to fail to restore investor and business confidence in a timely manner.”

BCA Research added that global and emerging-market risk assets remain vulnerable, warning that it is “not prudent to bet that Trump’s pivots will always work.”

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