Another "TACO moment" approaching? Trump's ultimatum turns into a "wolf is coming" reality show, with the market betting on the script of "backing down at the last minute."

US President Donald Trump has only a few hours remaining before the latest "final deadline" for Iran to reach an agreement, yet financial market institutions and individual investors once again find themselves preparing for a series of possible outcomes in the face of increasingly bullish sentiment and the double squeeze of pessimistic narratives about "stagflation" and "recession" due to the nearing "another TACO moment." Whether they are increasing their holdings of stocks and bonds, adding to commodity assets, or holding cash for comprehensive hedging strategies, they all generally share a common view - the sharp market fluctuations caused by Trump's changing stance in recent weeks have left them frustrated and uncertain about the future pricing path. Since March 23, Trump has repeatedly pushed back deadlines related to Iran, with the latest extension being announced as a result of a request from the Iranian side. He even publicly stated that the final deadline would be Tuesday night at 8 PM local time. However, at the same time, the US and Iran are still indirectly in contact through Pakistan and other channels. Trump himself has stated on social media that the negotiations are progressing well and reopening the Strait of Hormuz is a "very significant priority." The latest geopolitical news and dynamics indicate that the current response function at the White House is more like "threatening while observing the progress of negotiations and reserving the option of an extension." These seemingly contradictory signs are why the market is beginning to price in another short-term version of the TACO moment that will drive a major rebound in risk assets such as stocks. The popular trading strategy on Wall Street - TACO (Trump Always Chickens Out) - was created by a columnist for the Financial Times in 2025 during a period when Trump initiated an unprecedented global "tit-for-tat tariff" battle. Traders bet that either the US government would retract tariff threats or that even if implemented, they would not be as aggressive as Trump threatened and would not significantly hamper US economic expansion. The TACO strategy has now been widely adopted by traders and has become the hottest trading strategy at present. Whenever Trump makes new, more aggressive tariff threats or other major threats that cause a market crash, investors bet that he will back down or that the actual policies implemented will weaken Trump's verbal threats, leading them to buy in heavily at opportune low points in anticipation of a major rebound in the stock market soon. Trump has once again issued a "final deadline!" The moment of truth is imminent, but the market is betting on "the boy who cried wolf." "We just hope that rational forces prevail in the market in the next 24 hours," said Gary Dugan, CEO of Global CIO Office. To wait for the situation in the Middle East to cool down, he has temporarily relocated from Dubai to the family residence in Jabalpur, a city in central India. He is reducing his bets on stocks and buying oil assets through exchange-traded funds (ETFs). This scene has played out several times in recent weeks: Trump repeatedly sets final deadlines, then extends them, causing one round of financial market turmoil after another, leaving traders exhausted. As the latest deadline - the next "final ultimatum" on Tuesday night in New York approaches, benchmark volatility indicators for stocks, bonds, and forex markets globally have reached their highest levels in months. As shown in the chart above, volatility in the forex and bond markets has reached multi-month highs - based on implied volatility. During the concentrated trading session in the Asian markets on Tuesday, volatility in major asset classes was generally under control. The US dollar struggled to hold onto earlier gains, while the MSCI benchmark index for Asian stocks showed a slight increase. The Brent crude oil futures price, the international oil price benchmark, traded above $111 per barrel, fluctuating between gains and losses, with Brent crude prices stabilizing above $110, suggesting that more and more traders believe that oil prices could stay at historically high levels in the long term under supply constraints, especially since the reopened Strait of Hormuz may not be able to make up for the significant production cuts in the Gulf states in the short to medium term. Passage through the Strait of Hormuz has almost come to a halt. The strait carries about one-fifth of the global oil and liquefied natural gas shipments. Since the outbreak of military conflict between the US and Iran, only a very small number of oil tankers have passed through the strait, often only after contact with Iranian officials. This near-total blockade since the end of February has significantly raised global energy costs and forced Arab countries along the Persian Gulf to reduce oil production by millions of barrels per day. In fact, the Iranian military has all but blockaded the Strait of Hormuz, meaning that around 20% of global energy flows are completely obstructed, along with attacks on oil tankers and disruptions in shipping, a recent study by the International Energy Agency (IEA) showed that the US and Israel's military actions against Iran at the end of February triggered the largest supply disruption in the history of the global oil market. Brent crude oil has been fluctuating around $110 per barrel and stabilizing more, indicating that high oil prices may pose a long-term threat - investors, central bank policymakers, and business leaders must all face this reality. Despite the recent chaotic price movements in the financial markets, well-known hedge fund investor Thomas Hayes remains optimistic. "There's an asymmetry skewed to the upside," said Hayes, Chairman of Great Hill Capital in New York. If Trump "mishandles it," the US stock market "will retest recent lows, about 4% lower," he said. "If we get a resolution or ceasefire agreement, then the market is like a coiled spring, with at least a 10% violent upward potential." Trump insists that complete freedom of navigation in the Strait of Hormuz must be part of any agreement to end the war in the Middle East, threatening that if Iran does not accept a series of conditions he put forward before the final deadline, the US will "completely and decisively destroy crucial Iranian infrastructure." However, he changed his tune on Monday, suddenly stating that negotiations with Iran are "progressing very well" and that the reopening of the strait is "a very significant priority." In recent weeks, he had stated that an agreement on the strait was not a core premise for ending the conflict. However, Trump also stated that he is "highly unlikely" to extend the deadline again. In Singapore, senior forex trader Mingze Wu believes that in this uncertainty, the US dollar will remain the most favored reserve currency. "To me, the real pain has not yet arrived," said Wu from StoneX Financial. "If the real geopolitical situation and the shortage of oil supply in the Strait of Hormuz do not improve in the long term, the final impact of the oil shortage may not be seen until mid-April to early May, and that's when the chaos will begin." However, some institutional investors have expressed that they have become somewhat numb to Trump's threatening rhetoric. "The market is beginning to see Trump as the boy who cried wolf," said Hideo Shimomura, Senior Portfolio Manager at Tokyo Fivestar Asset Management Co. "The focus of the market is increasingly turning to how Iran will respond, especially whether it will choose to open the Strait of Hormuz under pressure from the US-Israel alliance to bomb infrastructure." In the financial markets of Sydney thousands of miles away, Nick Twidale is on high alert, waiting for the next news headline to appear. "Traders are exhausted, frustrated, and anxious. They just want clarity," said Nick Twidale, Chief Market Analyst at AT Global Markets. "People are still long in the US dollar against all currency assets, just to maintain sufficient liquidity, because the outcome brought by Trump's last deadline may be so binary - almost impossible to accurately position for." Is it time to buy on the dip in the short-term "TACO" style? It is worth noting that mediators like Pakistan have not given up on pushing for a ceasefire between the US, Israel, and Iran. According to reports from American media, a senior Pentagon official said, "If the US president believes a peace agreement is imminent, he may further postpone the deadline." and the US and Iran are still in indirect contact through channels like Pakistan. If traders collectively believe that things will escalate immediately after 8 PM on Tuesday, oil prices, stock markets, and forex should witness more extreme, one-sided repricing; however, the reality is that, despite Brent crude still hovering around $111, the US dollar retaining its safe-haven strength, and implied volatility in forex and bonds at multi-month highs globally, stock markets as a whole continue to show restraint, with even Asian stocks exhibiting a relatively optimistic state of "rising while waiting for news" in early trading on April 6 and 7. As a result, the market has begun to partially price in the trend of "Trump may postpone the final deadline again if there is still hope in the negotiations." This is not a repeat of a fully committed, one-sided "TACO trade." More accurately, funds are pricing in a conditional response function from Trump: as long as diplomatic channels between the US and Iran remain open, Iran continues to contact through third parties like Pakistan and Turkey, and the White House may claim that "negotiations are progressing," then the "final deadline" is more like Trump's long-standing tool of extreme pressure rather than an immediate action switch that must be implemented. The short-term version of the "TACO moment" seems to be a high-probability scenario, but it is not without risks. The core reason behind this is that the current financial market is not betting on Trump "inevitably backing down," but on the premise that if he sees "signs of negotiations" or a "peace agreement taking shape," there is a high probability that he will continue to keep the negotiation window open. Certainly, the market has begun to trade a "hopeful extension" of Trump's TACO pattern, and the short-term TACO moment is likely within the view of most investors. However, it is more like a "conservative and hedged TACO" rather than the purely hasty bottom-buying TACO seen after "Independence Day" last year - in other words, as long as any signal that can be construed as "negotiations progressing" is seen before or after 8 PM on Tuesday, the market will likely interpret it as a prelude to another extension; but until the formal news arrives, traders will still not easily remove their hedging protections. It is worth noting for investors that the overall positioning levels in the stock, bond, and forex markets are not completely risk-on like after Trump announced radical tariff policies on "Independence Day": some traders are still holding onto the US dollar, cash, energy exposure, and volatility hedges because a miscalculation here is not just ordinary policy noise, but a typical geopolitical binary switch. In other words, the market's pricing trend for the "TACO moment" is to believe in the direction that Trump will likely extend the so-called "final ultimatum," but some traders are still wary of tail risks in their positions.