Wall Street has a new obsession: gauging when Donald Trump will blink on Iran. Enter the Deutsche Bank Pressure Index, a neat little contraption that combines four indicators – stock market performance, 10-year treasury yields, short-term inflation expectations, and the president’s approval ratings – into a single gauge of political and economic pain.
The higher the reading, the more incentive for Trump to soften or reverse policy.
At present, the index is at its highest level since Trump returned to the White House, even higher than on last April’s so-called Liberation Day, when stunned financial markets revolted against the sudden tariff barrage.
That may seem surprising, given the S&P 500’s recent decline has been a more orderly affair. However, the pressure this time is compounded by rapidly rising gasoline prices, November’s midterm elections, and a jittery bond market, combining to squeeze both consumers and investors alike.
Deutsche Bank’s gauge is essentially a Taco (Trump always chickens out) index, as is BCA Research’s Trump Pain Point index. Past spikes in pressure have reliably preceded policy reversals, as evidenced by April’s tariff pause, the averting of a threatened US government shutdown in September, January’s U-turn on Greenland, and so on.
Taco is a useful mental model for traders, a reminder that dips can be buying opportunities because Trump tends to capitulate under sustained pressure, but Iran tests the limits of the theory.
Unlike trade or domestic disputes, the Strait of Hormuz cannot be reopened by executive fiat alone. Diplomacy requires co-operation from both sides, and the real exit ramp depends on Tehran, which is aware of its own economic leverage and is keen to show strength to deter future attacks, as well as Washington.
While the indices signal pressure on Trump, any resolution depends on co-operation from both sides. As various analysts have noted, it takes two to Taco on Iran.