The funniest thing that I read
Was Bloomberg, in which someone said
That Bessent's bond buys
Have seen prices rise
So maybe, he's not a blockhead
Meanwhile, today brings PCE
Which pundits are anxious to see
If it comes out hot
They'll claim Warsh has wrought
Disaster and sip their Chablis
But if PCE remains chill
The pundits, when ink meets their quill,
Will pivot to stories
In new categories
And claim it was run-of-the-mill
As we await this morning’s PCE data (exp 0.1%, 3.6% Headline; 0.2%, 3.3% Core), as well as a bunch of other stuff like Personal Income (0.2%), Personal Spending (0.1%) and GDP (1.5%), many in the market continue to discuss the pros and cons of Treasury Secretary Bessent’s efforts to push down longer dated Treasury yields. Before this morning, it was widely reported, or perhaps loudly reported is more accurate, that this was a desperate act and demonstrated that he didn’t know what he was doing and was simply a Trump puppet. But the top story in Bloomberg this morning is titled “Bessent Bounce Starts to Emerge in Long Bond Market Metrics”. In the story, they describe that despite all the controversy and certainty it would fail, it seems to be working for now.
Certainly, based on yesterday’s bond market price action, where 10-year yields slid -6bps, that may be the case. And remember, the increased buybacks aren’t going to take place for another two weeks, so we still don’t know how much the Treasury is going to buy. Personally, I like the idea of Treasury buying bond futures, where there is a massive speculative short position, and squeezing them all badly. Remember, he was a hedge fund manager and knows exactly how that process works. (As an aside, I have a feeling that Druckenmiller’s op/ed was him talking his book because he is short futures as well.)
At any rate, now that complaining about Bessent is not in tune with today’s market, the punditocracy has pivoted back to Chairman Warsh trying to anticipate what he is going to say Friday morning. As Warsh remains tight-lipped about everything, it is much easier for the pundits to make claims without being proven instantly wrong. And whatever Warsh says, you can be sure the pundits will claim they knew it all along!
Meanwhile, in the markets, I believe oil (-2.6% today, -5.0% in the past week) continues to slide and is back at levels seen earlier this month around $80/bbl as per the below chart.
Source: tradingeconomics.com
I am continually amazed at the commentary regarding oil and Iran and potential peace talks as the response to virtually every statement by the Trump administration about the situation, whether about the ability to traverse the Strait, or the status of talks with Iran, is to dismiss it out of hand by many commenters on X, but when Iranian propaganda media makes claims, it is taken as gospel. Yesterday I recall Iran claiming economic sanctions won’t matter, they are prepared, and yet today there are stories of how Iran and Oman are furiously trying to come to some type of agreement. I do not know the situation on the ground there but after 6 months of bombardment and embargos on their oil exports, my sense is the IRGC is feeling a lot of pressure. I guess we shall see, but in the meantime, oil inventories remain robust with no shortages seen.
As to other markets, let’s tour around to see what’s happening. Completing the commodity group, metals are consolidating weekly gains with gold (-0.8%) and silver (-0.2%) slipping a bit although both remain higher by more than 2% this week and about 15% in the past month. Copper is little changed.
In the bond market, after yesterday’s sharp decline in yields, where European sovereigns followed Treasuries, albeit not quite as far, this morning has seen yields back up 1bp across both the treasury and European markets. As I have been saying, I believe this market is waiting for Chairman Warsh to speak before deciding its next move.
In the equity markets, US markets all rallied yesterday afternoon and closed near their highs with that price action following across most of Asia. Tokyo (+0.6%), HK (+0.6%) and China (+0.85%) all had good sessions as did Korea (+1.0%) and Taiwan (+1.5%) as all those tech related markets await Nvidia’s earnings to be reported after today’s US close. The exception here was Australia (-0.4%) which slipped after higher than forecast inflation readings were released and markets have increased the probability of a rate hike by the RBA at their September meeting to 45% from about 25% prior to the release as you can see in the chart below from rateprobability.com.
In Europe, equity markets are fairly quiet overall with modest gains of 0.2% to 0.4% everywhere except the UK which has seen a decline of -0.2%. Ironically, despite the problems the UK is having with energy prices, two key members of the FTSE 100, Shell and BP are lower on the lower oil price and that is dragging down the index. As to US futures, at this hour (7:40), NASDAQ (-0.5%) futures are softer, but the other major indices are little changed.
Finally, the dollar is slightly firmer this morning but continues to be an afterthought in markets. The DXY is exactly where it was yesterday when I wrote and the only true outlier today is AUD (+0.25%) which is benefitting from higher interest rate expectations. Otherwise, the dollar is modestly firmer against most every counterparty of note. At some point, the dollar will get interesting again, I just don’t know when that will be.
And that is really it today. Perhaps there will be a deal from Iran although I doubt it.
Good luck
Adf
fxpoetry 