Tossed to the Fates

Posted on September 14, 2026 by fxpoet

The market’s now certain this week
On Wednesday, when Warsh gets to speak
That he’ll have raised rates
And tossed to the fates
Just how much more havoc he’ll wreak

But ask yourself, what would you do
As Fed chair, midst this ballyhoo
A rate hike don’t drill
Instead, it might kill
The growth impulse we’re living through

I guess it’s a done deal, at least in the market’s collective mind, that the FOMC is going to hike rates on Wednesday. This is according to the Fed funds futures market as you can see below. In addition, you can see that the futures market is now pricing essentially 4 hikes over the course of the next year.

So, why the change of heart? Apparently, the ‘hot’ CPI data from Friday combined with higher oil prices this morning has sealed the deal. Let’s take the two in order. Below are the reported CPI figures from Friday:

Source: tradingeconomics.com

It seems the fact that the M/M Core result was 0.3% instead of the 0.2% forecast, despite the fact that the Y/Y number was as expected at 2.4%, has been the catalyst for the increased certainty of a hike. You may recall that Friday before the CPI release the futures market had priced in about a 60% probability of a hike, i.e., still a lot of uncertainty. Of course, oil prices (+2.6%) are higher this morning as well after the Saudis cut movement through their East-West pipeline once it had been attacked, which has further reduced the flow of oil from the Middle East. And certainly, if oil prices continue to rise, that will feed into inflation pretty quickly as we saw at the beginning of the summer.

However, just for a moment, let us consider the rationale behind raising interest rates to address inflation. The main central bank thesis is that higher interest rates will reduce demand and therefore it will reduce price pressures. This process takes some time, the so-called long and variable lags of Fedspeak, but this is what it boils down to, reduce demand to reduce prices. As an aside, history has shown that every economic boom has been ended by the central bank squashing it with higher interest rates.

But now let us consider the current situation. Higher oil prices are certainly driving up some portion of the overall consumption basket, and that is responsible for the bulk of the rise in measured inflation. Higher oil prices are also acting as a dampener of demand as money that may have gone toward other things is now being used to pay up for gasoline and diesel. The natural result is those other things, whether goods or services, have seen demand slip somewhat and the purveyors of those things have limited ability to raise prices, at least those not getting paid directly by governments like healthcare providers. In other words, higher oil prices are already reducing the demand that the Fed will be trying to address via a rate hike.

If the Fed decides to hike rates this week, they will be reducing demand further and could well push the economy off its current solid growth path to something less positive where companies see further reductions in demand and begin to reduce headcount. Again, history has shown that central bank rate hikes to address energy price shocks (or really any exogenous price shocks) have been categorical mistakes. I fear this is where we could be headed. And the worst part is that if they hike rates, it won’t change oil prices at all.

As a reminder, a quick look at the Atlanta Fed’s GDPNow Q3 GDP estimate shows things are looking pretty good at 4.4%.

Perhaps this discussion is the reason that I am most positive about Kevin Warsh as chairman. I don’t know if they will hike or not this week, but the entire idea of the five task forces is to try to change the way the Fed looks at the world. Their neo-Keynesian view has become destructive, in my mind, given the complexities that have arisen in the economy with globalization dramatically reduced and trade policies no longer moving toward free trade. As well, the changing demographics of the US, both via an aging population and a reduction in immigration in addition to actual deportations is having a significant impact on the economy and does not appear to have been taken into account in the current Fed models.

Away from this discussion, the other main topic is AI and whether it will, indeed, kill us all, or whether it is simply a very powerful tool that if used well can enhance productivity. Like most issues these days there doesn’t appear to be any middle ground here. For me, I have a hard time overcoming the perspective that there is a well-orchestrated campaign now to demonize AI in an effort to get the government, at both state and federal levels, to regulate it more strictly, although I don’t know who benefits from this most so I’m not sure who is funding it. It’s almost as though the demonization of data centers has been unable to slow the train enough, so they had to up the ante and explain AI is Skynet.

Ok, let’s see how all this new news is impacting markets. Since commodities seem to be the primary driver right now, if we look beyond oil, we see NatGas (+2.3%) rising this morning but it remains extremely well behaved and substantially cheaper than in Europe and the UK as per the below chart from tradingeconomics.com

In fact, putting all three prices into $/MMBtu, the US is at $2.89, the UK is at ~$27.75 and the EU is at ~$27.99. In other words, Europe and the UK are paying nearly 10X what we pay for NatGas. They have serious problems there. As to the precious metals, they are not that precious this morning as the negative correlation with oil continues (Au -1.3%, Ag -2.1%, Cu -1.9%).

Turning to bonds, this is the other key discussion point as 10-year yields approach 5.0% in the US. This morning, Treasury yields are unchanged, although they have climbed 31bps in the past month. European sovereign yields are all a touch higher with Italy (+4bps) in the worst shape but the rest of the continent seeing yields climb between 1bp and 3bps. And JGBs, ahead of the BOJ meeting on Friday, have edged higher by 1bp.

In the equity markets, Friday’s US rally (which given all the hype on the Fed tightening seems strange, although oil prices did slide then, has been followed by a mixed picture in both Asia and Europe. In Asia, the Nikkei (-0.8%) suffered although the broader TOPIX (+0.75%) did not. HK (+0.5%) rallied as did some of the smaller regional markets (Australia, Singapore, Malaysia) but there was more substantial weakness amongst Korea (-3.25%) and China (-0.7%). Mixed describes it well. in Europe, there is far more red (Italy -1.1%, Spain -0.85, France -0.7%, Germany -0.3%) than green (UK +0.7%) with the latter benefitting as oil stocks (BP and Shell) both rallied on the back of oil price rises and that has been sufficient to counter the other negativity. As to US futures, they are all lower this morning with the NASDAQ (-1.5%), leading the way with the others lower by -0.5% or so.

Finally, the dollar is rocking this morning, with DXY (+0.4%) a pretty good indicator of things. EUR, AUD, NZD, JPY are all lower by about that amount, as is NOK (-0.4%) despite the rise in oil prices. SEK (-0.8%) is the G10 laggard but it has company with ZAR (-0.8%) on weaker gold prices and CE3 (PLN -0.9%, CZK -0.75%, HUF -0.8%) all demonstrating their high beta to the euro. In LATAM, MXN (-0.6%) and CLP (-0.6%) are both under pressure on metals weakness and even KRW (-0.3%), which has been on a tear, is softer this morning. Higher US rates and the prospect for even higher ones seems to be driving market activity.

On the data front, obviously, this week is all about the Fed, but here is the other stuff:

Tuesday	Empire State Manufacturing	14.75
Wednesday	Retail Sales	0.9%
	-ex Autos	0.6%
	FOMC Decision	4.0% (current 3.75%)
	Brazil Interest Rate Decision	13.75% (current 14.0%)
Thursday	Initial Claims	205K
	Continuing Claims	1775K
	Housing Starts	1.31M
	Building Permits	1.41M
	Philly Fed	32.5
Friday	BOJ Interest Rate Decision	1.25% (current 1.00%)
	IP	0.3%
	Capacity Utilization	76.4%
	Leading Indicators	0.1%

Source: tradingeconomics.com

So, it all comes down to, will they hike or not. While I don’t believe it is the right thing to do, the market certainly believes that to be the case. I wouldn’t be surprised, however, if they do hike, to see a counter reaction, like a buy the rumor, sell the news outcome, especially in the FX markets.

Good luck

Adf

Memories Morose

Posted on September 11, 2026 by fxpoet

A score and five years now have passed
Since evil, near home, struck so close
And I will ne’er forget that blast
Though it brings back memories morose

While I have worked to block it out
We lived through a great deal of stress
And recent events leave no doubt
New York City is still quite the mess

I understand you weren’t there
But absence remains no excuse
To disregard those thoughts and prayers
Of folks who feel torment, profuse

No other day that I recall
Impacted our lives with such woe
And to this day, its darkened pall
Still hides much of life’s radiant glow

On this somber day, remembering the events of that bright and sunny morning, I sincerely hope none of you ever forget what happened. From my vantage point, a single block away, the devastation was remarkable. Unfortunately, I lost many friends that day, and they are all in my thoughts this morning. If ever you wondered how important the markets are, they pale in comparison to the realities of life…and death.

And while I try to keep politics out of this missive, this morning, it pains me greatly that New York City mayor Mamdani, with a history of supporting the very people who perpetrated this heinous crime, will have anything to do with the commemorative ceremony.

Now back to our regularly scheduled programming.

The punditry’s near salivating
As Treasury yields keep inflating
The glee they express
O’er bond market stress
Can fairly be called fascinating

Elsewhere, there’s a new boogeyman
Replacing the war in Iran
AI is Skynet
Much worse than huge debt
As it will destroy all it can

The primary market discussion this morning revolves around government bond yields after yesterday’s dramatic rise virtually across the board. If you look at the chart below, it shows the yields for US, UK and German 10-year bonds and how they have all risen dramatically in the past week (18bps, 20bps and 15bps respectively) with the bulk of that coming yesterday.

Source: tradingeconomics.com

There have been many theories as to why things broke yesterday with some pointing to oil’s dramatic rise, some pointing to President Trump’s $5k bonus payment and others pointing to Secretary Bessent’s bond repurchases where he was only able to buy $5.1 billion of the $6.0 billion they tendered for. As is often the case, all of these likely had some impact, and you can throw in some views of yesterday’s PPI data, which while released at expectations did nothing to cool inflationary ardor.

If we look at Fed funds futures in the table below from the CME, we can see that the probability of a rate hike next week has risen to 67%, but more interestingly, there is now pricing for a total of 100bps of hikes over the course of the next year.

In fact, if we look across the globe, the number of rate hikes has grown since yesterday. Compare this morning’s chart from rateprobability.com to the one I published yesterday, and you can see that expectations have risen between 15bps and 25bps across all the major central banks.

Today’s chart.

Yesterday’s chart.

At this point, we are highly confident that Japan is going to raise rates at their meeting later this month because Nikkei News reported it last night, and their track record here is, literally, perfect, never having missed a call. Of course, the ECB raised rates yesterday, and it appears quite likely that rate hikes are the new normal. I wonder what will happen, though, if today’s CPI (exp 0.4% Headline, 0.2% Core) comes in cool. Frankly, I think the market is so convinced that it won’t matter at all.

Ok, before I run down markets, I must comment on the increased chatter regarding AI. Let me start by saying, I am not an expert on AI, although I have a pretty good feel for human behavior. The recent comments from the Anthropic scientist who left and explained that AI was going to kill us all were remarkable. But what is more remarkable is the call for ‘government experts’ to oversee AI’s ongoing evolution. Every time I hear of government experts I hearken back to the end of “Raiders of the Lost Ark” when Indiana Jones tells the army intelligence men that the Ark needs to be studied, and they reply it is being studied. When queried ‘by who?’ they reply, top…men.

My point is there are likely zero AI experts who work in the government as all of them are working for companies building AI. Congress has proven itself to be uniquely incompetent across virtually every sphere of thought and action, so having Bernie Sanders or Hakeem Jeffries or Josh Hawley say they need to be involved does not inspire confidence. Here’s the thing, we have heard this before. After all, wasn’t global warming or climate change or Covid going to kill us all if we didn’t do exactly what government said? It is almost as if they are running the same playbook on AI and it is becoming pretty tiresome. Perhaps AI is developing into Skynet, but like virtually everything else, early hysteria is regularly misplaced.

Which takes us to markets. Oil (-3.2%) may have been a tad overdone yesterday during its $6.50 rally. Threats and counter threats between the US and Iran continue to be the backdrop, and Saudi Arabia did announce they produced their least amount of oil since 1991, but the US is producing record amounts, and Venezuela is coming back faster than expected and there still appears to be a surfeit of the stuff around. While EIA oil stocks had a very modest draw of 390K, gasoline stocks rose > 1mm barrels and there is no indication supplies are gone. However, while refinery runs in the US are consistently near 98% of capacity, the lack of refining in Russia and the Gulf continue to drive prices. I guess the question is how long can the IRGC withstand the very clear economic pressure the blockade and newer sanctions have imposed? I have no answers.

As to metals, yesterday saw sharp declines across the board as both interest rates and oil prices rallied, but this morning they are rebounding a bit (gold +0.5%, silver +0.5%) although copper is still under some pressure (-0.25%).

In the equity markets, in truth, despite all apocalyptic talk, the major US indices were only lower by about -0.6% across the board, not great but not devastating. Asia, however, had a rougher go of things with Tokyo (-1.9%), China (-0.8%) and HK (-0.6%) leading the way with most of the rest of the region also in the red (Korea -1.8%, Taiwan -1.6%, Australia -0.9%, etc.). But at some point overnight, things turned brighter as European bourses are higher by between 0.6% and 0.7% across the board with the only data release UK GDP and Production data, all coming in stronger than expected. Perhaps the idea is that if the UK can grow despite extraordinarily bad economic and energy policies, so can the rest of Europe! As to US futures, at this hour (7:30) they are higher by 0.6% across the board.

As we’ve already discussed bonds at length, it leaves us to the FX markets which continue to garner limited interest from the trading community. While the dollar is a touch firmer this morning, DXY +0.1%, if we use that as the proxy, over the past month, as you can see from the below chart, it has traded within a 1.5% range (98.50 – 100.00) and that is with a key piece of the index, JPY having shown a substantial move.

Source: tradingeconomics.com

Someone on X this morning was claiming that this market is setting up for a big move lower with many attendant impacts if that is to be the case, but while he is a very smart guy (Tavi Costa) whose views I respect, he is looking at a VERY long-term chart. Perhaps he is right, and I guess if we see major destruction in the bond market with yields exploding higher, that could be correct, but it is so hard to get excited about FX right now. It continues to be a background event.

In addition to the CPI data, we also see the preliminary Michigan Sentiment (exp 51.0) Survey but that’s it. My take on CPI is if the data is cool, it will have very limited impact, but if it comes in hot, we will see another wave of selling in bonds, and probably stocks, so an asymmetric outlook in my view.

Good luck and good weekend

Adf

Quite Spicey

Posted on July 27, 2026 by fxpoet

Though Friday things looked pretty dicey
With tech stocks then seen as quite pricey
New word that the bombing
Has ended was calming
And stock markets opened quite spicey

Of course, it can be no surprise
That oil’s now well off its highs
The dollar is slipping
Though yields are just dripping
As bond traders still agonize

President Trump changed his mind about continuing the recent bombing campaign against Iran over the weekend amid questions about alleged US munitions supplies. But whatever the reason, this was music to the risk markets with oil (opening -6.4%) falling sharply while equity futures (NASDAQ opening +1.25%) rebound from last week’s declines. Once again, headline risk remains the biggest risk there is in markets. Note the huge gap lower in the oil market early Sunday evening in the chart below from tradingeconomics.com

At this point, it is a fool’s errand to try to estimate where oil prices are heading going forward as the next headline is likely to be the key driver, and that is a complete unknown.

So, let’s turn our attention to some more fundamental questions that have been brewing in the background and are pretty complex. I want to start with a remarkable Substack piece I read this weekend which had a completely different perspective on the AI investment thesis than anything that I have seen anywhere else. And it is quite a persuasive piece. While I have linked it above, it is quite a long read, so the highlights are as follows:

The AI boom is not a tech boom; it is a credit driven real estate cycle
This is virtually identical to the run-up to the subprime housing crisis and GFC
The key to understand is the second derivative of growth, acceleration.
GroundBreaker’s (the author) thesis is that the second derivative on AI valuation has already rolled over and the future for AI stocks is pretty bleak, at least in the medium term.

Below are two charts from his Substack to help describe the issue:

This is a basic description of the movements of the underlying (blue line), its velocity (growth rate, yellow line) and its acceleration (the change in its growth rate, red line). As you can seem growth can still be increasing, but at a slower rate, and that’s the problem he highlights.

Below is a chart of OpenAI’s valuation metrics (remember it’s private so the values are episodic, not continuous, but the point is if the change in the rate of growth of the valuation metric starts declining, that is the break where things become a problem, i.e. they may not be able to finance their projected growth going forward.

And as you can see, it is already heading lower. This does not speak well to the future for OpenAI, and I would argue, the entire space, as many have made the case this is all Ponzi finance, meaning the funding cannot be repaid on cashflows, only on increasing valuations.

Now consider the subprime crisis where the problems started when the rate of housing price increases rolled over and all those 2-year teaser rates could no longer be financed at higher valuations. That’s when they all went bust! Here’s the thing; the 2^nd derivative rolled over in late 2006, the first hiccups didn’t happen until mid-2007 with SocGen closing some funds, Lehman didn’t go bust until September 2008 and the equity market didn’t bottom until March 2009. It can take a long time for this to play out, but beware the cycle, it could well repeat in AI linked investments.

So, there’s that to consider.

The other thing that I’ve been pondering is gold and its meaning within the financial markets. Unlike the AI discussion above, I want to discuss two very real sides to this story. On the one hand, the ongoing destruction of the value of fiat currencies by all major central banks’ policies is real. Money continues to get printed and inflation continues to rise debasing those fiat currencies. Adding to the problem is the massive government debt issuance which, if history holds, will be sopped up by those very same central banks, adding to the debasement. The search for a neutral reserve asset to replace US treasuries is real, but the transition will take a very long time, in my view. However, all this speaks to increased demand for the barbarous relic, and when that is priced in declining fiat currencies, a higher price. I think it’s a very strong argument and has been made by many, including this poet. After all, gold is often thought of as the ultimate inflation hedge.

So, what is the flipside? As I have written frequently regarding oil prices, we cannot ignore the market pricing and what it is telling us. Understand that I have been a gold bull for a long time and strongly believe in the long-term debasement concern. But as a long-time trader and market participant, it is very difficult for me to look at the below, long-term chart of gold and not think that there is a much further decline on the cards. Parabolic moves, historically, do not resolve by trading sideways for extended periods of time, they fall back… a lot!

While we have recently seen several parabolic moves in market prices, notably the NASDAQ and KOSPI, I want to highlight the last time the NASDAQ had a parabolic move, during the tech bubble in 1999-2000. The chart below is a logarithmic chart of the QQQ ETF. As you can see back in 2000 – 2002, it fell a very long way after the bubble burst, some 88%, a much larger move than during the GFC!

There is one other trading market, that while many may dismiss its meaning, I would contend is very representative of the way markets behave across all asset classes, Bitcoin. The below chart shows it from its beginning, and you can see a number of essentially parabolic moves higher, each resolving with a decline of at least 50% and at times more than 70%.

Source: coinmarketcap.com

My point is that gold shows all the signs of having peaked for a while, and it has ‘only’ fallen some 25% from its highs. From a trading history perspective, there is nothing that would seem to prevent a move down to $2800/oz or so, a 50% retracement from the high.

So, which is it? As I remain long gold in the personal portfolio, I have been a beneficiary of the long climb higher and would love to see it continue. And there is much to be said for the debasement theory. But both sides of this argument can be correct with the time frame the key differentiator. We could see a further short-term decline before a renewed upward move of significant magnitude. Much will depend on how global macroeconomics and economic statecraft plays out over the coming months/years. And this is why trading is hard! One last thing describing just how much things have changed regarding gold and sentiment around it, this headline in Bloomberg this morning is remarkable, Gold Climbs as Pause in Mideast Fighting Curbs Inflation Risk.

Ok, sorry for my rants, but a brief tour of markets show things are exactly as you would expect based on the reduction of tensions in Iran. Equity markets are higher around the world as per the below tradingeconomics.com screen shot, and don’t be fooled by Brazil, it hasn’t opened yet and there are no futures, so that was Friday’s performance.

As to bond yields, they too, are lower across the board as per the below Bloomberg.com screenshot. Canada, Mexico and Brazil markets are not yet opened, hence the lack of movement.

Oil has fallen further than when I started writing last evening with WTI (-8.2%) and Brent (-9.7%) both sharply lower. Regarding Brent, apparently there has been a resumption of flows through Kazakhstan which is helping even more there. Metals are higher (Au +1.1%, Ag +2.2%, Cu +0.9%), which is keeping with the latest theme. And finally, the dollar is broadly softer, as also would be expected given the movement in other markets. The two key exceptions here are NOK (-0.7%) which is clearly a reaction to the movement in oil prices and KRW (-0.8%) which actually started the session much stronger but has reversed. While I read a rationale about concerns over a Fed rate hike, given the movement in oil and yields, that doesn’t seem right. Rather, after a more than 6% appreciation over the course of the past 3 weeks, it seems more like a reflexive bounce in the dollar.

Source: tradingeconmomics.com

On the data front today, this morning brings Durable Goods (exp 2.5%, 0.8% ex-Transport) but that is all. I will go deeper tomorrow, and remember, the FOMC meets this week with the current pricing 33% for a hike, even after the decline in oil prices today. I remain in the no move camp but will discuss tomorrow.

And that’s more than enough.

Good luck

Adf

Discussing Their Plight

Posted on July 6, 2026 by fxpoet

Now, all eyes will turn to the chat
When Warsh and his minions, they sat
Round oak polished bright
Discussing their plight
‘Bout prices and jobs and all that

But since they met three weeks ago
Chair Warsh very clearly did show
His view that inflation
Was short in duration
And rate hikes were not apropos

It is getting increasingly difficult to maintain a hawkish Fed view as both the data and the Chairman are working against you. While we all enjoy the World Cup this week, arguably the biggest market related news will be Wednesday’s release of the Minutes from the last FOMC meeting. You may recall that in the wake of that meeting, interest rate hawks were in the ascendancy with an October hike fully priced and odds for a second, December, hike priced as well as you can see in the below CME table from June 24^th.

Now, in the wake of that meeting and the press conference, the combination of the dot plot showing half the committee expecting a hike this year and the lack of forward guidance along with the succinct statement explaining the Fed would achieve their 2.0% inflation mandate had many analysts expecting a serious tightening cycle upcoming.

But a funny thing happened on the way to the next FOMC meeting, still three weeks hence, the price of oil, and energy in general, accelerated its decline. Given how much effort was made to explain that the core inflation readings were heading higher because of the impact that energy has on everything, hence the need to hike rates, this has been an inconvenient outcome for the hawks. Add to that Chairman Warsh’s comments at Sintra, Portugal last week, regarding the easing of inflationary pressures as energy prices decline (oil -0.9% this morning) and futures traders have been adjusting their views pretty steadily as per this morning’s CME table.

While a hike is still assumed by year end, the second one has fallen by the wayside. Personally, as we continue to see inflation pressures subside alongside energy prices, I expect that not only will we not see a hike this year at all, but a cut by December is viable.

Adding to the downward bias on Fed funds futures was Thursday’s payroll report, where the headline number was softer than expected, although the Unemployment Rate did slip another tick to 4.2%. I think a key problem with using the Unemployment report as such a critical signal is the fact that since President Trump’s inauguration and the actual closing of the Southern border, as well as the deportation (by both the government and on a self-basis) of somewhere between 2.5 million and 3.0 million according to Grok, the old econometric models of what type of job growth was necessary to maintain solid economic growth are no longer terribly useful. If we throw in the dramatic changes to the economy on the back of the increase in AI as a tool and infrastructure investment, it becomes increasingly difficult to utilize the old models. Too, one of the main themes from several months ago was that AI was going to replace hundreds of thousands of jobs and unemployment would skyrocket, while now, those ideas are being rethought with many analysts now expecting AI will support more jobs. Perhaps, the best thing that can come of this change is that markets will no longer radically adjust based on an outdated statistic.

There is still a long way to go before the next FOMC meeting and I doubt that the many task forces will have come to any conclusions yet, but if energy prices continue to decline, and I couldn’t help but notice this WSJ article discussing the sudden glut of oil driving prices lower, and I am growing increasingly confident in my views.

Which takes us to the currency that most needs to see a more dovish FOMC, the yen (-0.6%). You may remember last week when the yen, after making yet another new low for the move, suddenly reversed course ahead of the July 4^thholiday. While there was no actual intervention, the discussion was that the MOF would no longer discuss their intentions ahead of any intervention and with a holiday weekend seeing reduced liquidity, many anticipated some action. Well, as you can see from the chart below, that idea has essentially been erased with the yen softening again and pushing back to those lows seen last week.

Source: tradingeconomics.com

Bloomberg ran an article this morning about a former Vice Minister from the MOF explaining his view that the yen was undervalued by 20% or so. If we look at the yen on a PPP basis, the IMF claims the value should be about 93-95 instead of the current 162+. The Economist’s Big Mac Index calls for 78.00, and by all accounts, visiting Japan is relatively inexpensive for most foreigners. In fact, I read that Japan was increasing the visa fees to try to discourage the massive amount of tourism as people around the world see it as a cheap destination.

Ultimately, the problem with the yen, in my view, remains that real interest rates remain deeply negative and the government’s spending plans continue to indicate massive deficits as far as the eye can see. While reduced energy prices are a boon, the yen was falling sharply long before the Iran conflict began. Policy changes of substance are required, and they are still uncomfortable for domestic politics. While the pace of the yen’s decline may slow, I still see it weakening going forward.

So, let’s briefly look at markets overnight before closing. Regarding the dollar, it is broadly stronger this morning with only BRL (+0.3%) finding any support despite their ignominious defeat to the Norwegians. But modest slippage across the G10 is the rule, -0.1% to -0.2%, while similar movement has been observed in the rest of the EMG space. For now, the yen remains the only interesting currency.

In the commodity markets, despite oil’s continuing slide, this morning the metals (Au -0.4%, Ag -0.6%, Cu -0.1%) are also under pressure, but that accords with the dollar’s strength. As long as the dollar remains bid, it appears the metals markets will have difficulty gaining traction. But if I am correct regarding the Fed and the market turning toward a more dovish view, I would look for the metals to head higher again.

In the bond market, Treasury yields (-3bps) are slipping as the market reopens after the holiday weekend, arguably following through on the softer payroll data. European sovereign yields are little changed to lower by -1bp amid a quiet market while JGB yields (+4bps) are the notable outlier, arguably as concerns rise over the weakening yen.

Finally, equity markets remain beholden to the semiconductor and AI trade and with the US having been closed on Friday, there was less information for the rest of the world. But this morning, NASDAQ futures (+0.9%) look like they are set to resume their march higher, dragging the S&P with them. But this follows a mixed to lower session in Asia (Tokyo 0.0%, China 0.0%, HK +1.1%, Korea -0.5%, India +0.7%, Taiwan -0.5%) as leadership was lacking. Not surprisingly, European bourses are also mixed this morning (Spain -0.7%, UK -0.2%), Germany and France both +0.1%) as the question of note is how much defense investment is going to be forthcoming from NATO and European nations and how much of that will be spent in Europe. Perhaps excitement in the US will help global risk appetite as the day wears on.

On the data front, it is a quiet week for numbers with just the below on the docket:

Today	ISM Services	54.0
Tuesday	Trade Balance	-$78.0B
Wednesday	FOMC Minutes
Thursday	Initial Claims	220K
	Continuing Claims	1810K
	Existing Home Sales	4.20M

Source: tradingeconomics.com

As well, we hear from three Fed speakers, Waller, Williams and Logan. Now it will be interesting to see if any of them start to discuss the lower energy prices and how that is likely to moderate their inflation concerns. If we do hear something like that, I expect the Fed funds table above will reflect that quickly. We shall see.

It is summer, and there is not much new to discuss. With the US playing Belgium tonight, all eyes will be there, and my take is we are not looking forward to a terribly exciting session today.

Good luck

Adf

Really Vexed

Posted on July 2, 2026 by fxpoet

Said Warsh, when I think of what’s next
For prices, I’m not really vexed
The narrative’s starting,
A new view, imparting
That lower, is what it expects

While futures have yet to adjust
The more this idea gets discussed
The more it’s presumed
The hike story’s doomed
While negative vibes turn to dust

Fed Chair Warsh was in Sintra, Portugal yesterday on a panel with Madame Lagarde, BOE Governor Bailey and BOC Governor Macklem answering questions about monetary policy, forward guidance, and the future of economies as they are impacted by AI. Now, despite Mr Warsh’s adamant explanation at the last FOMC presser that forward guidance was dead, that didn’t stop the interviewer from asking about the Fed’s likely future moves repeatedly. This is getting tiresome.

Nonetheless, here is the comment I believe was most important. “Expectations of future inflation [over the last four weeks] have come down. Inflation risks have come down,” and anyone expecting the Fed would tolerate inflation running above its 2% goal “would be disappointed,” he added.

So, the first thing I did was look at the CME’s probability matrix based on its Fed funds futures contract, and there is no evidence to support Warsh’s comments there. As you can see from the below table, it looks virtually identical to what we have seen over the past week, a hike in October and a 40% chance of a second one in December.

Now, I will cut him some slack because, while I agree with him and expect that we will see lower inflation readings this month, simply on the back of the decline in energy prices, the rate hike narrative has been building for a while and has many adherents. My take is that the above table will not change very much until we have seen the two key data points this month, today’s NFP and CPI which is due to be released on Bastille Day.

While I’m on the subject, here is the current view of today’s median expectations according to tradingeconomics.com

Nonfarm Payrolls	110K
Private Payrolls	110K
Manufacturing Payrolls	3K
Unemployment Rate	4.3%
Average Hourly Earnings	0.3% (3.5% Y/Y)
Average Weekly Hours	34.3
Participation Rate	61.7%
Initial Claims	220K
Continuing Claims	1810K
Factory Orders	-1.8%
-ex Transport	0.4%

Yesterday saw a slightly softer than expected ADP employment number, 98K vs. the 113K expected and 122K last month, but as you can see from the chart below, comparing ADP to NFP, while the trend remains similar in both, there are an awful lot of wiggles in any given month.

Source: tradingeconomics.com

As things currently stand, the market’s strong Keynesian belief is if NFP is strong, that will be inflationary although it is quite clear that Chairman Warsh does not adhere strictly to that viewpoint (another reason I like him) as he anticipates significant productivity enhancements going forward on the back of AI adoption. But my point is, if we see a strong print this morning, I would look for the market to price more aggressively for a rate hike. I guess we’ll find out shortly.

In the meantime, let’s see what happened overnight. Starting with commodity markets, oil (-1.5%) continues to slide regardless of the group of doomporners who insist that we are about to run out of oil, or that Iran now controls the Strait of Hormuz and will kill the global economy. In fact, from a technical perspective, we have filled the gap that opened back on March 2^nd, the first day markets were open after the conflict began.

Source: tradingeconomics.com

My question for all those who remain certain that we have merely delayed oilmageddon is, how low will prices need to fall before they are willing to admit they misread the reality of the global oil market? And, with oil sliding, precious metals (Au +0.8%, Ag +1.1%) are finding support. It seems to me there is a lot of wood left to chop in the PM market, but I maintain my longer-term bullish outlook.

Turning to the bond market, yields rose again yesterday in the US (10-year +6bps) and have edged higher again this morning by 1bp. My sense is this is based on the idea that Warsh’s final comment from above about tolerating above-target inflation has the hawks all bulled up. Perhaps, Sintra helped the hawkish case elsewhere as well as European sovereign yields are all higher this morning by between 4bps and 5bps and JGB yields overnight jumped 8bps.

But there is a kink in the narrative now as despite this perceived hawkishness in the bond market, the FX market clearly heard a different tune. This is clearest in USDJPY, my favorite recent discussion, as you can see in the chart below. The yen jumped 0.7% ostensibly on the idea that Warsh’s comments about reduced inflation expectations implied a less hawkish Fed, despite the bond market reading the comment about unwillingness to tolerate inflation as a more hawkish Fed.

Source: tradingeconomics.com

But it’s not just the yen. The dollar is lower vs. virtually all its counterparts in both G10 and EMG spaces. So, the question you need to ask yourself is, who do you believe? Bond traders or FX traders? Historically, observers call bond investors/traders the ‘smart’ money, but they have made plenty of mistakes in the past. And the thing about FX traders is they seem to be far nimbler. Of course, you know I am an FX guy, and as it happens, I think this is the market that has it right.

Finally, equity markets had a mixed performance in Asia (Japan -2.5%, China -3.0%, Korea -7.9%) as tech stocks have been feeling some pain, but we did see gains in HK (+0.8%), India (+0.8%) and Singapore (+1.1%) as a counterbalance. That Korean number was impressive, but mostly what we are seeing there is serious volatility as the KOSPI is even more concentrated than the NASDAQ with just two companies, Samsung and SK Hynix, representing about 40% of the index. If they have a bad day, the index does as well.

In Europe, though, things are brighter this morning with gains across the board (Germany +0.9%, Spain +0.9%, France +0.8%, UK +0.5%) although there is no obvious catalyst for the move. There was no data of note (Eurozone Unemployment fell to 6.2% but that seems unlikely to be the driver) so perhaps the very fact there are no tech companies in Europe and tech is what is currently under pressure makes Europe seem a bargain. As to US futures, ahead of all the data this morning, they are little changed.

And that’s really it for today. As tomorrow is a holiday, there will be no poetry, so I wish you all a wonderful holiday weekend. 3 Cheers for the USMNT after their Round of 32 victory last night (alas it was on way too late for me to watch, but we will all be cheering on Monday night.

Good luck and good weekend

Adf

Peace Was in Sight

Posted on June 29, 2026 by fxpoet

The weekend saw missiles in flight
As both sides continued the fight
But just ere the open
The market put hope in
The idea that peace was in sight

So, here we are first thing today
And focus has moved far away
We’re back to AI
And pie in the sky
As stocks, once again, make more hay

Much has been made of the fact that President Trump is hyper aware of financial markets and seeks to ensure that whatever is happening in the world, it happens on weekends so that by the time markets reopen, the situation appears far less dire, hence less need to sell stocks. This weekend is a perfect example as Friday after the close, it was announced that the US had responded to the several Iranian attacks on ships in the Strait of Hormuz last week with significant force. The early punditry on Friday night and Saturday was that when markets reopened, the recent decline in oil prices would reverse as that has been predicated on a more lasting peace. But then, last night shortly before futures markets opened, there were announcements that the US had finished its response and that the peace talks were back on under the guise of the 60-day ceasefire.

I have to say, though, it almost appears as if Iran is in on the joke. After all, if not, wouldn’t they try to force Trump’s hand during market hours? Just asking. Whatever the case, the situation as we wake up this morning is that oil (+0.8%) has edged back higher near $70/bbl but certainly doesn’t have the feel of breaking out higher. Meanwhile, equity markets are generally positive and have been overnight while bond yields and the dollar are little changed. in other words, there’s not much happening this morning.

In reality, it is not that surprising that things are quiet. It is summer and summer markets are typically somewhat less active. As well, away from the uncertainties of the Iran conflict, economic activity seems to be ticking along pretty well. Arguably, the biggest story remains AI and both its potential impact on workers and the economy as well as the questions about its ability to generate sufficient revenue to repay the hundreds of billions of dollars being spent on it. But those are longer-term stories, not day-to-day.

Which takes us to this morning. Frankly, I don’t think there is an interesting market related them right now. Instead, we have much time-biding until the next big thing.

Let’s start with commodities as oil continues its multi-month decline from the early April peak. it remains very difficult to look at the below daily chart and think, damn, oil is about to run away higher. At least for me.

Source: tradingeconomics.com

There are still numerous analysts who maintain that the drawdown of reserves is going to come back and haunt the market, driving prices much higher as inventories fall and tank bottoms are reached. And I am sure they earnestly believe those outcomes are ordained. But the relative wisdom of market prices disagrees.

Remember back when this all started, there was another point that was made by these same analysts, that fertilizer shortages would be manifest and food prices would rise much higher. The story was that the closing of the Strait would reduce the ability of Qatar to produce and ship LNG and that was a critical input into the making of Urea. Let me show you the price chart for Urea.

Source: tradingeconomics.com

While it certainly rose initially, apparently there is sufficient urea around to continue with agriculture as we know it. Again, much of the initial fear seems to have been misplaced. I do not know if that is because analysts didn’t really understand the way these markets operated, or because they have models that they have used for years, and those models are no longer fit for purpose. My observation is that many analysts try to determine the price trends by looking at their understanding of both supply and demand of a given commodity. But I might argue that the price is what defines both supply and demand, and that at given prices, those two curves adjust to make the system work. Think of it as price is the independent variable, not supply/demand.

Moving on to the metals markets, they remain under pressure this morning with both gold (-1.3%) and silver (-1.9%) unable to find support, especially the latter. Copper (-0.3%) is holding up better and I continue to believe that all three will fare well over time, but not right now.

In the equity markets, Friday’s nondescript US markets were followed by more strength (Tokyo +0.15%, HK +1.6%, China +1.2%, Australia +0.7%, Taiwan +1.0%) than weakness (Korea -0.2%, India -0.5%, Indonesia -1.3%) in Asia. The big news overnight was the South Korean government supporting a massive semiconductor investment by the two big Korean firms, SK Hynix and Samsung, to build four more fabs. In Europe, though, things are less positive with Germany’s unchanged performance leading the way although the declines elsewhere (UK -0.2%, France -0.3%, Spain -0.4%) are hardly devastating. We ought not be surprised that US futures are higher this morning as I type (7:25) led by the NASDAQ (+0.9%) as the AI/semiconductor theme continues.

Bond markets continue to do very little with yields essentially unchanged on the day in Europe or the US. 10-year Treasury yields are currently 4.37%, well off the highs seem a month ago near 4.70% when there was much discussion about a breakout higher. But look at the below longer-term chart of the 10-year Treasury yield and tell me that anything substantive has happened in the past 3+ years. Since yields rise alongside the 2022 inflation surge, we have seen very little net movement.

Source: tradingeconomics.com

Finally, the dollar is a bit softer this morning but is clearly not the focus today. I continue to read analyses about Chairman Warsh and what he is going to do and why he will not be able to achieve his goals. The implication is that either he will need to be ultra hawkish, raise rates quickly and the dollar will soar, or he will wind up with QE 5 or 6 or whatever number we are on, and the dollar will collapse. My personal view is neither of those scenarios will play out. As I wrote in the wake of his first meeting, I expect inflation data will ease along with the recent decline in energy prices, and he will be able to do nothing without consequences as he works to change the way things work there. In the meantime, the dollar will remain supported by real investment flows.

On the data front, even though it is a holiday-shortened week with markets closed Friday for July 4^th, we get a lot of data.

Tuesday	Case-Shiller Home Prices	0.8%
	Chicago PMI	60.0
	JOLTS Job Openings	7.28M
	Consumer Confidence	94.2
Wednesday	ADP Employment	113K
	ISM Manufacturing	54.0
	ISM Prices Paid	79.0
Thursday	Nonfarm Payrolls	110K
	Private Payrolls	115K
	Manufacturing Payrolls	3K
	Unemployment Rate	4.3%
	Average Hourly Earnings	0.3% (3.5% Y/Y)
	Average Weekly Hours	34.3
	Participation Rate	61.7%
	Initial Claims	220K
	Continuing Claims	1825K
	Factory Orders	-2.1%
	-ex Transport	0.4%

Source: tradingeconomics.com

Obviously, all eyes will be on the payroll data on Thursday. But Chairman Warsh will be at Europe’s version of Jackson Hole, in Sintra Portugal and speaking at 9am Wednesday morning. It will certainly be interesting to hear what he has to say there.

It doesn’t seem like there is much about which to get excited today, or tomorrow frankly. So, Warsh and then NFP will be this week’s story absent another major flareup in the gulf.

Good luck

Adf

Not Existential

Posted on February 27, 2026 by fxpoet

The story that has the most traction
Continues to be the reaction
To stories AI
Will force firms to try
To profit from worker subtraction

The tech nerds see naught but potential
For robots plus, workers, essential
But history’s shown
Employment has grown
And new tech’s threat’s not existential

Block, the payments processing company announced during its earnings call that it would be laying off 4000 employees, nearly half its workforce, by the end of Q1 this year. This was not a response to weak performance, but rather the founder, Jack Dorsey’s, belief that AI has reached the point where his company can be more effective with much fewer staff. Of course, this is the entire AI argument compressed into a single event.

Recall Monday’s note and market response to the Citrini Research article that explained one scenario from AI adoption would be massive layoffs, a recession and a major stock market decline by 2028 as companies eliminated people from their processes. This brought about a tremendous amount of back and forth with economists and historians explaining that every major technology creation (e.g. electricity, the automobile, the internet) was both disruptive but instrumental in expanding economic activity. This morning’s WSJ had a nice summation by Greg Ip of the entire discussion.

It strikes me that this discussion is only beginning and we are going to hear from proponents of both sides for many months to come, although I imagine it will not be the top story every day. As I consider the issue, I think back to John Maynard Keynes forecast in 1930 that the rapid advancement of technology would lead to a 15-hour workweek as all our needs could be met with much less effort. Obviously, that was not his best forecast. Rather, Jevon’s Paradox comes to mind, which states that as technology increases the efficiency with which a resource is used, the total consumption of that resource increases, it doesn’t decrease. In this discussion, that resource is human labor.

FWIW, my view is AI is a remarkable tool for certain things but is neither sentient nor capable of breakthroughs on its own. It is a wonderful research tool, and a wonderful computer programming tool, but as my experience taught me, people like to deal with people, not with machines, even when there are machines available to do the job. Economic dislocation in certain areas is likely going forward, but not collapse, at least not because of greater usage of AI tools.

I highlight this because, while Block’s stock price rallied sharply in the aftermarket, up more than 20%, US futures are lower this morning by -0.5% or so as there continue to be fears about the dystopian outcome. Remember, Nvidia had terrific earnings and the stock fell as well. Of course, this could also be a response to the fact that the price of many equities is extremely rich on a P/E basis or a P/S basis, and we are simply seeing a little reversion to the mean.

At any rate, as no war in Iran has begun and there have been no other changes on the geopolitical map, let’s tour markets to see how things look as we head into the weekend and month end.

Yesterday’s desultory equity performance in the US was followed by a mixed picture in Asia with the Nikkei (+0.2%) and Hang Seng (+1.0%) closing the month higher, but China (-0.3%), Korea (-1.0%) and India (-1.2%) all falling. Malaysia (-1.4%), too, stands out for a poor session but the rest of the region was mixed with much smaller moves. Given the tech heavy makeup of most of these nations’ bourses, I suspect that volatility will be the main feature going forward. As to Europe, it’s a sleeper with continental bourses all +/- 0.2% or less while the UK (+0.35%) managed a modest rally after a by-election resulted in PM Starmer’s Labour party coming in 3^rd place in a seat they have held for 100 years. This appears to be adding pressure on Starmer to do something, or on Labour to remove him, but a key concern is they will move further left, something which I doubt will help the UK economy or stock market.

Turning to the bond market, yields are declining all around the world with Treasuries slipping -5bps yesterday and another -2bps this morning, now below the 4.00% level. In fact, a look at the chart below shows a pretty strong trend lower in yields.

Source: tradingeconomics.com

But we saw European sovereign yields slide yesterday and continue lower by another -1bp to -2bps this morning and last night, JGB yields fell -4bps and showing a very similar trend to Treasury yields as per the below. It seems that concerns over too much debt issuance driving yields higher have been put on the back burner for now.

Source: tradingeconomics.com

In the commodity space, it appears that Iran fears are making a comeback as oil (+2.1%) has rebounded sharply from the levels seen in the wake of the massive inventory build I described yesterday morning. It sure looks like somebody bought a lot of oil yesterday morning at around 9:45am, although I have no guess as to who it would have been.

Source: tradingeconomics.com

Interestingly, the news from Geneva is that the talks are going to continue next week, so while both sides are disputing the other’s version of things, the fact they are still speaking is a huge positive. I fear given the military buildup, some type of action will occur, but we can be hopeful.

Meanwhile, in the metals space, gold (+0.1%) is little changed for the past several sessions, consolidating just below the $5200/oz level. Whatever the narrative may be here, regarding central bank buying and the end of the dollar system, this tells me that the market is tired and needs some R&R before moving forward. I remain bullish, but not today.

Source: tradingeconmics.com

Silver (+1.7%) is showing very similar price action to gold, albeit with a bit more daily volatility. The story here about a short squeeze for COMEX delivery is fading from the FinTwit feeds, but the structure remains not enough of the stuff for industrial usage going forward.

Finally, the dollar, this morning is, net, doing very little. But there are two stories to note. The first is CNY (-0.2%) where the PBOC changed its risk reserve rules for foreign exchange holdings for Chinese banks, reducing the required reserve to 0% from 20%. In practice, this means that Chinese banks can run forward positions without a capital charge and allows them to be more competitive pricing forward sales of CNY for local hedging counterparts. Obviously, this is a huge adjustment and speaks to the fact that they must be getting a bit uncomfortable with the speed with which the renminbi has been rising over recent months. Ironically, there was a Bloomberg article highlighting how options traders were paying up for 6.50 CNY calls/USD puts anticipating further CNY strength. Perhaps the PBOC didn’t like that!

The other story is from Hong Kong, where the currency is usually not an issue as it is pegged in a very tight band to the USD, allowed to trade between 7.75 and 7.85. The HKMA (HK’s central bank) is committed to buying and selling HKD as necessary to maintain that band. This has been a key feature of Hong Kong’s financial attractiveness for the past decades. The way this operates is there is an exchange fund that is designed to be used only for FX intervention, and it has ~HKD 4 trillion in balances (~$510 billion) which, given their GDP is only $400 billion or so, seems like plenty. Well, as always seems to be the case, the government there is proposing taking some of that money to use for financing a government project, a technology hub being built, and since they don’t want to raise taxes, they thought raiding that fund would be the answer. The concern is the precedent it sets as if that goes through, what is the next project that will be determined to need the funding. If we know one thing about governments it is that if they find a pot of money they can tap to spend more without raising taxes, they are going to do it! The amount in question is a small fraction, just $19 billion, so would not likely impact the HKD peg. But this is something to watch as it will not be a positive if we see this a second time.

Otherwise, NOK (+0.5%) is gaining on oil’s gains while KRW (-0.5%) is slipping on the equity market decline and foreign sales. Beyond that, nothing.

On the data front, this morning brings headline PPI (exp 0.3%,2.6% Y/Y) and core (0.3%, 3.0% Y/Y) as well as Chicago PMI (52.8). Regarding the last, a look at the chart below shows that last month’s reading was the highest since November 2023 and is arguably a good sign that we are seeing increased industrial activity in the middle of the country. Recall, the Chicago number is often seen as a precursor for the economy as a whole.

Source: tradingeconomics.com

And that’s it. Given equity market performance this month has been flat to slightly negative, it seems unlikely there will be large rebalancing flows. I continue to look for quiet markets although the trend in bonds does seem like it is building up some steam.

Good luck

Adf

A Future, Dystopic

Posted on February 24, 2026 by fxpoet

On Monday, an analyst wrote
His thoughts how AI might promote
A future, dystopic
Though somewhat myopic
And offering no antidote

Although prior views had explained
That once AI’s suitably trained
Most labor would suffer
And lacking a buffer
Folks’ politics would be quite strained

This is the research report that got tongues wagging on Wall Street yesterday and the fear it allegedly engendered was impressive. In essence, it said that by 2028, AI would replace vast swaths of the labor force, notably white-collar workers, and that it would lead to a massive recession, and more importantly to the Street, a significant decline in stock prices. The back and forth on X was amusing all day as there were those who hyperventilated over the coming tragedy, and those who fought back.

It is important to understand this was not a prediction, per se, but one of the scenarios they came up with, although clearly the most dramatic one. It certainly gained a lot of clicks and notoriety, and let’s face it, isn’t that the idea these days?

Given that the tariff story has now become too complex for anyone to truly understand, and while we all await the denouement in Iran, this appeared to be the best thing to occupy time amongst the trading community. Personally, I spent the entire morning shoveling snow, but then, I’m no longer a trader.

The upshot is that the major indices all fell more than 1% while gold and silver rallied and bond yields fell. Fear was palpable. But will it last?

Last month’s yen rate checks
Came not from Ueda-san
But Bessent, himself

The other story of note was almost an aside, although it helps outline recent movement in USDJPY. We all remember last month when the yen rallied very sharply during a Friday session in NY as word got out the Fed was “checking rates”. As a reminder, this is when the Fed calls out to bank FX desks and asks for prices, although doesn’t actually deal. However, the signal is strong as all the banks recognize the opportunity for intervention, and the news quickly spreads through the market with the effect you can see in the chart below. During the next three sessions, the yen rallied 4.5%.

Source: tradingeconomics.com

During my career, I had never heard of this activity driven by anyone other than the BOJ, as they were always the most concerned with the yen’s value. Certainly, they may have been responding to US pressure, but it was always their call. Now the news comes out that Treasury Secretary Bessent did this on his own last month, a clear indication that the administration is not happy with an over weak yen. This sets an interesting precedent regarding who controls any given currency. Now, I doubt we will see this type of thing frequently, but we need to keep it in the back of our mind. Meanwhile…

Seems Takaichi
Told Ueda, higher rates
Are not helping her

Last night, in a surprise to many in the market, news of a meeting between PM Takaichi and BOJ Governor Ueda resulted in Takaichi-san imploring Ueda-san to leave rates alone, rather than continue raising them. Higher rates are not helping her growth agenda, and I imagine her belief set is that if the yen weakens too far, she can always intervene, and now that we know about Bessent’s actions, she can count on the US to help. But I cannot observe this and think anything other than the market is going to test 160 and do so before long. One poet’s opinion.

Ok, let’s see how markets traded overnight. First off, last night was the first that all of Asia was back at work so overall liquidity was improved. However, the results were mixed with Tokyo (+0.9%) ignoring the AI driven US rout while the Hang Seng (-1.8%) fell right alongside the US. China (+1.0%) rallied in its first day back but consider that simply offset the decline of their last session and, like most other markets, it remains relatively unchanged over the period. Meanwhile, the tech sense was strong with Korea (+2.1%) and Taiwan (+2.75%) both up nicely while India (-1.3%) suffered under the AI fear umbrella. Elsewhere in the region, there was no pattern of note with both gainers and losers.

In Europe, the largest markets (UK, Germany and France) are basically unchanged this morning while both Spain (-0.7%) and Italy (-0.4%) are under some pressure. There is talk of tariff issues, but I’m not sure why only those two markets are taking the heat. As to the US, at this hour (7:00), all three major indices are higher by about 0.2%.

In the bond market, after a -4bp decline in Treasury yields yesterday they are unchanged this morning while European sovereigns are seeing yields slip -1bp across the board. Too, JGB yields (-2bps) have continued their slow descent as it appears investors have acclimatized to the risks of Takaichi-nomics. I think we will have to see inflation figures there to get a better sense. Regarding Treasury yields, I’m not sure I can explain why I feel this way, but given how bearish sentiment is for bonds, (leveraged players are short >1 million futures contracts), it feels to me like we could see a short-term continuation of the recent rally with yields heading back to test the 3.8% level at least. I understand both the fiscal argument and the technical argument (see long-term chart below) but neither rules out a short-term rally to inflict pain. After all, that is what markets do best! (full transparency, I bought some June TLT call spreads yesterday, so I am talking my book!)

Source: finance.yahoo.com

In the commodity markets, oil (+0.3%) continues to hold its recent Iran inspired gains as the world awaits the outcome of Friday’s meetings between the US and Iran. I have no insight as to the potential outcome here other than what I read, but it does seem like there will be some type of military action as I do not see Iran ceding anything. As to the precious metals, gold (-1.0%) is giving back yesterday’s gains but remains in its recent uptrend after the end-January crash, although it has yet to regain the old highs. I imagine this will take more time, but it also seems quite likely to happen. This is still a quite bullish chart in my view.

Source: tradingeconomics.com

Interestingly, silver is little changed this morning as there continues to be much talk of delivery questions at the COMEX given the apparent lack of available ounces relative to outstanding contracts. My take is things will get rolled as they usually do, but if not, beware a major spike higher on Friday!

Finally, the dollar continues to be the least interesting space there is with today’s JPY (-0.8%) move the exception that proves the rule. Having already touched on that situation, there is literally nothing else to describe in either G10 or EMG currencies as +/-0.15% describes the entire session.

As to data this week, here’s what we have coming:

Today	Case Shiller Home Prices	1.4%
	Consumer Confidence	87.0
Thursday	Initial Claims	216K
	Continuing Claims	1872K
Friday	PPI	0.3% (2.6% Y/Y)
	-ex food & energy	0.3% (3.0% Y/Y)
	Chicago PMI	52.5

Source: tradingeconomics.com

In addition to this bit, we hear from seven more Fed speakers across nine venues, but I still don’t think anybody cares. The market has priced out any rate cuts before Powell leaves, although there is still one cut priced for the year, expected in October.

Frankly, it is not surprising that markets have calmed down so much given how much activity we saw in January. As I wrote then, markets have a great deal of difficulty maintaining high volatility as traders and investors simply get tired and tune out. We will need a new catalyst to get things going, either an attack on Iran or some new China news in my view. Tariffs are no longer interesting, and frankly I think Iran and AI have both lost some pizzazz. Maybe the UFO releases will get things going again!

Good luck

Adf

Yesterday’s Trauma

Posted on February 13, 2026 by fxpoet

The story is yesterday’s trauma
As risk assets traded with drama
For stocks, it was news
AI could abuse
More sectors, that triggered the bomb-a

For gold and the metals, however,
It seemed an alternative lever
A bear raid, perhaps
Or filling chart gaps
No matter, twas quite the endeavor

Which leads to today’s CPI
Where narratives that with AI
Deflation is coming
As all jobs but plumbing
We’ll no longer need to apply

Let’s start with this morning’s CPI data as in some ways, I feel like that is a key part of the overall market discussion regarding yesterday’s dramatic declines. Expectations are for both Core and Headline prints of 0.3% M/M and 2.5% Y/Y. If we feed those numbers into the current narrative, the implication might be that the Fed is continuing to see a slowdown here and it would open the door to further rate cuts. Remember, despite the comments of two Fed speakers earlier this week, Logan and Hammack, the most recent information we have is that the neutral rate is believed to be 3.0%, a full 75bps lower than the current Fed funds rate. Interestingly, if we look at the Fed funds futures market, it shows that even after yesterday’s abysmal Existing Home Sales data (-8.4%), the probability of 3 cuts doesn’t hit 50% until the end of 2027!

Source: cmegroup.com

Remember, too, that the payroll report was strong on Wednesday, but that major annual revisions took much of the shine off that. And of course, we cannot forget that since everything is political these days, certain FOMC members who dislike the President may be against rate cuts simply because the President wants them. The point here is that the appearance of pretty solid economic activity combined with gradually decreasing inflation could argue for rate cuts but could also argue to leave things as they are since they seem to be working. And let’s face it, the Fed doesn’t really know anyway, nor do any of us.

Which takes us to the broader narrative about what is driving stock market activity and why we saw such dramatic declines in the US yesterday, and pretty much everywhere else overnight. It appears the proximate cause is the idea that recent AI announcements have indicated that there are entire service industries that may be destroyed because AI will serve as an effective replacement for their customers. We have seen it for law firms, accountants and consultants and now logistics and software companies are under the gun.

Adding to the narrative is Elon Musk, who continuously claims that AI and robots will replace virtually all human labor and create enormous wealth for us all while driving prices ever lower. The flip side of that claim is that throughout history, every major technological advance, while initially destroying jobs in the areas it was used, resulted in more, and better paying, jobs to help advance the overall economic situation. Of course, historically, these changes took at least a generation, if not several to play out, while things appear to be happening a bit faster this time.

I have not done a deep dive on AI so take this for what it’s worth. I use Grok as it is convenient for me given I have X open on my computer all the time. I use it for quick research as it responds to my poorly worded questions with the information I seek and, happily, cites its sources. But I am looking for data questions (e.g. the GDP of China or the size of European holdings of Treasuries) and I have never even considered using it to write my poetry. Is it ready to make intuitive leaps in thought? Maybe, but that seems a stretch. As with all computers, its advantage over the human brain is its ability to ‘brute force’ a solution by making so many calculations in such a short time that no human can match. However, my take is breakthroughs have come from intuitive leaps from one topic to another, not from simply doing more math on the same topic. And it is not clear to me that AI programs, as they currently exist, are intuitive.

Of course, for our purposes, it doesn’t really matter right now if AI is that capable or not, it only matters if investors and traders believe that to be the case and invest accordingly. That was yesterday’s story, as well as well as the story at the beginning of last week, at least based on the way the NASDAQ traded as per the below chart.

Source: tradingeconomics.com

We had six different significant drawdowns within a given hour since the end of January, and virtually all were described as a consequence of some industry sector being decimated by AI. The thing is, valuations are pretty high in the tech sector (the area most likely to be hit) and it may simply be that investors have decided to sell the rich stuff and buy cheap stuff instead, like defensives and materials companies. Just a thought. But be prepared for a lot more of this narrative about AI eating some other company’s/industry’s lunch as we go forward.

Ok, let’s look at the overnight now. First, remember, China is going on holiday all next week, and we will see much less activity from Asia accordingly. But last night, Asia basically followed the US lower with Japan (-1.2%), HK (-1.7%), China (-1.25%) and Australia (-1.4%) headlining. India (-1.25%) and Singapore (-1.6%) also suffered and you are hard pressed to find any markets that rose there. As this was very tech focused, it should be no surprise. (PS India is also suffering on AI as much of the business that had been outsourced to India could well be replaced by AI.)

In Europe, too, red is today’s color, and not simply because they lean more communist every day. While tech is not a major part of the markets there, watching Italy (-1.5%), Spain (-1.0%), Norway (-1.1%) and Greece (-2.1%) all slide sharply tells the story, I think. As it happens, France (-0.35%) and Germany (-0.1%) are the continental leaders and the UK (+0.1%) is the only market of note showing gains at all. As to US futures, ahead of the data at this hour (7:30) they are softer by -0.2% across the board.

In the bond market, yesterday saw Treasury yields slip -4bps after the Housing data and this morning, they have recouped just 1bp. European sovereign yields are all lower by between -1bp and -2bps as data releases continue to show a ‘muddle-through’ economy rather than one either growing strongly or falling sharply. We did hear from ECB member Kazaks, telling us that the euro’s strength over the past year could have a negative impact on the economy there, implying the ECB may need to ease further. Meanwhile, JGB yields (-2bps) continue to demonstrate virtually no concern about PM Takaichi’s plans for unfunded fiscal expansion.

Metals markets were the other noteworthy place yesterday with some very dramatic declines happening simultaneously in both gold and silver just after 11:00am. (see below) My friend JJ who writes Market Vibes, explained last evening that the timing was impeccable as London had closed and the US is the least liquid metals market around, so if a large speculator was seeking to drive prices lower, that was when to do it. And somebody did!

Source: tradingeconomics.com

But that was then, and this is now. As you can see from the chart, the market is already rebounding with gold (+1.0%) and silver (+3.2%) simply demonstrating that they remain incredibly volatile. In truth, this was the best take I saw on the subject yesterday.

Turning to oil, President Trump indicated that talks with Iran may go on for weeks, so it is unlikely that things will combust there for a while. At the same time, the IEA continues to try to convince everyone that peak oil is here and there is a huge glut, but net, Texas Tea slipped -2.8% yesterday and is lower by another -0.35% this morning.

Finally, the dollar…well nothing has changed. the DXY (+0.1%) is clinging to 97 with no impetus to move in either direction. JPY (-0.4%) may be softer this morning but is far enough away from 160, the perceived intervention level, that nobody cares. AUD (-0.6%) slipped on the weak commodities pricing, although remains near its highest levels in three years as the RBA turned hawkish last week. We are also seeing weakness in the EMG bloc (KRW -0.4%, ZAR -0.5%, CLP -0.6%) with yesterday’s tech and metals sell-offs the proximate drivers. The narrative remains that the dollar is set to collapse, but I still don’t see it. Maybe I’m just blind. I cannot get past the economic growth outperformance and inward investment plans, as well as the need for dollars to continue the global USD debt flywheel as the key demand points.

And that’s really it. Volatility is with us and likely to stay for a while. This is a global regime change with respect to economic statecraft rather than the previous rules-based order, and frankly, nobody really knows how it’s going to ultimately play out. This is why gold remains in demand, because history has shown it has maintained its value on a purchasing power basis for millennia, whatever the terms of the relevant currency may be. But in the fiat world, I’m waiting for someone to make a better argument for something other than the dollar over time.

Good luck and good weekend

Adf

Cracks Have Shown Through

Posted on November 7, 2025 by fxpoet

A shift in the narrative view
On AI has started to brew
What folks had thought certain
From behind the curtain
Seems like, now, some cracks have shown through

For stock markets, this is bad news
‘Cause AI has been the true fuse
Of recent price action
And any distraction
Could well, bullish thoughts, disabuse

While equity markets around the world continue to trade near record highs which were set just weeks ago, there has been a subtle change in the narrative, at least based on my perusal of FinX. Although there are still many in the ‘buy the dip’ camp who strongly believe that it is different this time and AI is the future, there has been an increase in the number of voices willing to say that things have gone too far. One of the stories getting a lot of press is the fact that Tesla’s shareholders voted to give Elon Musk a pay package that could amount to $1 trillion if the company meets its milestones over the next 10 years, including having the company’s market cap rise to $8.5 trillion from the current $1.5 trillion. This certainly has a touch of excess attached to it.

But more broadly, I couldn’t help but notice this graph, originally created by the Dallas Fed, but more widely disseminated by the FT showing the potential future of AI’s impact on humanity. Under the standard of a picture is worth a thousand words, I might argue the information in this picture falls some 985 words short. Rather, they simply could have said, ‘AI could be amazing, it could be catastrophic, or it might not matter at all.’

However, aside from the inanity of this chart, and more importantly for those paying attention to markets and their portfolios, things look a bit different. There has been a lot of discussion regarding the everything bubble which has been led by the massive increase in value of the Mag7 stocks. Recently, it set some new valuation records with the Shiller CAPE (Cyclically Adjusted Price Earnings) ratio now trading at its second highest level of all time, at 41.2, exceeded only during the dotcom bubble of 2000.

Source: @DavidBCollum on X

Added to this is the fact that only about half the companies in the S&P 500 are trading above their 200 day moving averages, a key trend indicator, which implies that the uptrend may be slowing, and the fact that we have had seven down days in the past eight sessions (and US futures are lower this morning by -0.2% as I type at 7:15) indicates that perhaps, a correction of some substance is starting to take shape.

Source: tradingeconomics.com

As of this morning, the S%P 500 is merely 3% below the highs seen on October 29^th, so just a week ago. The conventional description of a correction is a 10% decline, and a bear market is a 20% decline. I am not saying this is what is going to happen, but my spidey sense is really starting to tingle.

Source: giphy.com

Remember, I’m just a poet, and an FX one at that, so my takes on markets are just one poet’s views based on too many years in markets. This is not trading advice in any way, shape or form. But what I can say is, be careful with your investments, things are changing.

So, let’s move on to the overnight session to see how things played out following the selloff yesterday in the US. Let me say this, it wasn’t pretty. Pretty much all Asian markets were lower to end the week led by Korea (-1.8%) which has seen its market race higher than the NASDAQ this year, but there was weakness in Japan (-1.2%), China (-0.3%), HK (-0.9%), Taiwan (-0.9%) and Australia (-0.7%) with most other regional exchanges flattish to lower by -0.5%. Given the tech story is critical to Asia overall, if that is starting to falter, we can expect these markets to slip as well. Too, there was news from China showing its Trade Surplus shrank slightly, to $90.7 billion, but more ominously, exports actually declined -1.1% while imports rose only 1.0%. Arguably, the reason President Xi was willing to make a deal with President Trump is because the domestic economic situation in China is troublesome and he knows that more trade problems will be a domestic nightmare for him.

In Europe, red is the dominant color on screens as well with the IBEX (-0.9%) leading the way lower, but the DAX (-0.9%), FTSE 100 and (-0.7%) and CAC (-0.5%) all fading as well and losses the universal story on the continent. Now, we know that it is not a tech story since, arguably, Europe has no tech presence. So the problems here are more likely a combination of following the global trend lower and ongoing soft Eurozone data implying that economic growth, and hence corporate profits, are going to continue to be weak. With the ECB taking themselves out of the equation for now, claiming rates are at the correct level and turning their focus to the idea of a digital euro (which will never be important), if we continue to see the US market slip, you can be certain that European bourses will follow.

In the bond market, it is hard to get excited about anything right now as Treasury yields, which slipped a basis point yesterday, are higher by 1bp this morning. We remain right at the level from the immediate aftermath of the FOMC meeting, which tells me that traders are awaiting the next major piece of news. European sovereign yields are also higher by 1bp across the board with only the UK (+3bps) the outlier here today while JGBs overnight slipped -1bp following yesterday’s Treasury price action.

In the commodity space, both oil (+0.8%, but below $60/bbl) and gold (+0.5% but below $4000/oz) continue to trade in a range and basically have not moved anywhere of note over the past 2+ weeks as you can see in the chart below.

Source: tradingeconomics.com

There have certainly been some choppy moves, but net, nothing! Silver (+1.0%) however, has gotten a boost after the US designated it a critical mineral implying government support. It would not be surprising to see silver outperform gold for a while going forward.

Finally, the dollar remains an afterthought to markets. The DXY rallied to above 100 briefly, but has now slipped back below that level into its multi-month trading range as per the below chart.

Source: tradingeconomics.com

Looking at the major currencies today, +/-0.2% describes the price action, which means nothing is happening. The only notable difference is KRW (-0.7%, which has continued to decline on the back of growing outflows of capital, perhaps anticipating the flows that will come with Korea’s promises for investing in US shipbuilding and semiconductor manufacturing. But the won has been tumbling since early July, down 8% in that period.

Source: tradingeconomics.com

And that’s really it this morning. Looking at the KRW, though, we must really consider what I mentioned yesterday about the Supreme Court’s tariff ruling, whenever that comes. If the tariffs are overturned, it’s not the repayment of those collected that is the issue, it is the change in the investment flows, and that will be a very good reason to turn negative on the dollar. But until such time, while risk managers need to stay hedged, traders have carte blanche. If tech stocks really do correct, a risk off scenario is likely to support the dollar, at least for a while. Hopefully, that won’t be today’s outcome.

Good luck and good weekend

Adf

	franklb on Memories Morose
	fxpoet on Memories Morose
	franklb on Memories Morose
	fxpoet on ‘Pocalypse Dreams
	mtezel1 on ‘Pocalypse Dreams

fxpoetry

Explaining the rhyme and rhythm of the FX markets each day

Tag Archives: #AI

Tossed to the Fates

Memories Morose

Quite Spicey

Discussing Their Plight

Really Vexed

Peace Was in Sight

Not Existential

A Future, Dystopic

Yesterday’s Trauma

Cracks Have Shown Through