Not Be Sublime

Posted on March 13, 2026 by fxpoet

Investors are starting to shun
The riskiest things one-by-one
So, stocks feel the pain
And bonds, too, feel strain
The dollar, though’s, on quite a run

It’s nearly two weeks since this started
And so far, no ending’s been charted
The impact o’er time
Will not be sublime
Thus, trading’s not for the faint-hearted

Another day and there is no end in sight for the ongoing military action in Iran. US strikes continue apace and Iranian retaliation also continues, albeit at a lesser rate it seems. However, the information from the war zone remains difficult to trust as all of it is spun for various audiences with no sense of objective truth. As such, it is difficult to have an opinion on how long this will continue.

With that in mind, all we can do is observe market behavior and see what we can glean. Starting with equity markets around the world, the below screenshot from Bloomberg.com this morning shows that risk is clearly off, although not catastrophically so, at least not yet.

So, weakness in the US yesterday was followed by weakness overnight in the major markets in Asia as well as in other regional markets (Korea -1.7%, India -1.9%, Indonesia -3.1%) with the rest having declined by lesser amounts. It is important to see that all the Asian markets (and European and US markets) have fallen in the past month, but remain higher, in some cases substantially so, since this time last year. The point is that this move can still rightly be considered corrective, rather than a dramatic change in opinion.

European bourses are demonstrating similar behavior although US futures at this hour (6:45) are slightly higher, about +0.15% across the board. Thinking about equity markets overall, one of the main features of the US market was that it maintained a relatively high P/E ratio, no matter whether measured on a forward looking or historical basis. Thus, a correction in equity prices, even absent the war, would not have been that surprising. The same could not be said about European or Asian markets, which trade at much lower valuations, but then, in Europe especially, prospects for growth remain hampered by individual national domestic policies along with EU wide policies, notably in the energy sector. Under the rubric a picture is worth 1000 words, it is not hard to understand why US equity markets dominate global markets.

Source: tradingeconomics.com

Germany has averaged -0.3% GDP growth over the past 3 years, and the EU is just above it at +0.4%. Meanwhile, this morning’s UK GDP data showed weaker than expected outcomes, with Y/Y of 0.8% after a stagnant January. Are US markets richly priced? Sure, but what prospects do you have elsewhere?

Turning to bond markets, the traditional safe haven appeal of bonds, especially Treasuries and Bunds, is MIA. While this morning, Treasuries (-1bp) and most European sovereigns (-1bp across the board) have seen prices stop declining, the picture over the past two weeks has not been encouraging. The chart below shows the price action in both Treasuries and Bunds and, as you can see, both have seen yields rise sharply since the beginning of the month/war. Given the ongoing stress in oil markets, and the implications that has for inflation worldwide going forward, it should not be a surprise that bonds don’t appear to offer their ordinary haven characteristics.

Source: tradingeconomics.com

The big question here, and around the world truthfully, is how will central banks respond to the rise in energy prices and subsequent rise in headline inflation? If they try to address price pressures by raising rates in this scenario, it will almost certainly lead to recessions everywhere. But will their models allow them to hold their policies if inflation starts to rise sharply? It’s funny, I have been remarking how central bank policies have lost their luster recently, having been overwhelmed by fiscal policies, but suddenly, monetary policy is back in the limelight. We shall see how they perform.

In the commodity markets, WTI (-1.3%) rallied sharply yesterday but is giving back a bit this morning. The big headline yesterday was that Brent crude closed above $100/bbl for the first time since 2022 in the wake of Russia’s invasion into Ukraine. Of course, that was more about the big, round number feature, than the percentage rise. After all, is there really a difference of $98/bbl or $100/bbl in the broad scheme of things? Oil continues to be THE driving factor in all markets right now and that is not likely to change anytime soon. As long as the Strait remains closed to traffic, this pressure will continue to build.

In the metals markets, both gold and silver continue to consolidate around their recent levels ($5100 in gold, $85 in silver) and it appears we are going to need another catalyst of note to get that to change. I see no change in supply metrics, that’s for sure, but if there is a recession, silver demand may well be reduced given its industrial uses.

Finally, the dollar is king of all it surveys, at least in the FX markets. The euro is below 1.15 (it seems like only last week that pundits were talking about the consequences of the euro trading above 1.25. The DXY has broken above 100, although we will need to see an extension of this move to be convinced that it is going to head much higher, and USDJPY is now pushing near 160 again, which brought out comments from Katayma-san, the Japanese FinMin, about closely monitoring the yen’s value. Of course, given the broad-based rise in the dollar, the current yen weakness cannot be seen as that troubling.

But what is a bit more interesting to me, and more definitive proof that the dollar is not about to collapse, is the coincident moves higher in the dollar vs. a number of other currencies. Look at the chart below of ZAR (-0.15%), SEK (-0.3%) and MXN (0.0%). Each demonstrates virtually identical trade patterns, and all of them reached their respective peaks (dollar’s nadir) on January 29^th. You may recall that was the day president Trump named Kevin Warsh as the next Fed Chair, and we saw a major reversal in stocks, gold, silver and other markets.

Source: tradingeconomics.com

My best estimate is that FX markets are pricing in a tighter Fed at this point, which. Based on Fed funds futures, showing just one cut potentially this year in December, makes a lot of sense. I guess it remains to be seen how other central banks will respond to the ructions in markets caused by the war, but this is the first order consequence.

Source: cmegroup.com

Turning to this morning’s data, we see a bunch as follows:

Q4 GDP (2^nd estimate)	1.4%
Personal Income	0.5%
Personal Spending	0.3%
Durable Goods	1.2%
-ex Transport	0.5%
PCE	0.3% (2.9% Y/Y)
Cpore PCE	0.4% (3.1% Y/Y)
JOLTs Job Openings	6.7M
Michigan Sentiment	55.0

Source: tradingeconomics.com

As with Wednesday’s CPI data, the PCE data does not include the war, so will be dismissed. My take is the Income and Spending numbers, and the JOLTs number will be the most impactful if they are a long way from estimates.

And that’s where we stand. Markets are still unsure of what to believe regarding the war, and when it comes to war, things happen that are unexpected all the time, the so-called unknown unknowns. In the end, it is hard to bet against the dollar for right now, but that could change in an instant based on the next headline.

Good luck and good weekend

adf

How Long Can This Stand?

Posted on March 9, 2026 by fxpoet

The weekend saw fighting expand
And so, it’s supply, not demand
That’s driving up prices
In this oil crisis
The question, how long can this stand?

As such the G7 has mooted
An idea that, if executed
Could help reduce nerves
By drawing reserves
Thus, price pressures could be diluted

Oil gapped higher last night when futures markets opened as the war in Iran widened its scope. There were more attacks on refineries in Iran, and there has still been limited transit through the Strait of Hormuz (although I read of a ship that turned off its locator beacon and made it through safely). As you can see from the chart below, though, the initial panic has subsided somewhat.

Source: tradingeconomics.com

It seems that the key decline came after French President Macron, the current head of the G7, suggested a joint release of oil reserves across the group in an effort to stabilize prices. It seems to me that while the G7 may have difficulty reaching some decisions, this one is pretty easy, and I expect that we will hear of this joint release shortly.

At the same time, Iran announced that the former Ayatollah’s son, Mojtaba, has been named the new Supreme Leader, and many assume this means they are hunkering down for a long fight.

I am no military strategist, so take this for what it’s worth, but from what I have gleaned across numerous commentators, the Iranian strategy is to outlast the US and Israeli munitions which many have said are limited. As well, they believe that by closing the Strait of Hormuz, they can inflict so much economic pain that the US will have to stop the fight. Funnily enough, I have seen no commentary on the fact that by closing the Strait, Iran has essentially cut off all its own revenues as >90% of its oil sales transit the Strait. The one thing we know is that the US will not run out of money.

The other thing at which I marvel is the incredibly low number of casualties on both sides of this war. While there has been significant destruction of physical assets, even the Iranian propaganda has only claimed 1000-1500 dead, and in the US and Israel, the number is 20 total, I believe.

This feels to me like it is going to be pushed as hard as it can for a while longer and then one side is going to completely capitulate. Whether that is the new Iranian regime crumbling or the US stopping the bombardment, I have no idea.

In the meantime, let’s briefly discuss Friday’s payroll report, which was pretty awful, and then see how markets are behaving this morning. By now, I am sure you have either heard or read about the NFP report which showed a headline loss of -92K, the largely offsetting January’s surprising gains. As you can see from the chart below, no matter the details of any particular report, the trend over the past five years has been clear.

Source: tradingeconomics.com

If memory serves, the previous job losses shown here are the result of revisions to the original release and it has been more than six years (covid) since the headline number was negative in its own right. Obviously, this is not the type of outcome the administration wants to see, but it is also important to remember the two significant changes we have seen over the past year: net outmigration along with deportations and a significant reduction in Federal government jobs. Certainly, the latter is a net benefit in my eyes. As to the former, it is exactly what President Trump promised in his campaign, so it cannot be a surprise. Regarding its impact on the economy, I guess we will need to compare per capita outcomes to the total gross numbers to determine if the population is comfortable with the new reality.

But ultimately, financial markets did not like the data Friday, as we also saw fairly weak Retail Sales data. Adding weak data to the war situation and rising oil prices led to weak equity markets in the US, and then the escalation over the weekend, saw equity markets around the world under pressure. Once again, I believe a screen shot of things this morning is self-explanatory. Those US prices are Friday’s closes.

Source: Bloomberg.com

As to US futures, at this hour (7:00), they are all lower by -1.25% or so, but as you can see from the chart below of the S&P 500 futures, they are well off the worst levels of the evening, essentially showing the same response to the G7 story as oil.

Source: tradingeconomics.com

While those Asian markets showed just Japan, China and Australia, the smaller regional exchanges had a very rough time, with declines between -2.0% (India) and -6.0% (Korea) and everywhere in between.

In the bond market, the oil price move has inflation back on everybody’s mind and that can be seen as yields around the world are higher across the board. While Treasury yields are higher by 4bps this morning, you can see much worse outcomes elsewhere in the world in the Bloomberg screenshot below:

I think this is directly related to Natural Gas prices as while they are higher in the US this morning, by 5.75%, that is nothing compared to the gains in Europe (+17.5%) and the UK (+16.75%), which has simply widened the gap between US and European prices further. In addition, the US remains an exporter of LNG, so there will be no supply questions at all, while Europe, with the Strait of Hormuz shut down and Qatar offline, has real problems sourcing gas, especially because they are trying to end supplies from Russia. Good thing they shut down their nuclear plants as well, that will certainly help their energy situation!

Meanwhile, the metals markets are under some pressure this morning (Au -1.25%, Ag -0.95%, Cu -0.7%), with the former continuing to underperform in a risk-off scenario as I believe that margin calls are resulting in sales of the one thing that investors had with gains. Copper, though, is probably starting to feel some strain regarding future economic activity as if oil prices do remain at these levels, global economic growth is going to be sharply impacted. We will need to watch this carefully.

Finally, the dollar remains king. CAD (+0.2%) is the only currency that is showing any support and that is, naturally, because they are a major oil exporter. Interestingly, NOK (-0.7%) is under pressure this morning despite oil’s massive jump. As to the rest of the G10, EUR (-0.5%) and GBP (-0.4%) are suffering as are JPY (-0.35%) and CHF (-0.3%) the erstwhile havens. I imagine both of those are suffering given their entire reliance on imported energy. In the EMG bloc, ZAR (-1.2%) and HUF (-1.3%) are the laggards, although CLP (-1.0%) is falling on copper’s decline as well. ZAR clearly suffering from gold’s underperformance while HUF seems to be feeling some extra strain from expectations of central bank policy ease. Remember, Hungary gets about 80% of its energy, both oil and gas, from Russia, which has been a key political issue in the EU. Elsewhere, both APAC (KRW -0.5%, INR -0.6%, CNY -0.2%) and LATAM (BRL -0.65%, MXN -0.4%) currencies are suffering along with the rest of the world. However, I would have thought both those last two should do better as both are oil producers and far from the action. But right now, emerging markets are persona non grata to investors, so I expect that is the driver.

On the data front, there is nothing today, but we do get a few things this week:

Tuesday	NFIB Small Business Optimism	99.7
	Existing Home Sales	3.90M
Wednesday	CPI	0.3% (2.4% Y/Y)
	-ex food & energy	0.2% (2.5% Y/Y)
Thursday	Initial Claims	215K
	Continuing Claims	1850K
	Housing Starts	1.35M
	Building Permits	1.41M
	Trade Balance	-$68.0B
Friday	Personal Income	0.4%
	Personal Spending	0.3%
	PCE	0.3% (2.8%)
	-ex food & energy	0.4% (3.0%)
	Q4 GDP (2^nd est)	1.4%
	Durable Goods	0.8%
	-ex Transport	0.5%
	JOLTs Job Openings	6.70M
	Michigan Confidence	55.0

Source: tradingeconomics.com

In a very rare outcome, we get both CPI and PCE in the same week as the hangover from the government shutdown continues to wreak havoc with the schedule. It remains an open question as to whether the data will matter as the war continues to hog the headlines. But if nothing changes there, then watch the inflation data. After the weak employment report, if we see calm inflation data, tongues will start to wag about a Fed cut, although if oil is still above $100/bbl, that will be tough optics.

Net, things are still quite confusing. My take is that there were many underlying aspects of the economy that were under pressure before the war and they may become more evident with oil putting pressure on everything, well, everything except the dollar, which probably will continue to track higher for now.

Good luck

Adf

Sometime Soon Become Miffed

Posted on March 6, 2026 by fxpoet

At this point, I think we’d agree
It’s oil that seems to be key
As it keeps on rising
It’s not that surprising
That markets elsewhere lack much glee

So, how might the narrative shift?
One way is a noteworthy rift
Twixt Trump and our friends
Who seek different ends
And might, sometime soon, become miffed

The war continues to be the only story that matters to markets right now, although this morning we will be seeing the payroll report. And no matter the information we receive from ordinary news sources, all of which have their own biases, the one thing that rings true is market prices. People can say whatever they like, but when it comes to money, the truth will out.

With that in mind, a look at the oil market this morning is not very optimistic as the black, sticky stuff is sharply higher once again, up by 5.25% as I type at 6:45. I have highlighted this week that thus far, the rise had not been excessive, but as we look at the chart this morning, that claim may no longer be correct. While we remain far below the levels seen shortly after Russia invaded Ukraine in 2022, the price has risen 25% this week.

Source: tradingeconomics.com

As others have highlighted, while the price of crude gets all the market press, for the man on the street, it is really the price of gasoline that matters, and that has risen some 17% this week. Arguably, markets are beginning to price the idea that this war will continue longer than initial thoughts, and that the key chokepoint, the Strait of Hormuz, will remain closed for longer than initially expected. I have seen several models that indicate the impact on measured inflation if gasoline continues to rise in price, which indicate that we should expect CPI to be jumping in the next few months. The upshot there is that do not be surprised if inflation is suddenly running above the Fed funds rate by the summer, a forecast that I don’t believe was on any bingo card at the beginning of the year.

Remember, though, the narrative prior to the onset of this military action that there was an oil glut. Remember, too, there is a significant amount of oil in storage around the world, and as I continue to say, the Western Hemisphere is pumping as fast as they can. (As an aside, I saw this morning that the US is going to restart diplomatic relations with Venezuela, an indication that things there are working far better than the critics implied.) Clearly, fear is rampant in the oil markets right now, but that is subject to change in a heartbeat.

In the meantime, let’s see how markets have responded to the latest rise in oil prices. Stocks cannot make up their mind, it seems, as the below chart of the S&P 500 shows the price action over the past week, since this started.

Source: tradingeconomics.com

I am hard pressed to discern a trend here, with the movement more akin to a sine wave than anything else. Interestingly, yesterday’s weakness in the US was followed by a mix of strength and weakness in Asia with Tokyo (+0.6%), China (+0.3%) and HK (+1.7%) all gaining although there were declines in India (-1.4%), Australia (-1.0%) and Indonesia (-1.6%). Not surprisingly, each nation in Asia is impacted by the war differently, although higher oil prices would seem to me to be quite a negative for the big 3 markets given how reliant each one is on imported oil, and how much of it transits the Strait of Hormuz.

As to Europe, this morning is all red, with losses between -0.1% (UK) and -0.5% (Spain) and everywhere in between. I read a charming article in Bloomberg about how recent unseasonably mild and sunny weather in Germany has resulted in solar power generating more than 40GW of electricity for the 5^th consecutive day this week, helping to keep prices in check despite the rise in energy prices elsewhere. I hope, for the Germans’ sake, the weather stays more like Phoenix than Frankfurt going forward. But reality is going to be a problem for them going forward, and high energy prices not only hurt consumers, but they are destroying what’s left of Europe’s industry. As to US futures, at this hour (7:15) they are lower by -0.6% across the board.

Bonds continue to shun their safe haven role in this conflict with yields continuing to climb. Treasuries are higher by a further 3bps this morning and approaching the 4.20% level that had been the top of the trading range. European sovereign yields are all higher by between 3bps and 6bps as inflation concerns percolate amid higher energy prices. Alas for Europe, this morning they released Eurozone GDP growth for Q4 at a softer than expected 1.2%. I expect we will begin to hear more about stagflation there if the war continues.

In the metals markets, both gold (+0.1%) and silver (+0.1%) are marginally higher this morning although both suffered yesterday. My friend JJ who writes the Market Vibes Substack made a very prescient statement last evening, “However, when the shit is hitting the fan, you don’t want safe assets, you want safe prices.” Thus far, gold has not proven to have safe prices, as evidenced by the daily chop you see below, but my belief remains that it will continue to maintain its value over time, especially in a situation like this.

Source: tradingeconomcis.com

Finally, rumors of the dollar’s death continue to be exaggerated. This morning, it is stronger vs. virtually all its counterparts in both the G10 and EMG blocs, even the traditional havens of CHF (-0.2%) and JPY (-0.3%). As I have repeatedly written, I don’t believe you can look at the global energy equation without recognizing that the US combination of extraordinary resources and the willingness to exploit them is an unbeatable combination. After all, despite 25% of global LNG shipping stopped due to the closure of Hormuz, natural gas prices in the US are just over $3.00/MMBtu, certainly above their levels from two years ago, but incredibly cost competitive on a global basis. Just look at the chart below with European, UK and US gas prices and see how they have behaved.

Source: tradingeconomics.com

Back to the dollar, both the euro (-0.4%) and the pound (-0.3%) have slipped to their lowest levels vs. the dollar since late November 2025. I believe that is a combination of both fear and the energy situation as it is aggravated by the war. There are two currencies holding up this morning, NOK (+0.15%) and CAD (+0.15%) with the similarity that both are major oil exporters. Oil continues to be the story driving everything. Quite frankly, as long as the war continues, I find it hard to devise a scenario where the dollar declines in any meaningful way.

On the data front, this morning brings the payroll report with the following expectations:

Nonfarm Payrolls	59K
Private Payrolls	65K
Manufacturing Payrolls	3K
Unemployment Rate	4.3%
Average Hourly Earnings	0.3% (3.7% Y/Y)
Average Weekly Hours	34.3
Participation Rate	62.5%
Retail Sales	-0.3%
-ex Autos	0.0%

Source: tradingeconomics.com

Yesterday’s Initial Claims data was in line and the productivity data was better than expected. Wednesday’s ADP Employment Data was better than expected. While there continues to be a lot of discussion about the economy setting to crack, at this point the data does not show that to be the case. Remember, the tax impacts of the OBBB are starting to be felt, and that is a huge stimulus. Remember, too, last month’s NFP was much stronger than expected. A strong number will certainly support the dollar, although it will probably support oil prices as if the economy remains strong, it will encourage President Trump that he can continue in Iran for a longer time.

Good luck and good weekend

Adf

Bonds are a Flop

Posted on March 3, 2026 by fxpoet

The war has now widened in scope
And though all of us truly hope
It won’t last too long
We could, there, be wrong
As such we must all learn to cope

So, oil, right now, knows no top
While havens like bonds are a flop
There’s no place to hide
Thus, you must decide
If trading makes sense or should stop

Carl von Clausewitz, the 19^th century Prussian military strategist, is credited with describing the fog of war in his 1832 book, On War. “…three quarters of the factors on which action in war is based are wrapped in a fog of greater or lesser uncertainty.” This is quite an apt description of things, even now with cameras literally everywhere in the world. Context remains difficult to understand, and, of course, there is an enormous amount of propaganda from both sides of any conflict as the protagonists attempt to sway both their own populations and those of their opponents.

I highlight this because I continue to be amazed at the certitude with which some analysts proclaim to “know” how things will turn out. As I have written elsewhere, nobody knows nuthin right now. With that in mind, I would highlight the IMF’s statement yesterday which added exactly zero to the conversation, “It is too early to assess the economic impact on the region and the global economy. That impact will depend on the extent and duration of the conflict.” Now, don’t you feel educated after that pronouncement?

At any rate, with more than a full day’s trading in financial markets, perhaps we can try to assess how things are going. The first thing to note is that many alleged haven assets are not performing up to snuff, notably Treasury bonds, Japanese yen, Swiss francs and gold. In fact, as of this morning, the only traditional haven that is performing as expected is the dollar.

It was just over a month ago when the cognoscenti were explaining that the euro above 1.20 was indicative of the dollar’s long decline into the depths of history. I recall someone in my LinkedIn feed asking how soon the euro would trade through 1.25 and beyond. I would argue that timeline has been extended somewhat, if you still believe that is likely to be the case. Rather, as you can see in the below chart, the single currency (-0.8%) is now back below 1.1600.

Source: tradingeconomics.com

There are several things weighing on the euro right now. First is the fact that they are energy price takers for every form of energy, so not only are higher oil prices hurting the continent, but NatGas there has exploded higher as per the below chart, rising 37% today and nearly 95% since the weekend.

Source: tradingeconomics.com

Recall, Europe has been trying to wean themselves off Russian gas, have been huge buyers of US LNG but also huge buyers of Qatari LNG, and with the Strait of Hormuz effectively closed (shipowners cannot get insurance so nobody transits the Strait), this is a problem. Adding to the European problem is the fact that their storage levels of NatGas are extremely low for this time of year, about 30%, when typical levels in early March are near 50%. We cannot be surprised at this price action. So, while US NatGas (+6.3% this morning, 10% this week) has risen, it is currently trading at $3.14/MMBtu. The comparable Eurozone price is $20.28/MMBtu. Perhaps a weaker euro is not that surprising after all. (As an aside, one of the reasons I find it difficult to accept the weak dollar story is that the US controls its own energy destiny and given energy is life and the economy, we are fundamentally in better position to perform going forward.)

But the dollar is strong against all comers again today as per the below table from 7:10 this morning. Will this continue? While nobody knows, my take is there is still ample room for further strength in the buck, probably another 3%-5% before it starts to impact other things significantly.

Source: tradingeconomics.com

I think the biggest surprise for most of us is the incredibly poor performance of the bond market, which has always been seen as a safe haven. However, this morning, that is not the case at all as you can see from the Bloomberg table below.

My take is that there is only one thing we truly know about war, it is inflationary. While the early signs are for energy prices to rise, war is a major consumer of resources that will never be recycled and therefore will require new baseline production. As well, governments don’t fight war on an austerity budget, so you can be sure that there will be plenty of money around. All that leads to higher prices and that is why bond markets are feeling pain around the world this morning. If, as President Trump has indicated, this war ends in the next 4 weeks or so, we will be able to re-evaluate the inflationary and other impacts, but while I had thought bonds were going to perform well, clearly that is not the case right now.

Turning to commodities, oil (+6.75%) continues to rise and I expect will remain well bid until the fighting stops. The prospects for higher prices from here remain dependent on whether Iran tries to destroy other Middle East production facilities and if they are successful. Meanwhile, in the Western hemisphere, the US, Canada, and all of Latin America are going to be pumping at full strength for now. So, while prices may tick higher, it is unlikely we will see any supply issues here.

Metals are another surprising trade this morning with gold (-2.65), silver (-7.8%) and copper (-2.3%) all sharply lower. Given the sharp decline in equity prices I will discuss below and given the amount of leverage that is rampant in the equity markets, I think gold is a victim of ‘sell what you can, not what you want to.’ Arguably, there is some of that with bonds as well. In a way, though, I am more surprised about silver and copper given their criticality in fighting the war. Both are being consumed rapidly via weapons being deployed so this is more baffling to me. However, I do not believe the longer-term thesis in either of these metals has changed, there is a supply shortage relative to industrial usage for both with no new supply on the horizon. As such, I do see prices here rallying over time.

Finally, the equity markets are sharply lower almost everywhere. The below Bloomberg table shows how major markets in Asia performed overnight and how Europe stacks up at 7:30 this morning.

What it doesn’t show is that the KOSPI in Korea fell -7.25%, nor that there were sharp declines in India (-1.3%), Taiwan (-2.2%) and Thailand (-4.0%). You will also not be surprised that US futures are pointing much lower this morning, -1.5% across the board. Yesterday’s performance was quite the surprise, I think, but today is much more in line with what we expected.

And that’s where things stand this morning. obviously, the war is the only story that matters, so data releases are going to be secondary for now, even Friday’s payroll report. At some point, I expect that traditional havens will play their role, but as leveraged positions continue to get unwound, it may take a few more sessions before we see that. If you’re trading, smaller sizes make sense. If you’re hedging, stick to longer term fundamentals I think.

Good luck

Adf

No Longer the Same

Posted on March 2, 2026 by fxpoet

The world is no longer the same
So, now everyone must reframe
Their views on positions
And whether conditions
Allow them to still play the game

Most markets have priced fatter tails
With stock markets seeing net sales
But oil and gold
Seem likely to hold
Their gains across longer timescales

Here we are on Monday morning in a very different world than we left on Friday evening. While there was much talk about whether a peace would be reached then, obviously that never happened. Of course, at this point, there is no other story than the ongoing military action in Iran and the Middle East. As this is not a news commentary, but a financial markets one, that is all I will discuss here.

Not surprisingly, we have seen some large moves across markets, and largely in the direction one would have expected regarding risk. So, oil prices (+7.5%) have exploded higher as shipping through the Strait of Hormuz has ceased for now and there is no timeline for it to reopen. Given ~20% of the daily global consumption of oil flows through that waterway, there should be no surprise here. You can see from the chart below that as concerns grew regarding military action, oil’s price climbed and then, of course, gapped on the opening last night.

Source: tradingeconomics.com

Perhaps a bit more surprising to me is that Brent Crude (+7.5%) has moved virtually the exact same amount as WTI. I only say that because Brent is the price basis for global oil outside the US which is obviously going to be more impacted than the US markets. But the Brent chart is virtually identical to the WTI above. As to the future, clearly, no market is more dependent on the Middle East conflict than this one, but at this point, there is no indication it is going to end very soon, so I expect prices to remain at least at current levels for now, and if the conflict starts to target oil production facilities, we could go quite a bit higher.

While we are looking at commodities, it should also be no surprise that gold (+2.1%) is higher this morning as it performs its historical role as a safe haven. While not quite as extreme as the oil chart, the similarities between the two, as you can see below, are significant. Of course, it was a bit more than a month ago when we had that dramatic sell-off in the precious metals, so this has all been a recovery from there. But a grind higher punctuated with a gap last night is the gold story as well.

Source: tradingeconomics.com

Arguably, gold will have more staying power than oil as when the conflict ends, and my initial take is it will not be a forever war, oil will once again flow more freely. Gold, however, remains a haven in an uncertain world and nothing seems likely to reduce uncertainty anytime soon.

The other two traditional haven assets are the dollar and Treasury bonds so let’s look at them next. Starting with the dollar, it has done what it regularly does in an uncertain situation, it has rallied sharply. As you can see from the below table, shot at 6:39 this morning, the dollar is firmer against every single major currency this morning.

Source: tradingeconomics.com

Too, using the euro as our proxy for the dollar writ large, you can see that the chart below looks almost identical to that of both gold and oil above. (I have inverted the Y-axis to highlight the similarities.)

Source: tradingeconomics.com

It appears that markets began pricing in this event back in the middle of February, although the real move required the onset of the military action.

As to the last haven asset, US Treasuries, they are not really doing the job today. Yields there have edged higher by 2bps this morning and we are seeing similar price action across the entire European sovereign space. The two exceptions today are UK Gilts (+8bps), which seem to be trading on concerns the BOE is less likely to cut rates as higher oil prices will prevent inflation from continuing lower and JGBs (-4bps) which are serving their haven role well, arguably given the distance from the action and the fact that with yields above 2%, investors seeking safety feel they have some cushion.

Source: tradingeconomics.com

The treasury move was interesting as the initial trade, at last night’s opening, was for lower yields as per the chart above, but that has since reversed. It could be investors are concerned over additional defense spending blowing out the deficit further but there is no clear signal or commentary I have seen yet on the subject.

Finally, it should not be surprising that equity markets around the world are mostly lower this morning as investors pull in their wings and await more clarity on the outcome and how long this will continue. The exception to this was mainland China (+0.4%) which managed to edge higher, but otherwise, all of Asia and Europe are down on the day, some pretty substantially. Below you can see a screenshot of futures markets at 7:00 with the type of movements ongoing.

Source: tradingeconomics.com

The MOEX is Russia’s stock market, so it is not clear what value that adds to the conversation and the TSX, Toronto, does not have a futures market, so the price represents Friday’s close. But as you can see, all of Europe and all of Asia ex-China have fallen sharply.

And that’s where we sit this morning. Ironically, there is going to be a significant amount of data released this week, including the NFP report on Friday, but it is not clear market participants will be paying close attention. For good orders’ sake, I will list the data releases anyway.

Today	ISM Manufacturing	51.8
	ISM Manufacturing Prices	59.5
Wednesday	ADP Employment	45K
	ISM Services	54.0
Thursday	Initial Claims	216K
	Continuing Claims	1840K
	Nonfarm Productivity Q4	4.8%
	Unit Labor Costs Q4	0.2%
Friday	Nonfarm Payrolls	60K
	Private Payrolls	65K
	Manufacturing Payrolls	0K
	Unemployment Rate	4.3%
	Average Hourly Earnings	0.3% (3.6% Y/Y)
	Average Weekly Hours	34.3
	Participation Rate	62.5%
	Retail Sales	-0.2%
	-ex autos	0.1%
	Consumer Credit	$11.8B

Source: tradingeconomics.com

To me, market dynamics now are entirely restricted to the ongoing Middle East conflagration. Ultimately, war is inflationary, and for many firms it is quite profitable. But right now, investors are mostly hiding under their desks, waiting for the smoke to clear. Institutional investors are typically unwilling to buck a key narrative trend, and I see no reason to believe this time will be different.

While much of this price movement will likely reverse when the bombing stops, until then, be prepared for more volatility, not less.

Good luck

Adf

Hold My Beer

Posted on February 17, 2026 by fxpoet

For months, I was calmly assured
A weak dollar must be endured
The US had peaked
And money had leaked
Elsewhere, so it could be secured

But suddenly, it’s not so clear
The end of the dollar is near
Instead, other nations
Have seen expectations
Decline, saying, here, hold my beer

The long holiday weekend is behind us now and with China on holiday all week, it seems there may be fewer interesting stories to consider. However, one of the things that tickled my fancy is the sudden, recent adjustment in several pundits’ views on the dollar.

By now you are all aware that I have been more bullish than consensus on the basis of the US economic situation relative to that of Europe and the UK (Japan may have changed their stripes in the wake of Takaichi-san’s recent landslide election, so we will need to revisit that). After all, the combination of stronger GDP growth, higher interest rates and ostensibly calming inflation in the US relative to Europe and the UK (as well as numerous other nations) seemed to offer better investment opportunities, and therefore more demand for the dollar. And this was outside the need for dollars simply to service the enormous amount of USD debt outstanding around the world, estimated at between $60 trillion and $80 trillion.

I will use the euro (-0.1%) today, rather than the DXY (+0.35%), as my dollar proxy because there is some deliciously ironic news from Bloomberg on the single currency. But below, you can see the past year’s trading pattern, where, like the DXY, it has largely been range bound since June. Sure, we saw a little spike up at the end of January, during the metals/equity market correction, but that story has passed.

Source: tradingeconomics.com

But I couldn’t help but chuckle at the following two headlines on Bloomberg.com this morning, literally right next to each other.

Briefly, the first story describes how the FinMins throughout the Eurozone want to expand the use of the euro globally and are considering offering swap lines to other nations that have difficulty accessing the single currency (although I cannot imagine why they would have such difficulty). The second story highlights the French explaining that if the first story is true, the euro might gain strength and that would hurt their export industries, something the current government can ill afford right now. It’s almost as if there is no agreement at all.

Just remember, Eurozone GDP is growing at ~1.0%, its base rate is 2.0% and inflation is at 2.3%. In the US, GDP is growing at 3+%, its base rate is 3.75% and inflation was just released at 2.4%. Add to this the fact that energy costs in Europe, which is a price taker producing less than 15% of its energy needs domestically, are more than 2X higher than in the US, and in some countries, 3X higher, and it becomes increasingly difficult to say, damn, euros are the place to be!

And for the UK, where this morning they reported the highest Unemployment Rate in five years (see chart below) with wages slipping, slowing growth and a worse inflation and energy picture, arguably, things are even worse.

Source: tradingecomomics.com

It continues to be difficult for me to understand the relative merits of owning euros or pounds (-0.5%) in the current macroeconomic environment. The fact that equity multiples remain lower there than in the US has certainly peaked some investor interest, but prospects just don’t appear that great.

There are certainly emerging markets whose currencies had been extremely weak, and which have significantly higher real interest rates than in the US (Mexico, Brazil, South Africa) where I can see the attraction, although this morning’s South African Unemployment report (31.4%!) might still give one pause as to the prospects.

One other place where the currency has been strengthening is China, where the PBOC has been walking the renminbi higher (dollar lower) for the past year (see below), as President Xi seems to want to show the world the renminbi is a strong and stable currency.

Source: tradingeconmics.com

And of course, a large part of this particular currency discussion is that the Chinese are ‘dumping’ US assets, notably Treasuries. Alas, recent data as per the below from two of the best-informed analysts regarding China and its activities shows that the PBOC has basically been offloading Treasuries to State owned Chinese banks and their US assets are, in fact, growing. The CNY is a completely managed currency and can be set at any level the PBOC chooses. Exclaiming the dollar is falling against it is not a very good representation.

Ok, I will stop repeating myself regarding my view on the dollar and turn to other markets. In equities, Asia was very quiet as numerous nations observed the lunar new year so really, all we saw was Japan (-0.4%), India (+0.2%) and Australia (+0.2%), with China, Korea and Taiwan all closed. I would argue we did not learn very much from the session. Europe, though, is edging higher this morning with Spain (+0.6%) and the UK (+0.45%) leading the way. The latter seems to be benefitting from the bad news is good scenario, as the weak employment data has investors looking for a BOE rate cut at the next meeting, while Spain has not seen any economic data to help drive things. Perhaps, the ZEW data, where both Germany and the Eurozone printed at lower levels than last month and much lower levels than expected, has more belief in an ECB cut coming forward. Net, however, activity here is muted. As to US futures, at this hour (7:25), they are softer with the NASDAQ (-0.7%) the laggard by far.

In the bond market, right now, the inflationistas are having a hard time explaining the decline in yields. Treasury yields (-2bps and back to 4.03%) have been marching lower for the past two weeks as per the below, and we have seen similar price action elsewhere.

Source: tradingeconomics.com

European sovereign yields have also slipped -2bps across the board while UK gilt yields have fallen -4bps. But the big winner is Japan (-8bps) where investors apparently no longer fear unfunded spending and aggressive fiscal policy by PM Takaichi, as the 5-year auction last night was extremely well received and investors are looking forward to the 20-year auction later this week.

In the commodity bloc, oil (+1.5%) has moved up after Iran closed part of the Strait of Hormuz, restricting traffic there. This seems odd to me as they desperately need that to remain open to deliver their oil, but perhaps they are trying to show their strength. A second round of discussions are ongoing between the US and Iran as I type, so we shall see what happens here. Meanwhile, in the metals markets, with China on holiday, and given they have been the source of the most demand, it cannot be surprising that all are lower this morning (Au -1.0%, Ag -0.75%, Cu -1.3%, Pt -1.7%). My take is these markets are likely to spend the next several months consolidating before any leg higher (and I believe that is the direction) will be evident.

Finally, we discussed the dollar above and the only noteworthy move beside the pound is SEK (-0.6%) which appears more to be a function of its higher beta to the rest of Europe than any specific news.

On the data front, this week brings a bunch as follows:

Today	Empire State Manufacturing	6.0
Wednesday	Housing Starts	1.33M
	Building Permits	1.40M
	Durable Goods	-2.0%
	-ex Transport	0.3%
	IP	0.4%
	Capacity Utilization	76.5%
	FOMC Minutes
Thursday	Initial Claims	225K
	Continuing Claims	1870K
	Trade Balance	-$56.0B
	Phiily Fed	9.3
Friday	Q4 GDP	3.0%
	Personal Income	0.3%
	Personal Spending	0.4%
	PCE	0.3% (2.8% Y/Y)
	-ex food & energy	0.3% (2.9% Y/Y)
	Flash Mfg PMI	52.6
	Flash Service PMI	53.0
	Michigan Confidence	57.0
	New Home Sales	730K

Source: tradingeconomics.com

In addition, we hear from 5 more Fed speakers, but as I have consistently said, I don’t think they matter that much at this point. Overall, my take is that sector rotation in the equity markets is the key activity there, that bond markets are beginning to get more comfortable with a lower inflation outlook since the recent data has been pointing in that direction, and that the dollar, despite its many detractors, is not dead yet. We have seen an awful lot of volatility for the past several weeks. As I have repeatedly reminded you, that cannot continue forever. While I am sure that we will see more bouts of volatility this year, it does feel like for the next several sessions, things will be pretty quiet. Let’s be thankful for that.

Good luckA

Gone Astray

Posted on February 5, 2026 by fxpoet

Though Friday will lack NFP
We still will have something to see
The States and Iran
Will meet in Oman
To talk about nuke strategy

But til they, in fact, do sit down
Be careful as crude moves around
And what if talks fail
To find holy grail
Beware oil shorts and their frowns

With that as the background today
The narrative has gone astray
’Cause all kinds of tech
Resemble a wreck
While metals are fading away

Sometimes it’s hard to determine which stories are really driving markets as there are so many that have potential conflicts between them. With that in mind, I will start with oil this morning, which has seen a bit of choppiness during the past week on the back of on-again, off-again, on-again talks due to be held between the US and Iran. See if you can guess where the worries about a US military strike gained ground, were quashed by news of potential talks, saw a military skirmish in the Strait of Hormuz and then when talks were reconfirmed.

Source: tradingeconomics.com

Net, there is still an underlying concern about the situation, which is why, I believe, the price of crude (-1.1%) is still above $64/bbl. Remember, it was not that long ago when it had seemed to find a comfort zone below $60/bbl. It strikes me that if some type of accommodation is reached at these talks, where Iran gives up its nuclear weapon dreams and stops funding terrorism (I believe these are the administration’s goals) then there is plenty of room for oil prices to slide back below $60/bbl and continue what had been a longer term down trend as per the below chart.

Source: tradingeconomics.com

After all, given the fact that Venezuelan oil is going to be returning to the market, the continued expansion of production in Guyana, Brazil and Argentina, and now the idea of welcoming Iran back into the good graces of nations, that is a lot of potential supply that is currently not available. My concern is if Iran agrees to those terms, it may be an existential threat to the theocracy, so I guess they need to weigh that risk vs. the risk that the US does escalate militarily, which could also be an existential risk to the theocracy. Net, choppiness seems to be the likely road ahead.

Finishing commodities, precious metals have reversed the reversal and are down sharply this morning (Au -1.7%, Ag -11.0%, Pt -4.4%). Volatility remains extremely high and given the competing narratives of a) it was a bubble, and b) the fundamentals remain in place, I expect we will continue to see price action like this for a while yet. Although remember my strong belief that markets can only maintain volatility of this nature for a few weeks as at some point, all the participants simply become too tired to trade. There was a very interesting chart I saw on X this morning that showed the price action in gold during the German hyperinflation of the Weimar Republic a bit over 100 years ago.

I’m not implying we are heading to a hyperinflation, just that gold (and silver and platinum) prices can move very far in short order, as we’ve seen. In the end, nothing has changed the fundamentals with demand for gold still price insensitive, demand for silver still greater than mining supply with the same true for platinum. But it will be a rough ride for a little while yet.

So, let’s turn to the equity markets, where there are far more plugged-in analysts than me, but I want to take a higher-level look. While yesterday’s price action was mixed (NASDAQ and S&P lower, DJIA higher) it seems to indicate that there is an ongoing rotation out of tech stocks into other areas, amongst them consumer staples, energy and defensives. What I find so interesting about this, though, is that if I look at a chart of the three major US indices, they are all the same chart.

Source: tradingeconomics.com

Granted, the NASDAQ had the highest high back in November, but, in reality, they all move very much in sync. This begs the question, what can we expect going forward? At the end of the day, I still believe that stocks represent the value created in the economy. As such, if the Trump administration’s plans to reduce regulations and encourage banks to lend more to the real economy, rather than purchase financial assets, can be implemented effectively, that is a very real positive for equity markets over time. However, that probably means a much less steady climb, especially if the Fed is not explicitly supporting assets as the new Chair, Warsh, tries to shrink the balance sheet. It is going to be messy and there are going to be a lot of cross narratives and claims, so at any given time, the only reality will be increased volatility. But at least there’s a plan.

As to the rest of the world’s equity markets, it does appear as the bifurcation between those nations that are willing to work closely with the US and those working closely with China is likely to continue. It remains to be seen which bloc will outperform, although I like the US odds given the legal structure and the demographics.

With all that in mind, let’s look at the overnight price action. Asia had a tough go of it given the high proportion of tech names there. While Tokyo (-0.9%) slipped along with China (-0.6%) the real laggards were Korea (-3.9%) and Taiwan (-1.5%) and there were far more laggards (India, Australia, Malaysia, Indonesia) than gainers (Singapore, HK). This is the tech story writ large. In Europe, even though they largely lack tech, weakness is the norm (Spain -1.1%, Germany -0.2%, UK -0.3%) although the French (+0.3%) have managed to buck the trend. It is not clear why Spain is lagging so badly, although perhaps PM Sanchez’s efforts to import 500K new people while unemployment remains at 10%, the highest in the EU, has some concerned. As to US futures, at this hour (7:15), they are pointing higher by about 0.2%.

In the bond market, once again there is nothing going on. Treasury yields are almost exactly unchanged since early Friday morning, although we did see a dip and rebound after the Warsh announcement.

Source: tradingeconomics.com

The US yield curve is steepening as 30-year yields edge higher although those remain below 5.0%, a level that many are watching closely as a signal of a bondmageddon. On the continent, European sovereign yields have edged higher by 1bp to 2bps, but activity is muted ahead of the ECB meeting announcement (exp no change) scheduled later this morning. UK yields have edged lower by -1bp after the BOE left rates on hold, as expected, with a 5/4 vote, the 4 looking for a cut. I continue to believe that the odds are for the ECB to cut rates again far sooner than the market is pricing. And JGB yields slipped -2bps overnight as market participants await Sunday’s election results. Given PM Takaichi is forecast to win with an increased majority, it is hard for me to believe that if she does, JGB’s will sell off sharply on the idea she has promised more unfunded spending, they already know that.

Lastly, the dollar is firmer this morning, continuing to defy all the calls for its demise. The pound (-0.8%) is the laggard after the BOE sounded a bit more dovish than expected, but we are seeing losses across the entire G10 bloc. As to the EMG bloc, ZAR (-0.7%) is the laggard, but given the dramatic reversal in precious metals, that is no surprise. Otherwise, losses on the order of -0.3% or so are the norm.

On the data front, Initial (exp 212K) and Continuing (1850K) Claims lead the way and later we see the JOLTs Job Openings Report (7.2M). The word is that the NFP report will be released next Wednesday with CPI next Friday. Atlanta Fed president Bostic speaks later this morning, but I continue to believe that until we hear from Mr Warsh, the Fed’s words have very little impact. Arguably, the neutering of the Fed is why the bond market remains so quiet. Traders have lost their cues.

Risk attitudes are getting revisited around the world as the seeming permanence of increased risk appetite is starting to be called into question. There is no better signal of this than Bitcoin, which has broken back below $70K this morning to its lowest level since October 2024.

Source: tradingeconomics.com

It was January 2024 when the ETF, IBIT, started trading and BTC was about $43K at that time. As BTC is a pure risk asset/vehicle, it’s recent decline may well be the biggest signal that risk-off is coming. That could well impede the Trump efforts to rebuild the US manufacturing base, but perhaps, it could also encourage it, as business risks are easier to understand than market risks. The volatility is not over.

Good luck

Adf

Leverage Thumbscrews

Posted on January 30, 2026 by fxpoet

The President said that today
He’d let us know who’ll replace Jay
The favorite is Warsh
But that could be harsh
For markets, or so people say

But really, this morning, the news
Is silver and gold have the blues
It turns out their prices
Were causing a crisis
For players with leverage thumbscrews

The big news this morning, is that President Trump is ostensibly going to announce former Fed governor Kevin Warsh as his selection for the next Fed Chair. His history has been as someone who has disagreed with many Fed decisions, and he skews to the hawkish side of the spectrum, which seems odd for Trump who everyone expected would nominate a dove. He is clearly quite capable of doing the job and brings a significant amount of intellectual firepower to the role. It remains to be seen, if he is nominated, how the confirmation process will proceed, as well as what Jay Powell will do when his Chairmanship is up (his term runs until 2028).

The interesting connection for me is the number of stories that have linked this rumor to major market moves overnight, especially in the precious metals space. So, let’s jump in and look at a few charts to offer some perspective on things.

As we all live in the moment, it is often difficult to consider history in its fullness. Look at the three charts of gold (from tradingecomomics.com) that follow, each over a different timespan, 1week, 1year and 5 years.

1 week:

1 year:

5 years:

What do you notice: there is no question that gold (-4.7% or $250/oz) has fallen sharply overnight. that is evident in the first two charts. However, a look at the first chart shows you that despite a decline of that magnitude, the barbarous relic is still higher THIS WEEK! While gold has been exploding higher, it only crossed above $5000/oz for the first time on Sunday night in Asian trading. Now, I expect the bulk of the discussion will center around the 1-year chart which shows the dramatic decline as that is the newsworthy story, the ‘collapse’ in the price. But if we zoom out further, to the 5-year perspective, which has weekly candles, the last down week was in December. Market technicians will point to the shape of the most recent weekly candle, which is typically referred to as a hammer candle, and explain it signals a reversal in trend. And maybe it does. But the fact is volumes on the way up were much higher than those overnight, which does not portend panic selling. Trees don’t grow to the sky, and a reversal was always expected. Here we are.

The price action in silver overnight was almost identical, albeit more violent as has been the case with the rally as well. Platinum too. A couple of other things to consider about this:

Today is month end, a time when positions are typically adjusted and rebalanced, so given the tremendous rally seen this month in the metals, selling is what rebalances things.
China has not changed its policy regarding gold purchases nor its policy on license restrictions for the export of silver, so to the extent that those were driving forces in the rally, they still exist
There is no evidence the world is a safer place this morning than it was yesterday morning. There’s no peace in Ukraine; the Ayatollah has not relinquished power; Cuba and Venezuela remain in the status quo, and Europe continues to try to figure out how to power themselves without relying on the two largest energy exporters in the world, the US and Russia.

It beggar’s belief that this is entirely a reaction to the rumored naming of Kevin Warsh as the next Fed chair. As I type early this morning, the prices of precious metals are already bouncing nicely off their lows. I do not know what drove this move specifically, but I do not believe that the big picture story has changed.

This segues nicely into another key narrative this week, the dollar’s massive break lower. Earlier this week I had written about how the DXY was approaching a double bottom on the charts and many in the market were convinced that if we traded below that level, and more importantly, closed below the level, which was 96.22, that it opened the door for a much more significant leg lower. I addressed this, pointed out that the dollar was still in the broad middle of its long-term trading range, but acknowledged that a move lower was quite realistic. Well, as of yet, we have not closed below the key level, and this move is shaping up as a potential bounce back into the range. As you can see in the chart below, the baseline is still holding on.

Source: tradingeconomics.com

Now, the dollar is stronger across the board this morning (EUR -0.2%, GBP -0.2%, JPY -0.5%, CHF -0.4%, ZAR -1.1%, CLP -0.6%) although these declines are abating in a similar fashion to the precious metals price action this morning. Here, too, portfolio rebalancing would indicate that traders would be buying dollars given its decline this month. Has anything really changed in the FX markets overnight? All the recent policy decisions were exactly as expected. Data overnight showed that European GDP continues to muddle along at just 1.3%, hardly a rationale to invest aggressively on the continent. Is this dollar rebound just a response to the Warsh story and his presumed hawkishness? Or is it the normal ebb and flow of markets. I am not yet willing to concede the dollar is breaking lower, I need more proof for that, but I certainly cannot rule out that outcome, regardless of who the new Fed chair is.

How about other markets? Equities in the US yesterday were hampered by Microsoft’s earnings release Wednesday, with its decline dragging down the NASDAQ, although the DJIA managed to recoup all its early losses and finish in the green (barely). But Asian bourses had a more difficult time. While Japan (-0.1%) was little changed, both China (-1.0%) and HK (-2.1%) fell sharply, and I don’t believe those markets were responding to the Warsh rumor. It appears that HK, especially, was the victim of month end profit taking and rebalancing as it has had quite a good run this month. The other key laggard in the region was Taiwan (-1.45%) while the rest of the markets in the time zone were +/-0.5% or so, or less.

European shares, though, are all firmer this morning led by Spain (+1.6%) after GDP data there was a tick better than expected at 2.6%. But gains are universal (DAX +0.85%, CAC +0.7%, FTSE 100 +0.4%) as earnings results were enough to offset the generally lackluster data. Perhaps the idea of another ECB rate cut is entering the collective consciousness, although according to the ECB’s own forecast tool, there is a 10% probability of a 25bp rate HIKE. I’ll believe that when I see it. As to US futures, they are softer this morning as I type (7:10), with declines on the order of -0.3% across the board, which is also a rebound from levels earlier this morning.

Bonds: nobody seems to care. Yields have edged higher by 1bp virtually across the board this morning and still remain within the recent trading ranges. It is quite interesting how little financial markets are focusing on this key source of information.

And before I leave, oil (-0.5%) has backed off its recent top, although remains higher by 6.5% this week as concerns over a possible US action in Iran continue to haunt traders.

On the data front, this morning brings PPI (exp 0.2%, 2.7% Y/Y) for headline and (0.2%, 2.9% Y/Y) for core as well as Chicago PMI (44.0). Too, we get the first Fed speaker, Governor Bowman, but the only Fed news that is going to matter today is the mooted announcement about the next Chair.

What have we learned this week? Volatility is alive and well in the commodity space, and, although not quite to the same extent, in the equity space. Bonds are boring and the dollar continues to refuse to stick to the narrative that its days in the sun are over. Regarding the dollar, remember that despite all the talk of the dollar’s collapse, the only thing we have heard from ECB members is that if the euro rises too much (i.e. the dollar falls sharply) that is a problem and they will need to respond. It’s been an eventful month in the markets. I suspect that this may be a map for at least the first half of the year.

Good luck and good weekend

Adf

Too Potent a Force

Posted on January 9, 2026 by fxpoet

The headline today’s NFP
As pundits will try to agree
On whether the Fed
When looking ahead
Will like what it is that they see

But, too, the Supreme Court is due
To rule whether tariffs imbue
Too potent a force
For Trump, to endorse
Or whether they’ll let them go through

As the session begins in NY, markets have been relatively quiet as traders and algorithms await the NFP data this morning. Recall, Wednesday’s ADP number was a touch softer than forecast, but still, at 41K, back to a positive reading. Forecasts this morning are as follows:

Nonfarm Payrolls	60K
Private Payrolls	64K
Manufacturing Payrolls	-5K
Unemployment Rate	4.5%
Average Hourly Earnings	0.3% (3.6% y/Y)
Average Weekly Hours	34.3
Participation Rate	62.6%
Housing Starts	1.33M
Building Permits	1.35M
Michigan Sentiment	53.5

Source: trading economics.com

Regarding this data point, there are two things to remember. First, last month Chairman Powell explained that he and the Fed were coming to the belief that the official data was overstating reality by upwards of 60K jobs due to concerns over the birth/death portion of the model. That is the factor the BLS includes to estimate the number of new businesses started vs. old ones closed in any given month. Historically, at economic inflection points, it tends to overstate things when the economy is starting to slow and understate when it is turning up.

The second thing is that given the changes in the population from the administration’s immigration policy, with net immigration having fallen to zero recently, the number of new jobs required to maintain solid economic growth is much lower than what we have all become used to, which in the past was seen as 150K – 200K. So, 60K, or even 40K, may be plenty of new jobs to absorb the growth in the labor market, which will come from people re-entering the market who had previously quit looking for a job.

The ancillary data, like ADP and the employment pieces of ISM were both stronger in December than November, so my take is, the estimates are probably reasonable. I have no strong insight into why it would be dramatically different at this point. The question is, how will markets respond? My take is this could well be a ‘good news is bad’ situation where a strong print will see pressure on bonds and stocks as the market reduces its probability of a Fed rate cut (currently 14% for January, 45% for March) even further. The dollar would benefit, as would oil on the demand story, but I think metals will do little as that story is not growth oriented. A weak number would see the opposite.

Of course, the other big potential news today is the Supreme Court ruling on the legality of Trump’s tariffs. The odds markets are at ~70% they will overturn them, but there is the question of whether it will require the government to repay the tariffs or simply stop them. As well, most of them will be able to be reimposed via different current laws, so net, while a blow to the administration I don’t believe it will have a major long-term impact with repayment the biggest concern. This particular issue is far too esoteric for a simple poet to prognosticate.

And those are the market stories of note, although we cannot ignore the growing protests in Iran as videos show buildings burning in Tehran and there is word that the Mullahs are at the airport, which if true tells me that the regime is on the edge. While this would be a great victory for the people of Iran, it would also have a dramatic impact on oil markets and specifically on China. While sanctions could well be lifted, thus depressing the price as more comes to market, China currently benefits from buying sanctioned oil at a massive discount, and that discount would disappear.

As we await all the news, let’s review the overnight activity. A mixed US session was followed by strength in Tokyo (+1.6%) as the Japanese government surprised one and all by reporting a stronger 30-year JGB auction than anticipated as well as an uptick in spending by households. Too, nominal GDP growth has been outpacing deficit growth driving the net debt ratio lower, exactly what the US is seeking to do. As to the rest of the region, both China (+0.45%) and HK (+0.3%) managed gains, as did Korea and Malaysia but India (-0.7%) continues to lag as it has all year. Data from China showed inflation fell less than expected, although the Y/Y number remains at just 0.8%.

In Europe, gains are also the norm with France (+0.9%) leading the way with both the UK (+0.55%) and Germany (+0.4%) having solid sessions. Retail Sales data from the Eurozone was firmer than expected at 2.3%, a rare positive outcome, but showing some support. As to the US futures market, at this hour (7:30) all three major indices are higher by about 0.15%.

In the bond market, while yields have edged higher by 2bps this morning, as you can see from the chart below, they remain within, albeit at the top, of the recent 4.0% – 4.2% trading range.

Source: tradingeconomics.com

The most interesting data point from yesterday was the dramatic decline in the Trade deficit, which fell to -$29B, its lowest level since 2009. Recall that a long-time issue has been the twin deficits, with the budget and trade deficits linked closely. I wonder, are we going to see Trump’s efforts at reducing government’s size and reach result in a smaller budget deficit? Most pundits dismiss this idea, but I’m not so sure. As to the rest of the world, European sovereigns are essentially unchanged this morning as investors everywhere await the US data and tariff ruling.

In the commodity markets, oil (+0.9%) is creeping higher but remains in its downward trend.

Source: tradingeconomics.com

Wednesday, we saw a large draw in crude inventories abut a massive build in both gasoline and distillates which feels mildly bearish. The narrative is the Iran story is getting people nervous for potential short-term disruption, but I remain overall bearish for now. As to the metals markets, gold (-0.3%) is slipping after having recovered early morning losses yesterday and finishing higher, while silver (+0.6%) is still bouncing along with copper (+1.8%) and platinum (+0.4%). Metals are in demand and supply is short. Price here have further to rise I believe.

Finally, the dollar continues to rebound off its recent lows with the DXY back to 99 again this morning. it has rallied in 11 of the past 13 sessions, not typical price action for a trading vehicle that is in decline.

Source: tradingeconomics.com

In fact, the greenback is firmer against virtually all its G10 and EMG counterparts this morning with the largest declines seen in JPY (-0.5%), KRW (-0.5%) and NZD (-0.5%) with others typically sliding between -0.1% and -0.3%. again, it is hard to watch recent price action and see impending weakness. We will need to see much weaker US data to change my view. And along those lines, the Atlanta Fed’s GDPNow number just jumped to 5.4% for Q4 after the Trade data yesterday, again, atypical of further weakness in this sector.

And that’s really all as we covered data up top. To me, the wild cards are Iran and the USSC. While I do believe the regime will fall in Iran (they just shut down the internet to try to prevent a further uprising) my take on the Supremes is they may stop further tariffs but will not force repayment. Net, that won’t change much at all and given the prediction markets are pricing a 70% probability of an end to tariffs, if it happens, it’s already in the price!

Good luck and good weekend

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Spinning More Heads

Posted on January 8, 2026 by fxpoet

The speed of the change underway
In global relations today
Is spinning more heads
And tearing more threads
Than ever before, one might say

For markets, the question of note
Is how will investors all vote
Are bulls still in charge
Or bears now at large
Who seek, excess profits, to smote

It is becoming increasingly difficult to focus only on market activity given the extraordinary breadth of important, non-market activities that are ongoing. When I think back to previous periods of significant market volatility and uncertainty, it was almost always driven by something endogenous to finance and the economy. Going back to Black Monday in 1987, or the Thai baht crisis in 1997 or the Russia Default in 1998, the dot-com crash in 2000, and the GFC in the wake of the housing bubble (blown by the Fed) in 2008-09, all these periods of significant market volatility were inward looking.

But not today. Trump 47 has become the most significant presidency since Ronald Reagan with respect to changing both domestic and international realities. The key difference is that Mr Reagan worked within the then consensus view of international relations, merely pushing them to the limit while Mr Trump sees those views as constrictions needing to be removed.

In fairness, the world was a very different place in the 1980’s, notably for the fact that China was not a major player in any sphere of economic activity and was essentially ignored. That is no longer the situation, and the entry of another power player has complicated things. Arguably, this is why the president sees the old rules as obsolete, they were built for a different time with a different cast of characters. Regardless, for those of us paying attention to markets, it is imperative to widen our view to include international relations as well as international finance.

With that as preamble, a look at today’s headlines reminds us that keeping up with the news is not for the faint of heart. Starting with Venezuela and the impact on oil (+1.6%), news sources are littered with articles explaining why the US acted as we did and the potential implications for energy markets and energy producing countries. From what I can tell, Venezuela recognizes that they are completely beholden to US demands at this point with respect to their oil industry (mining as well I presume although that gets less press). And you can be sure that means they will be expected to pump more, with US corporate help, and direct their sales to the US, as opposed to Cuba, China and Iran.

Despite today’s rally, it remains my strong opinion that the price of oil has further to decline. The trend continues to be sharply lower, as per the below chart, and the domestic political demand of reducing gasoline prices is going to keep this particular trend intact, I believe.

Source: tradingeconomics.com

News overnight indicated that two more shadow fleet tankers have been apprehended which is simply all part of the same plan, bring Venezuela back online legitimately with a focus to sell to the US. The other global issue that is going to weigh on the price of oil are the ongoing protests in Iran which if ultimately successful at overthrowing the Ayatollah’s theocracy, will almost certainly bring Iran back into the brotherhood of nations, and see the end of sanctions on Iranian oil. While that is bad news for China (and India) who buy a lot of cheap sanctioned oil, it will increase production and weigh on market prices.

The other sector of the commodity markets, metals, have been their own roller coaster of late, with far more volatility than any other product, cryptocurrencies included. It cannot be a surprise that we are seeing prices retrace after the extraordinary price action over the past several months. The silver (-4.4%) chart below is the very definition of a parabolic move and history has shown that moves of this nature tend to see, at the very least, short-term sharp reversals, even if the ultimate trend is going to continue.

Source: tradingeconomics.com

The underlying features in these markets remain supply shortages, meaning that there is more industrial demand for utilization than there is new supply that comes to market each year. In silver, the number apparently is ~100 million ounces, and deliveries of physical metal remain the norm these days. That is a telling feature of the market as historically, cash settlement was sufficient. Given the recent run, it is no surprise that gold (-0.8%) and platinum (-6.5%) are also declining sharply, but nothing has changed my view that these will trend higher this year. One last thing about silver (h/t Alyosha), the Bloomberg commodity index (BCOM) is rebalancing next week and given the huge moves in precious metals, along with the lack of change in percentage allocation, there will be significant selling over the course of the next week, upwards of 70 million ounces of silver, which will go a long way to satisfying the shortage this year. It will be interesting to see if demand remains intact.

If we turn to the dollar, rumors of its death remain exaggerated. Certainly, the price action thus far this year, and even over the past six months, points to gradual strength (see chart below from tradingeconomics.com).

Again, I have a hard time understanding the argument that the dollar will decline this year based on the fact that the US economy continues to outperform the rest of the G10, there are substantial inward investment promises that are beginning to be seen (shipbuilding, semiconductors, steel) and the US interest rate structure remains higher than the rest of the G10. While I understand markets look forward, it is becoming increasingly difficult for me to see the benefits of European monetary policy as a driver for owning the euro, and given their industrial/energy policies are disastrous, I don’t see the rationale. The same can be said for the pound, I believe.

In today’s session, while the movement is mostly marginal (EUR 0.0%, GBP -0.1%, SEK -0.3%, AUD -0.4%), the trend remains intact and the movement is broad with almost all G10 and EMG currencies slipping a bit further. Money goes where it is best treated, and I am hard pressed to find other nations that treat money better. Although…

The equity markets are a bit shakier this morning after two presidential tweets yesterday regarding institutional ownership of housing (he wants to end that for single family homes) and defense company spending priorities (he wants defense companies to end stock buybacks and dividends and invest in R&D and production). It is not clear to me whether he can successfully force these actions, but his bully pulpit is significant. These resulted in sharp declines in directly impacted companies, but regarding defense, he also came out of a meeting with Congressional leaders and said he wants to budget there to grow to $1.5 trillion.

The upshot is confusion here which was evidenced by more weakness than strength in the US session and similarly, declines in Asia (Japan -1.6%, China -0.8%, HK -1.2%). Elsewhere in the region, India (-0.9%) continues to be the laggard, but there was more red than green overall. In Europe, red is also today’s color, albeit not as bright as in Asia. The DAX (-0.2%), CAC (-0.25%) and FTSE 100 (-0.3%) are emblematic of the situation as investors dismissed better than expected German Factory Order data (+5.6%) although the rest of the data released was mostly at expectations. I guess the question is does Europe treat money better than the US? I would argue not, but that’s just my view. Meanwhile, at this hour (7:55), US futures are down slightly, about -0.1% across the board.

Finally, the bond market remains an afterthought almost everywhere. Perhaps the most amazing thing President Trump has accomplished is to remove the focus on the latest tick in the 10-year bond as a key metric for the economy. So, this morning, its 1bp rise just leaves it right in that 4.0% – 4.2% range that has existed for months. Most European sovereign yields edged higher by about 3bps with Germany (+7bps) the outlier here after that strong Factory Orders data. Also worth noting is that JGB yields slipped -5bps overnight as the market prepares for the first 30-year JGB auction of the year. Recent 10-year auctions have been received quite well, hence the anticipation of something good here.

On the data front, Initial (exp 210K) and Continuing (1900K) Claims lead the way along with the Trade Balance (-$58.9B) and then Consumer Credit ($10.0B) this afternoon. Yesterday’s ADP data was a touch softer than expected but the JOLTS data was much worse, showing a decline in job openings of 300K and falling well short of expectations of 7.6M. At this point, though, to the extent that people are paying attention to the data, tomorrow’s NFP is of far more import I believe.

The hardest thing about these markets is the White House bingo card and its surprises that can change working assumptions. Absent something new there, I see the dollar drifting higher helped by both its recent trend and the short-term pullback in metals.

Good luck

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Explaining the rhyme and rhythm of the FX markets each day

Tag Archives: #higherdollar

Not Be Sublime

How Long Can This Stand?

Sometime Soon Become Miffed

Bonds are a Flop

No Longer the Same

Hold My Beer

Gone Astray

Leverage Thumbscrews

Too Potent a Force

Spinning More Heads