With a fragile US-Iran ceasefire barely holding, the Strait of Hormuz still blockaded, and all eyes on the upcoming Trump-Xi meeting, investors are embracing a new market narrative: “Nacho”.
The acronym – short for “Not a chance Hormuz opens” – reflects a growing bet on prolonged gridlock and high oil prices.
This marks a sharp pivot from last year’s dominant trade tactic, “Taco” – “Trump always chickens out”, which was born in the chaos of Trump’s tariff blitz and relied on the assumption that the President would ultimately back down.
Now, the old recipe no longer works – and Wall Street is trading chips for Nachos.
What is Nacho?
The term gained traction after Bloomberg columnist Javier Blas shared it on social media in late April, attributing the phrase to a trader.
Much like the term “Taco” – which was coined as investors grew wary of Trump’s strategy of using massive tariffs as leverage – this new acronym reflects a shift in market sentiment as the Middle East conflict is now at the forefront of investor concern.
Although “Operation Epic Fury” – the US military action against Iran that launched in February – has concluded, according to US Secretary of State Marco Rubio last week, the regional outlook remains bleak. The Strait of Hormuz is still effectively blocked and a full de-escalation has yet to materialise, leaving the global economy shrouded in uncertainty.
How will ‘Nacho’ trade shape investment?
“This means that the market is betting that oil prices will sustain its current highs for the long term,” according to analysts from Soochow Securities during a strategy session on Sunday published on financial information provider Wind.
The analysts noted that crude oil transit premiums in the Strait of Hormuz have surged to over eight times their pre-conflict levels, signalling that the market has priced in a prolonged Middle East conflict.
The price of Brent crude, a benchmark value for the global oil market, was over US$105 per barrel as of Tuesday after a 3 per cent surge the day before.
This followed Trump’s rejection of Iran’s latest counterproposal to end the war, which he called “totally unacceptable” on social media on Monday, further dampening hopes for a resolved deal in the near term.
How will China factor in?
As the White House signalled that the Iran issue would be on the agenda during this week’s long-anticipated meeting between President Xi Jinping and Trump, observers said a slightly more positive market outlook could follow if the talks proceed smoothly.
“The market could factor in that if the meeting goes well, China might signal its stance on the US-Iran conflict and help to ease tensions,” analysts at Soochow Securities said.
However, they noted that any positive sentiment from the Xi-Trump meeting would likely be limited and the Nacho trade could persist, as investors continue to weigh the impact of oil prices on inflation and other aspects of the broader economy.
Beijing confirmed on Monday that Trump will pay a state visit to China from Wednesday to Friday at the invitation of Xi. According to Agence France-Presse, a White House official told reporters that Trump would “apply pressure” on Xi regarding the Iran issue during the meeting. -- SOUTH CHINA MORNING POST
