Developed Markets (EFA): Summer Chop Under Hypersonic Skies

By Juri von Randow · 6 May 2025 · Tuesday Target 19/52 2025

Why a hypersonic strike near Ben Gurion, starvation as leverage and a stumbling Merz all argue for range-bound premium decay in Europe-heavy EFA.

More Than Glass at Ben Gurion

The letter starts with hunger in Gaza, which has stopped being a byproduct of the fighting and become a tool of it. A tunnel war aimed at a militant brand buys nothing durable; the brand gets a new name in a decade and a fresh set of hostages. The region's whole history is a list of rulers passing through, pharaohs to Ottomans to the British, none of whom ever settled it. Britain left, a map got drawn, a war redrew it, and we are still trading on the aftermath.

The cast since then shares a lack of vision: Netanyahu with settlements and a frozen status quo, Sinwar with tunnels and hostages, Arafat walking out of Camp David and into an intifada, Washington collecting its own trophies for strategic negligence. None of them ever tried to build a parallel government, economy or future that could turn the place into a shared hub. The war zone is permanent by design, and permanence is exactly what markets keep mispricing as an episode.

Then Sunday's hypersonic missile landed near Ben Gurion and the abstraction ended. Flights stopped, insurers paused, war-risk cover across the Mediterranean got repriced overnight, oil caught a bounce, freight rates jumped. Israel answered with airstrikes on Houthi positions in Yemen, another rung up the escalation ladder. When airports become targets and food becomes a weapon, geopolitical risk shows up in spreads, shipping and spot within hours. Ignore the diplomatic vacuum long enough and a portfolio stops managing that risk and starts carrying it for free.

The Beast Is Mostly Europe

The trade sits on EFA, and the reason is the ticker's own composition: the index is mostly Europe, so Europe carries the weight. Europe's rally has leaned on a re-arming story, and I don't think that story holds as a permanent bid. Narratives like it front-load the excitement and then leave a long stretch where nothing much happens, which is exactly where written premium earns its keep. Hence a wide iron condor on the index, an attempt to rein in the beast rather than guess its direction.

The macro backdrop argues for a range more than for a direction. Lagging data keeps throwing head-fakes, so I would rather read freight volumes, private payroll trackers and satellite feeds, which arrive before the official version does. Meanwhile oil is priced for a slowdown while equities behave as though the boom never ended. Either crude or the stock market is lying, and the resolution will be fast. For a premium writer that argues for width, enough that a violent snap in either direction stays inside the tent. Higher rates and policy drift keep implied volatility fat, which is precisely the thing being collected.

Merz Limps, Premiums Melt

Germany, meanwhile, just did something without postwar precedent: it failed to elect a chancellor on the opening ballot, with Merz six votes short. He will most likely stumble across on a repeat attempt, and by American standards he counts as a leftist anyway, so no lurch is coming. Whether that repeat vote lands cleanly is the top item on my list; a wobbly start in Berlin feeds the drift thesis.

The other trip wires are already in the letter. Whatever comes back from the Yemen strikes, since each rung on that ladder reprices Mediterranean shipping and insurance before anything else. War-risk cover in the Med, which will show whether insurers read the strike as isolated or as a new regime. Oil's quarrel with equities, because whichever side folds decides whether EFA drifts or gaps.

A pair of children with no frontal cortex are throwing rocks across a fence, and the only adult in the room is gravity: whoever stays non-violent long enough eventually watches the bully fall over. Until then, width and patience. Good luck to both of them; I would rather be paid to wait.

• EFA
• Iron Condor

Middle East war risk · European equities