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Despite the retracement, crude oil prices remain well above the pre-war range, and five-day historical volatility has spiked to levels higher than 2022. Elevated volatility at these levels suggests the market has not yet found a new equilibrium.

All three asset classes have staged a V-shaped recovery from the war-driven sell-off. The S&P 500 has reached new highs while gold and Treasuries have similarly reclaimed lost ground.

The Nikkei 225 has bounced sharply from its March low but faces significant overhead resistance at its pre-war high. Unlike the S&P 500, which is testing new records, the Nikkei has yet to reclaim its prior peak.

Platinum formed a head-and-shoulders pattern over the past six months. However, prices rebounded off the neckline without a decisive breakdown and are now trading above. Failed head-and-shoulders patterns often act as a springboard in the opposite direction, positioning platinum for a potential bullish continuation.

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On April 15, the S&P 500 closed at a record 7,022, surpassing its January peak and fully erasing the roughly 9% drawdown triggered by the outbreak of the U.S.-Israel-Iran war. This remarkable recovery, completed in just two weeks, was driven largely by ceasefire optimism after the U.S. and Iran agreed on April 7 to a two-week pause in hostilities. But beneath the surface, the picture looks far less reassuring.

Within 24 hours of the ceasefire announcement, Israel launched its biggest offensive of the war on Lebanon. By April 12, peace talks in Islamabad collapsed without agreement. The U.S. response was swift. The Navy began a full blockade of the Strait of Hormuz, deploying over 10,000 troops, a carrier strike group and eleven destroyers, while over 70 heavy military air transports were sent to the region; tripling the previous week's rate. Markets are calling this a ceasefire. In practice, it resembles something closer to an intermission.

Despite the Strait of Hormuz effectively being closed for more than a month, financial markets have yet to feel its full weight. Cargo ships already in transit continued to deliver, and a coordinated release from the International Energy Agency, with the U.S. contributing 172 million barrels from its Strategic Petroleum Reserve, has temporarily cushioned the supply shock. But these are finite buffers. The last pre-blockade cargo ships are expected to reach their destination ports around mid- to late-April, and tankers now face an impossible choice: exit the strait in defiance of either Iran or the U.S. Navy. In practice, most will choose neither and opt to stay put. Both sides have now played their strongest cards. Iran closed the Strait; the U.S. went to war and imposed a naval blockade. What remains is a war of attrition, and until one side blinks, the risk premium in energy markets is unlikely to dissipate.

The International Monetary Fund (IMF)'s April World Economic Outlook underscores the widening gap between market sentiment and economic reality. Global growth was cut to 3.1%, with inflation raised to 4.4%. Under a severe scenario, growth could fall below 2% - effectively a global recession. Notably, the IMF had been preparing to upgrade its forecast before the war. Instead, it now warns that the energy shock halted any growth momentum carried into 2026; the same shock that markets appear to be dismissing.

Amongst major indices recovering from the ceasefire, the Nikkei 225 rally stands out as particularly exposed. Japan imports approximately 90% of its oil from the Middle East, making it one of the most energy-dependent developed nations in the world. This vulnerability is already showing: Japan's producer price index surged 0.8% month-on-month in March, the sharpest increase since November 2022, and 2.6% year-on-year. For a manufacturing-heavy economy where transportation and production costs are acutely sensitive to energy prices, this is a direct margin squeeze on the corporate sector. Unlike the U.S., which is a net energy producer and benefits from higher oil revenues, Japan absorbs the full cost of every dollar increase in crude. If the Hormuz blockade persists and oil prices remain elevated, this asymmetry is likely to widen,  making Japanese equities among the most vulnerable to a repricing of geopolitical risk.

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We conclude with the following hypothetical trades:¹

Case study 1: Short Nikkei (USD) futures

If one holds a bearish view of Nikkei 225 Index, one could consider taking a short position in Nikkei (USD) (NKD) futures at the current price of $59,500, with a stop-loss above $61,000, a hypothetical maximum loss of 61,000 - 59,500 = 1,500 points. If the energy shock persists, Nikkei 225 prices have the potential to fall to previous support level $50,000, resulting in 59,500 – 50,000 = 9,500 points. Each point move by the NKD futures contract is five USD. Micro Nikkei (USD) (MNK) futures contract is also available at 1/10 of the standard size.

Case study 2: Long Platinum futures

If one holds a bullish view of platinum, one could consider taking a long position in the Platinum (PL) futures at the current price of $2,130, with a stop-loss below $2,000, a hypothetical maximum loss of 2,130 - 2,000 = 130 points. Looking at Figure 4, platinum has the potential to rise back to its previous shoulder at $2,400, resulting in 2,400 - 2,130 = 270 points. Each point move in the Platinum futures contract is 50 USD. Micro Platinum (PLM) futures contract is also available at 1/5 of the standard size.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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