One Sixty

Posted on June 3, 2026 by fxpoet

The asymptote nears
Will they act at One Sixty?
Can they afford to?

Yesterday saw the yen edge ever closer to the 160 level, the point at which the MOF/BOJ acted in April. Frankly, looking at the chart, it reminds me of an asymptotic limit from calculus, but the one thing we know is there is no natural limit, only whatever artificial one is imposed (or tried to be imposed) by the Japanese government.

Source: tradingeconomics.com

The market continues to price a high probability, ~86% according to the OIS market, of a 25bp hike by the BOJ next week, and I’m confident they will do that. But to me, the question is, will it matter to the FX markets? Here’s the thing about FX, typically there are two separate, but related, drivers of the relative value of one currency vs. another. The most common discussion is about short-term interest rate differentials, typically proxied by central bank base rates. Below is a chart of the past ten years of data for Fed funds (grey line), BOJ base rate (blue line) and USDJPY (brown line).

Source: tradingeconomics.com

It is abundantly clear that there is a strong relationship here, as US rates shot higher in the post-Covid inflation bout and USDJPY shot higher as well. Now, since the Fed started cutting rates back in September 2024, while Japanese rates have edged higher over the same time frame, it would be reasonable to assume that USDJPY should retreat somewhat. However, as you can see in the first chart, that is just not happening. In fact, the pressures are the other way, with far more weakness than strength.

Why, one might ask, is this the case? This takes us to the other major factor in FX rates, relative capital flows. Nations that see substantial inflows in capital will typically see their currencies appreciate. Now, ask yourself, which nation sees the biggest inflows of capital in the world? Yes, the US, as the capital account surplus is the mirror image of the massive current account deficit that we run. In fact, if you look at the below chart, it shows the relative current accounts of Japan (grey bars) and the US (blue bars) in percentage of GDP which most recently showed -3.6% for the US and +4.7% for Japan.

Source: tradingeconomics.com

Now, let’s do the math. US GDP is ~$28.8 trillion while Japanese GDP is ~$4.4 trillion. 3.6% of $28.8 trillion = ~$1.037 trillion of capital inflows. 4.7% of $4.4 trillion = $202 billion of capital outflows. Of course, we know that everybody in the world is piling into US technology stocks, and that is where the capital is mostly flowing, but in order to do so, they are buying USD. This is true of Japanese investors as well as others around the world.

There is a narrative that is developing that claims as the Japanese raise interest rates, the massive, short yen positions that exist to fund many speculative trades will unwind, and with that, the yen will strengthen dramatically as well as we will see many other markets sell off sharply as those positions unwind. But the NASDAQ is up 21% YTD and 40% in the past year. If you are an investor and you are funding a speculative position at 0.75% annually that rises to 1.00% while you are returning 40% on the other side, do you really care?

To my eye, for the yen to change course, intervention is irrelevant, and so is a 25bp rate hike. We need to see a wholesale change in the combination of Japanese fiscal and monetary policies as well as changes in those policies in the US. Historically, a tight monetary and loose fiscal policy combination will strengthen a currency (something that the US currently has), but can Japan afford to tighten monetary policy that much? My money is on no, and while 25bps seems pretty certain next week, I would not be looking for USDJPY fall very far, if at all. And remember, the market is pricing a 50% chance of a Fed hike by the end of the year. Don’t be taken in by this story in my view.

Away from this issue, it is difficult to find other critical news. Yes, there was another skirmish in Iran straining the concept of a ceasefire, but all-out war has not resumed. The elections in California and LA will take several weeks to determine who will be on the ballot in November, which, when you think about it, sums up the incompetence of California governance writ large.

So, oil is higher along with the dollar and yields, but so are stocks, while metals slip. Let’s look at the overnight activity. Another set of equity records in the US was followed in Asia by broad based strength as Tokyo (+2.5%), China (+0.5%), Korea (+0.2%) and Taiwan (+2.0%) all continued to climb. Both HK (-1.6%) and India (-0.4%) were not as robust with the former seeing profit taking after a few strong sessions while the latter felt pressure from those rising oil prices. One outlier here was Indonesia (-4.5%) which suffered after weaker than expected trade data, higher than expected inflation data, and a weakening rupiah which set another record low (dollar high), touching 18,000.

European bourses, meanwhile, are mostly under pressure after President Trump has devised a new way to impose tariffs on nations that allow “forced labor” which is defined as “all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily.” One must give the president props for his continuous efforts to impose tariffs, if nothing else. At any rate, Germany (-0.9%) is leading the way lower, followed by Italy (-0.3%), France (-0.2%) and the UK (-0.2%) although Spain (+0.5%) is bucking that trend on the strength of the earnings for Inditex (Zara clothing parent) which is one of the largest companies in the nation. US futures, at this hour (6:40) are mixed.

In the bond market, yields are rising again on the back of the oil price rise with Treasury yields (+4bps) gaining alongside the entire European sovereign market, all of which have risen a similar amount. Last night, JGB yields also rose 6bps, as they respond to the oil market as well as pending rate hikes by the BOJ.

In the commodity market, if you think back to late May, you may recall an announcement that a deal with Iran was close which prompted a gap lower in oil prices as you can see in the chart below. Well, that gap has now been filled.

Source: tradingeconomics.com

Just as nature abhors a vacuum, markets abhor a gap and seek to fill it whenever possible. My take here, though, is now that the gap is filled, there is less reason to see oil rally much further and a consolidation before a slow decline is in the cards. As to metals markets, gold (-0.8%), silver (-1.2%) and copper (-1.1%) are all softer on the day, with their negative correlation to oil intact.

Finally, the dollar is firmer this morning, keeping in line with its recent relationship with other markets. However, the movement remains relatively muted with most G10 currencies softer by -0.2% or so as only SEK (-0.6%) and NOK (+0.1%) really buck that trend. NOK is clearly benefitting from the oil price rise while SEK seems to be suffering from a slightly higher beta to the broad dollar move. In the EMG bloc, KRW (-0.9%) is the laggard as it continues under pressure and trading to its lowest levels (highest dollar) since 2009.

Source: tradingeconomics.com

But otherwise, most of these currencies are slipping a similar amount to the G10 bloc, on the order of -0.2% or so.

On the data front, this morning brings ISM Services (exp 53.8) as well as Factory Orders (4.6%, 0.8% ex-Transport) and then the EIA crude oil inventories with another sizable draw anticipated. At 2:00, the Fed’s Beige Book is released which should make for some interesting reading. Yesterday’s JOLTs data was surprising in that it showed a significant jump in job openings, 700K more than expected which does not portray a weakening labor market.

Overall, equity markets seem to be disconnected from the impact of oil prices, something that very few analysts would have forecast in February. But the dollar remains closely linked to those prices for now. As we all sit here, waiting for the next headline, I cannot help but look at the US data and consider that the economy continues to tick over pretty well. Ultimately, I believe that bodes well for the dollar over time, or at least until some other major economy shows it can perform well.

Good luck

Adf

No Black Swan

Posted on June 2, 2026 by fxpoet

For all of the angst that Iran
Has ended the talks and moved on
The market for oil
Has come off the boil
As risk takers see no black swan

So, stocks keep on making new highs
And it cannot be a surprise
That bond yields have slipped
While in today’s script
Elections will garner all eyes

Once again, I am having a hard time reconciling the narrative and the price action. Yesterday saw a sharp rally in oil as the talks between the US and whoever is representing Iran apparently collapsed. Yet, as you can see from the below chart, while that was worth nearly $5/bbl early in yesterday’s session, those gains dissipated over time and this morning, oil (-1.2%) continues that slide.

Source: tradingeconomics.com

One thing I saw on X this morning claimed Iran was done talking, had received a nuclear bomb from a third party (Pakistan? North Korea?) and was going to detonate it somewhere. Another was that the talks are still ongoing. I do find it interesting that so many are willing to take statements from the Iranian news agency, TASNIM, a body that has lied repeatedly for 47 years, and assume their claims are gospel. Propaganda is always an ongoing project on both sides (in truth from every government everywhere) and thus every claim must be seen for what it is, speaking to a specific audience to achieve a response, not an unbiased description of reality. Thus, it seems many folks see what they want to see to confirm their prior beliefs. I come back to the market as the most unbiased arbiter, and it continues to point to an end to the conflict on a relatively short timeline.

Which takes us to the other story today, US primary elections, notably in California where there is a gubernatorial primary and a mayoral one in LA that has garnered the most attention based on the seeming outstanding performance of former reality-TV star (?) Spencer Pratt running against the incumbent Karen Bass. This race seems like it may be quite important nationally as it would offer the possibility that the deepest blue of cities may finally have had enough incompetence in the mayor’s office and wants to change directions, at least a little bit. Of course, NY just elected an incompetent mayor, as did Seattle and Chicago before them, so maybe the people in these cities like the situation. I’m hopeful that is not the case.

But otherwise, it is hard to get too excited about much this morning. equity markets in the US made yet another set of new highs yesterday across the major indices as no matter the news, it appears there is a bullish spin. So, let’s turn to markets this morning. Asian equity markets were mixed overnight with Tokyo (-0.3%) slipping slightly although HK (+2.5%) and China (+1.5%) both rallied nicely on the back of the US tech rally. Net, there were far more winners in the region (Korea, India, Taiwan, Philippines, Thailand, Singapore, Indonesia), than laggards (Australia, New Zealand, Malaysia) with the laggards barely slipping at all. So, despite all the angst over Asian nations running out of oil and oil products, equity investors are all in there!

In Europe, it’s happy days as well as per the below Bloomberg screenshot.

This is despite Eurozone inflation rising to 3.2%, its highest level since September 2023, and, as per the below chart, certainly looking like it is beginning to trend higher on the back of 3+ months of higher oil prices feeding through the entire economy.

Source: tradingeconomics.com

Of course, given Eurozone GDP is indistinguishable from zero (see below chart), and has been for 3 years, it is fair to wonder if this is setting up to be a particularly egregious central banking error by Madame Lagarde.

Source: tradingeconomics.com

Too, while short-term inflation expectations have unsurprisingly risen, a look at the 5-year result shows limited concern by consumers. As an aside, there is good reason to believe that inflation expectations are irrelevant in future inflation readings, at least according to the academic literature, but it is a driving force in current central banking models, so needs to be considered.

In the end, though, the ECB is going to hike rates next week, on that you can depend, and if when economic activity declines, they will blame Putin or Trump or Elon or anything but their own failed policies.

As to US futures at this hour (7:10), they are modestly lower, maybe -0.2% or so across the board.

In the bond market, Treasury yields have fallen back -3bps this morning after round-tripping 5bps higher yesterday and finishing the day unchanged. European sovereign yields are having a better day, with declines of -6bps to -7bps across the continent and JGB yields (-11bps) are really falling. My conclusion is that investor concerns over runaway inflation simply do not exist despite the narrative pushing that story. The ostensible crises in May apparently never arrived, at least not yet.

In the commodity market, it can be no surprise that metals prices (Au +1.0%, Ag +1.8%, Cu +1.0%) are higher this morning given the overall risk environment. The negative correlation between metals and oil remains largely intact for now. The interesting thing to note, though, is that despite the daily gyrations, in reality, neither oil nor the precious metals have gone anywhere in a while. The same is not true for copper which is at new all-time highs.

Finally, the dollar is modestly softer this morning, on the order of 0.1% against its G10 counterparts with AUD (+0.3%) the best performer. In the EMG bloc, ZAR (+0.6%) is responding to the combination of lower oil and higher gold prices and MXN (+0.4%) is also having a pretty good session, but that seems more like beta vs. the dollar than anything else. I would be remiss if I didn’t spotlight JPY (0.0%) which continues to edge closer to the 160.00 level as per the below chart, but was also the subject of much discussion as FinMin Katayama was out explaining that, “As for foreign exchange, we continue to maintain our stance that we stand ready to take appropriate action at any time, as needed.” However, while the market expects a 25bp rate hike in two weeks, that is already in the price. In order to stop the yen’s slide, they will need to really change policy, something which I maintain is not in the cards for now.

Source: tradingeconomics.com

On the data front, this morning brings only the JOLTs Job Openings (exp 6.88M), essentially unchanged from last month. Yesterday’s ISM Manufacturing data was quite solid across the board except for the employment subindex, which remains lackluster as companies expand with more automation.

I think it is fair to say nobody knows what will happen in the Iran conflict nor the timing. While markets can be completely wrong, and forced to reprice suddenly, that is an extremely rare occurrence. Too, the one thing on which we can count is if something hugely negative occurs, central banks around the world will step in, add liquidity and cut rates, to ameliorate the slide. My point is, I will not bet against the market view that this will end sooner rather than later.

Good luck

Adf

Actively Chided

Posted on May 26, 2026 by fxpoet

Ostensibly, talks are ongoing
However, some fighting is sowing
The seeds of more doubt
That they’ll work it out
Ere Tehran’s surroundings are glowing

But markets have clearly decided
An outcome will soon be provided
Thus, risk is embraced
And stocks, higher, chased
While bond bears are actively chided

I hope everyone had a nice Memorial Day weekend, although until Monday afternoon, I must admit the weather here in NJ was less than we might have hoped. Of course, a few raindrops are nothing compared to the “defensive” attacks executed by US forces, sinking two Iranian boats while they were trying to lay mines in the Strait. Apparently, Iran’s response, several volleys of surface-to-air missiles was met with the destruction of those launchers as well.

There is nothing better, though, than the language Iran uses in situations like this. According to the WSJ, the head of the national security committee of Iran’s parliament, Ebrahim Azizi, explained that any attacks on the country’s armed forces would be met with “a decisive, crushing and regrettable response.” It certainly sounds impressive, but it is not clear they can back up those words that effectively. I guess we shall see.

In the meantime, the other newsworthy item from the weekend was that the Supreme Leader, Mojtaba Hussein, was killed in a military strike and yet talks appear to be continuing. President Trump explained that the framework for a deal was getting close and that was enough for traders to don their rose-colored glasses as oil gapped lower by more than $5/bbl when futures markets opened Sunday night and despite the recent “defensive” strikes mentioned above, remains far below levels seen last week.

Source: tradingecomomics.com

Not surprisingly, as Monday night trading in Asia gets underway, risk is back on with equities and metals higher, and bond yields lower.

And as we awaken Tuesday morning, very little new has occurred. The market continues to believe in the idea that the war is over in all but the details, at least the Iran war. Ukraine continues, alas.

On Friday, the latest Fed Chair
A man with a full head of hair
Was sworn to uphold
The idea that gold
To dollars, must never, compare

Before the weekend began, Kevin Warsh was sworn in as the new Fed Chair and the man has a tough job, that is for sure. As another indication that the Fed is not an apolitical institution (as if any institution based in Washington DC could be apolitical), he hadn’t even gotten the keys to the office before two Fed governors were out opposing his very existence. The WSJ editorial page had a nice summation here which explained that Michael Barr, the erstwhile Vice Chair for Supervision who oversaw the collapse of Silicon Valley Bank (perhaps not the best credentials) was adamant that shrinking the balance sheet would lead to problems, as though he could foresee them! Then Chris Waller, who was in the hunt for the Chairman’s seat, reversed his recent views on interest rates, explaining hikes were likely in order. I’m sure there are no sour grapes there!

From this poet’s perspective, the financialization of the economy has been one of the biggest long-term problems we have seen and part and parcel of that financialization has been the Fed ~~bloating~~ expanding its balance sheet from <$1 trillion prior to the GFC to nearly $9 trillion at the height of the Covid madness and still well above $6 trillion today. It is much harder to financialize things if there is less money around. I fully support the idea that shrinking the Fed’s balance sheet would be a good thing. Alas, that will be a tough road to hoe for Mr Warsh. Good luck to him.

And with that, there are few other stories of note, so let’s look at the market response to the latest peace initiatives. While we’ve already discussed oil above, gold saw the initial move you would have expected, jumping sharply, but has since given back much of those gains, as per the below chart, and is now about 0.5% higher than Friday’s close.

Source: tradingeconomics.com

Silver has seen similar price action as has copper. Certainly, if a deal is signed, I believe we can expect oil to head back toward $75 – $80 per barrel and gold and silver to rebound sharply as well.

The other noteworthy mover was the bond market, which saw yields fall sharply on the news of the deal framework getting close. You may recall the apocalyptic prognostications just last week when 10-year Treasury yields climbed near 4.70% with many discussions regarding the steepening of the yield curve and the trouble ahead for the economy. But as I type this morning at 7:00am, the 10-year yield has dipped back below 4.50% in sync with the oil move lower as some of those inflation fears seem to be mitigating.

Source; tradingeconomics.com

Now, as I look across European sovereign markets, they all show modest rises in yields this morning, but that is because yesterday, they fell so sharply. Net, over the two days, yields are lower across the board. As an example, the chart below shows both German and Italian 10-year yields and I highlighted Friday’s closing levels. As you can see, both fell sharply yesterday and bounce a bit this morning but remain much lower.

Source: tradingeconomics.com

Moving on to equity markets, we have observed the same phenomena there, where there was a gap opening higher on Sunday night in futures markets which continued in cash markets while the US markets were closed for Memorial Day. So, while last night, the Nikkei (-0.25%) slipped, that was after a more than 3% rally on Sunday night/Monday. Ultimately, given the US holiday and the news cycle over the weekend, we need to look at the movement since Friday to get a sense of things. So, below is a chart of both the Nikkei and the German DAX showing the rally from Friday’s late trading. Again, risk is back baby!!

Source: tradingeconomics.com

Finally, the dollar is, well, it is all over the place this morning. I look at tradingeconomics.com as my source for currency prices as they are all in one place. One of the weird things this morning is that the EUR (-0.1%), GBP (-0.2%), JPY (-0.15%), CAD (0.0%), CHF (-0.2%) and SEK (-0.2%), the components of the DXY, are all flat to weaker this morning, the DXY itself is also weaker. I have no explanation for that. Generally, I would say the dollar is a bit firmer overall this morning with one notable exception, KRW (+0.7%) which saw demand alongside the sharp rally in the KOSPI overnight. but otherwise, the dollar is modestly higher against most of its counterparts. Lastly there has been a lot more noise than signal here.

On the data front, the short week does bring some important information.

Today	Chicago Fed National Activity	-0.3
	Case-Shiller Home Prices	1.0%
	Consumer Confidence	92.0
Thursday	Initial Claims	211K
	Continuing Claims	1780K
	Durable Goods	3.5%
	-ex Transport	0.5%
	Personal Income	0.4%
	Personal Spending	0.5%
	GDP Q1	2.0%
	PCE	0.5% (3.8% Y/Y)
	Core PCE	0.3% (3.3% Y/Y)
	New Home Sales	670K
Friday	Goods Trade Balance	-$87.0B
	Chicago PMI	49.7

Source: tradingeconmics.com

Now, with PCE coming, we are going to have to get a new line there as Chairman Warsh likes trimmed-mean PCE, which not surprisingly, has been lower of late, as the key metric for the Fed to follow. I assume that will become the newest thing to watch. Of course, it is far too early to have any sense of anything at the Fed now, other than the fact that there will be lots of politicking going on.

So, what have we learned? Markets are still hopeful that the Iran conflict will end soon with a satisfactory (meaning no SOH problems) conclusion. In that circumstance, risk will be the ongoing preferred stance, and I expect the dollar will come under pressure in that scenario, at least for a time.

Good luck

Adf

Starting To Bite

Posted on May 18, 2026 by fxpoet

The meeting between Trump and Xi
Had little but hyperbole
So, markets now turn
To their key concern
Inflation that’s grown one, two, three

While oil has garnered attention
Tis yields and their latest ascension
That’s starting to bite
And causing a flight
Of buyers, and lots of press mention

And one more thing that you should know
Is China continues to slow
Through all of Xi’s bluster
He simply can’t muster
His people to get-up-and-go

As we begin a new week, a quick review of the last one shows that the much-touted Trump-Xi summit didn’t seem to address any of the current problems, at least as defined by what financial markets deem problems. These are the lack of transit ability through the Strait of Hormuz, with the resultant limit on oil supplies and the resulting rise in prices and inflation as energy prices feed into the price of everything else. I guess it was always a great leap to believe that this summit was going to end the war, and depending on which side’s comments you read, China has either agreed, or not, to try to push Iran to reopening the Strait. Certainly, they would like that to be the case, but thus far, as I type Monday morning, there has been no further movement. In fact, last night, the President sent this message out.

I guess we cannot rule out a further escalation of military action in Iran at this point, and I imagine the oil market will not be pleased.

Speaking of China, though, while many want to continue telling the story that they are weathering the Iran conflict with limited impact because they had stockpiled so much stuff ahead of time, below are their latest economic data statistics, a grouping that does not shout, at least to me, of a nation hitting on all cylinders.

Source: tradingecomomics.com

I am confident that we will once again hear about all the stimulus that President Xi will soon add to the Chinese domestic economy as they seek to increase the proportion of domestic activity compared to their export focus. But I would take the under there. First, if you thought that politicians in the US didn’t care about their constituents, compared to Xi, they wait on their constituents hand and foot. But history has shown that China’s model is to support chosen industries, as I showed on Friday, and subsidize them so they can learn to dominate all competitors.

Arguably, the one time they were willing to subsidize the domestic economy was with the property market, although that simply led to the construction of the so-called “ghost” cities, where people invested in the property bubble, as they had few other outlets to save money, and enormous amounts of resources were consumed to build cities that never had any occupants. Alas, for all those investors, those cities still don’t have occupants, and with a shrinking population, never will. The property market has been shrinking in value for 4 years now and shows no signs of slowing as per the below chart of the House Price Index from above.

Source: tradingeconomics.com

While things are certainly not perfect here, China’s got problems as well, just remember that.

But arguably the real story right now is bond yields as Treasury yields, and those almost everywhere else in the world, continue to rise. As you can see from the Bloomberg screenshot below, while the overnight movement has not been excessive by any stretch, yields have now risen pretty aggressively over the past month, and year, and are trading at their highest levels since the 2022 inflation peaks.

Now, if we look at the below chart from tradingeconomics.com, it shows 10-year yields over the past 5 years. You can see that US yields have not yet reached their October 2023 highs (driven then by the combination of strong economic growth and ongoing QT as inflation remained high from its Covid induced rise), but both Germany (green line) and Japan (brown line) are at their highest levels in quite a long time. We have discussed Japan numerous times over the past months, but not spent much time on Germany. However, the German story is one of stagflation. I have shown how poorly German economic output has grown over the past 5 years, as it has essentially stagnated over the entire timeframe. Now, add the self-inflicted energy policy insanity, that had already severely impacted Germany before the Iran conflict, and then the Iran conflict and $100/bbl oil prices, and the Germans have even more problems.

Here in the States, the recent inflation data has been consistently higher, and higher than expected and the great white hope of AI-induced deflation seems to always be a little further away than hoped/expected. It remains difficult for me to see a scenario where prices fall dramatically in the US anytime soon as there is too much economic stimulus to allow for a recession, let alone a depression, which is what I think would be needed to get prices to fall. In this world, yields will continue to creep higher, at least until such time as Iran is no longer an issue. One other thing to remember is that there is a massive short position in bond futures, upwards of $1 trillion across all maturities, although that is entirely driven by hedge funds in the basis trade, where they are long cash bonds and short futures as an interest rate hedge. But that only works as long as the math works (funding costs are less than the carry they earn). The point is, if short end rates start to rise such that funding is too expensive, we can see a massive unwind of that position, which would mean huge sales of cash bonds, and that will really drive yields higher. However, if that were to start to play out, even Mr Warsh, he of the shrinking balance sheet idea, will be out there buying bonds to prevent a collapse.

Ok, I’ve gone on too long, so a really quick tour of the markets overnight follows. Friday’s US equity selloff was followed by weakness across the board in Asia (Japan -1.0%, HK -1.1%, China -0.5%, Taiwan -0.7%, Australia -1.5%) although somehow Korea (+0.3%) managed to hold in there ok. In Europe, while the UK and Germany are essentially unchanged this morning, both France (-1.0%) and Spain (-0.7%) are under pressure, following the trend. US futures, at this hour (7:30) are also lower across the board, on the order of -0.6% or so.

Of course, underpinning all of this is oil (+1.2%) which continues to climb slowly higher as fears over an escalation in Iran have removed hope for a resolution. Oil is higher by nearly 9% in the past week and 22% since this time last month. In the metals markets, gold and silver, which both fell sharply on Friday into what appears to have been some major option expiration liquidation, are little changed this morning although copper (-0.8%) is still sliding from its highs amid overall market concerns about risk.

Finally, the dollar, which had a very strong week last week, is ever so slightly softer this morning, -0.1% on the DXY although there are two currencies with more substantive moves, NOK (+0.5%) on the back of the oil rally, and COP (+1.1%) which seems odd given copper’s performance today, but remember, copper is still within spitting distance of its all-time highs set last week and higher by 35% in the past year.

On the data front, it is extremely quiet this week with only a handful of meaningful numbers, although all eyes will be on NVDA’s earnings Wednesday after the close.

Wednesday	FOMC Minutes
Thursday	Initial Claims	210K
	Continuing Claims	1790K
	Housing Starts	1.41M
	Building Permits	1.40M
	Philly Fed	186
	Flash Manufacturing PMI	54.0
	Flash Services PMI	51.0
Friday	Michigan Sentiment	48.2
	Leading Indicators	-0.3%

Source: tradingeconomics.com

We also get 7 Fed speeches, although only four speakers in total. And remember, too, next weekend is the holiday weekend, so as summer approaches, trading desks will start to thin out.

My take is all eyes will be on the bond market for now, which will obviously be driven by oil prices, but also by the huge basis trade. As to the dollar, I see no reason to sell it with any force, that’s for sure.

Good luck

Adf

Hot, Hot, Hot

Posted on May 13, 2026 by fxpoet

So, prices were all Hot, Hot, Hot
Resulting from Trump’s Iran shot
But do not forget
The government’s debt
And spending, with what that has wrought

Meanwhile, Trump, to Beijing, has flown
As both sides seek a temperate zone
Where it is agreed
To what both sides need
And neither, the outcome, bemoan

For a change, Iran is not the lead story today in markets. Instead, there is much angst over yesterday’s CPI reading, which was hotter than forecast, and much pontificating as to what will come from the summit between Presidents Trump and Xi that starts tonight in Beijing. Let’s take inflation first.

The results showed the month-on-month readings for headline (0.6%) and core (0.4%) which translated into annual readings of 3.8% and 2.8% respectively. I always turn to The Inflation Guy™, Mike Ashton, when trying to understand CPI readings and have linked here his description of the report and things driving it, which you should all read. However, I will offer his conclusion here:

“Wrapping this up, the read is actually pretty easy. Inflation is not just in energy, but right now is fairly wide as the diffusion index shows. Some of that is related to energy…the price of diesel fuel affects trucking costs, which affects other goods prices…and some of it is related to the fact that wage growth is no longer slowing. Any way you look at it, as I said the read is pretty easy: the Fed obviously isn’t going to be tightening into an oil shock. But there is nothing here that gives them cover to ease into an oil shock either. Warsh inherits a pickle.”

I know the Fed targets Core PCE, not Core CPI, but I include the below chart of the latter to remind us all of just how far from their target the Fed has been for the past 5+ years. Powell may have bitched about political pressure, but he received none during the Biden administration and he failed dismally then too. Just sayin’.

Source: tradingeconomics.com

(One last thing I will note is that USDi, which I mentioned yesterday, will return 10.2% annualized during the month of June, on top of this month’s 12.6% return. Folks, you really should own some. You can mint it at www.usdicoin.com ).

We cannot be surprised that yields rose yesterday on the back of the CPI result with the 10-year rising a further 3bps right after the number and 4bps on the day. This takes us to a 10bp rise in the past three sessions including this morning as per the below.

Source: tradingeconomics.com

It also is the highest yield since last summer and clearly is not moving in the direction the administration would like to see. The thing is, now that we are several months into the Iran war and oil prices have been elevated since the beginning of March, we are going to see more pass through of price increases due to energy costs, at least until demand starts being destroyed. That is always the market tension, rising prices force behavioral adjustment unless the central bank accommodates those prices by increasing money supply. It is, of course, that action which helps drive generalized inflation as opposed to specific price increases. Mr Warsh, who was confirmed as a Fed governor by the Senate yesterday and faces another vote today to become Fed Chair, although I expect that will be without fireworks either, will have has work cut out for him.

Moving on to the Beijing summit, the key to remember is that summits are where things are signed amid a ceremony, they are not events to negotiate details. Secretary Bessent has been in Asia all week and he has met with Chinese Premier Le Hifeng, clearly discussing terms of what can be agreed. One would expect that the focus will be on Iran and having China press Iran to come to an agreement, trade between the nations, especially in AI related technology and rare earth elements, and Taiwan. I have no way of knowing what will be announced, but I’m confident Mr Trump wouldn’t be going if there wasn’t a deal of some sort already agreed.

So, let’s see how markets have behaved overnight. Yesterday’s US session, which started out looking pretty awful, moderated throughout the day to wind up with fairly benign outcomes. Weirdly, this led to some dramatic differences in Asia with some strong gainers (Korea +2.6%, Japan +0.85%, China +1.0%, Singapore +1.2%) and some serious laggards (Indonesia -2.0%, Taiwan -1.25%) with some lesser weakness (Australia, New Zealand, Malaysia and HK). I might argue that most investors were excited about the potential results of the summit, but if so, perhaps it implies a change in the US position regarding Taiwan, and that could well be a negative there.

In Europe, the picture is also mixed as Germany (+0.7%) is having a solid session on some solid earnings reports from the pharma sector, although France (-0.4%) is under pressure after the Unemployment Rate there jumped to 8.1%, its highest print in five years.

Source: tradingeconomics.com

Otherwise, the rest of Europe is mixed with little of note. US futures at this hour (7:30) are also mixed with DJIA (-0.25%) lagging but the other two major indices showing gains of 0.25%.

While we discussed Treasuries above, looking elsewhere around the world, yields this morning in Europe are essentially unchanged, having risen on the back of the US CPI report yesterday. However, overnight, JGBs saw yields rise 4bps on that inflation fear, and they have made yet another new 19-year high as per the below chart (dates are in European terms).

In the commodity markets this morning, oil is essentially unchanged as it is clear nobody knows how things will play out in Iran. There have been numerous commentators competing to describe just how much oil has been missing from the market and how soon (June? July? September?) the infrastructure will crash and it will be a global depression. But they keep having to push their timeline further out as the combination of more production outside the gulf plus the ingenuity of getting production there to other markets via trucks and trains, has mitigated the overall price risk. Again, here in the US, there is no risk of a shortage of any type as we continue to export our net surplus of products. I have not read about the blockade lately, but I think that speaks to the fact it must be effective because most articles wanted to describe it as a failure and not doing its job. If Iranian oil is not getting to market, their financial troubles are growing apace which is the key pressure point.

As to the metals markets, given the lack of movement in oil, it should be no surprise that gold (-0.25%) is little changed as well. However, something is changing here and that is silver (+1.0%) and copper (+2.0%) are both starting to distance themselves from the gold trade as both remain critical inputs into the electrification story. A quick look at the chart below of the two elements shows how just in the past two days, silver has broken away from gold.

Source: tradingeconomics.com

Finally, the dollar is firmer again today, continuing to ignore the many calls for its demise. But as we have seen in most other markets today, the magnitude of the movement is unimpressive. So, DXY (+0.2%) is an excellent proxy for virtually the entire FX market this morning.

On the data front, today brings PPI (exp 0.5% M/M, 4.9% Y/Y) and core (0.3% M/m, 4.3% Y/Y) although with CPI already released, I doubt it will get much interest. We also get the EIA oil inventory data which is looking for continued draws of roughly 6 million barrels across crude and products. there are Fed speakers too, but when was the last time anyone listened to anything they had to say with interest? Exactly.

It is shaping up to be a quiet session (famous last words) and I suspect all the news of note will come from Beijing tonight.

Good luck

adf

His Denouement

Posted on May 12, 2026 by fxpoet

In England and Scotland and Wales
Without getting into details
The PM has lost
Support, and will be tossed
But Labour, so far’s, moved like snails

Until the time comes when he’s gone
And Keir reaches his denouement
Both gilts and the pound
Will fall toward the ground
But they’ve no one to settle on

While the stalemate in the Gulf continues, although there is clearly less optimism that things are going to end quickly according to the oil market (+3.0% and back to $101/bbl), there are a few other things that are ongoing in the world that are impacting markets. This morning, the most obvious is in the UK, where PM Keir Starmer, he of the <20% approval rating, is seeing his grip on power slip away, but like most politicians, he will hold on as tightly as possible for as long as possible regardless of the negative impact that has on his constituency, which in this case is the entire nation.

For instance, a quick look at the gilt market shows that yields there, this morning, have jumped 12bps in the 10-year, up to their highest level, at 5.11%, since April 2008, as per the below chart from marketwatch.com.

Perhaps, of more concern for the UK Treasury and the BOE is the fact that the spread between US Treasuries and UK Gilts has jumped 9bps this morning and, at 67bps, is now pushing back toward its upper quartile, also not seen since 2008 as per the below chart from worldgovernmentbonds.com.

The pound (-0.5%) is faring no better this morning, lagging the rest of the G10 while UK stocks suffer alongside with the FTSE 100 (-0.6%) adding to the overall pressure on Starmer.

Now, in fairness to poor Keir, he has failed in essentially every aspect of government, notably as to his promises when elected, so this cannot be a surprise. The question becomes; how much longer will he try to fight this very clear outcome to the detriment of his nation? From a fiscal perspective, I imagine he will be seeking to offer money to specific constituencies in an effort to buy more time, but my take is the die is cast here. For now, I expect UK assets and the pound are going to underperform and likely will until he is gone, regardless of his replacement.

However, aside from the war in Iran, where there is nothing new of note today, the next biggest stories are that President Trump is on his way to Beijing to meet with President Xi and this morning’s CPI report. Since I can offer nothing of note on the summit meeting, let’s turn to inflation.

Expectations this morning are for the headline number to print 0.6% M/M and 3.7% Y/Y while the core (ex-food & energy) number is expected at 0.3% M/M and 2.7% Y/Y. Below is a chart showing headline CPI for the past 10 years, which I believe is informative of the national mood. In it, you can see both the annual rate of inflation (the red line, RH axis) and the steady growth of the underlying CPI index published by the BLS (blue bars, LH axis). To get the full sense of things, though, make sure you look at the index level on the left, which has grown, in aggregate, 38.7% over the past 10 years. It is this feature which drives the nation’s unhappiness with prices, I would contend, not the monthly data, but the cumulative nature of the problem.

Data: Fred, graphics: @fx_poet

All of us remember the peak inflation in the immediate post-Covid years. In addition, I’m sure we all remember the government shutdown and the missing data point because of the inability to collect data and the known assumption that if data were not collected, it would be assumed to be 0.0%. Well, not only is the Iran war having a direct impact on inflation, but that missing data is starting to leave the calculations, so the red line is going to continue to head higher. I must admit, that if I were to guess how things arise this morning, I would suspect the estimates to be on the low side, but we shall see in a few hours. The question here is; will the markets respond to this or are they focused on other issues? I also suspect that this depends on the outcome. If CPI is higher than forecast, it does not bode well for Treasury prices, nor likely stocks. But, if it is softer than forecast, I would look for the equity rally to continue.

Ok, let’s see how markets are behaving as we await the data. Yesterday’s nondescript and modest US rally was followed by a lot of nondescript trading in Asia (Tokyo +0.5%, HK -0.2%, China -0.1%), although both Korea (-2.3%) and India (-1.9%) had a bit more action with the former seeming a reaction to its recent moonshot rise while the latter continues to try to deal with a steadily weakening currency and the government’s efforts to address that without raising interest rates. Otherwise, in the region there were both winners and laggards but nothing else noteworthy.

In Europe, though, red is the only color I see with the DAX (-1.1%) leading the way down despite a better than expected, although still negative, ZEW report of -10.7. But Spain (-0.9%), Italy (-0.8%) and France (-0.6%) are all under pressure with only Norway (+0.6%) showing any life as its energy-centric market performs well with oil prices back up again this morning. As to US futures, they, too, are red with the NASDAQ (-1.1%) the worst of them at this hour (7:10).

We’ve already discussed Gilt yields but yields around the world are higher this morning with US Treasuries (+2bps) adding to yesterday’s 5bp rise. In Europe, and in Japan, yields are higher by 4bps to 5bps across the board. This appears to be a combination of concerns over both increased supply as nations spend more than they tax and rising inflation. It’s a pretty toxic combination for bonds.

Yesterday was a bit of an anomaly in the precious metals markets as despite the rise in oil prices we saw, gold, silver and copper all rally as well. Recently, we would have expected the metals to trade lower in that circumstance. And this morning, with oil (+3.0%) higher again, they are with gold (-0.9%) and silver (-3.3%) both under pressure although copper (+0.4%) continues to rise to new records. It turns out, the electrification of everything, and the massive power requirements for data centers along with rebuilding aging electricity grid infrastructure will require a lot of copper, likely more than will be mined at the current prices. It feels like this chart will continue to go higher.

Source: tradingeconomics.com

Finally, the dollar is back in form this morning against virtually all its counterparts in both the G10 and EMG blocs. In fact, it is easier to discuss the outliers which are NOK (+0.3%) and BRL (+0.4%) both benefitting from rising oil prices (as is the dollar!) while the rest of the world collectively suffers. The DXY (+0.35%) continues to ignore all the calls for its collapse and today’s weakest performers are KRW (-1.0%) and ZAR (-0.6%). The latter continues to be buffeted by the combination of higher oil and lower gold prices, although remains well above the lows (below dollar highs) seen at the beginning of the war that started this price action as per the below chart.

Source: tradingeconomics.com

KRW, though, is a bit more confusing to me as while weakness overnight alongside the KOSPI, makes sense, it has, in truth, performed terribly compared to the KOSPI’s remarkable rally. It would have made a great deal of sense to see significant foreign inflows to the won as investors jumped on that bandwagon, but I guess not.

There is nothing other than the CPI data released in the US this morning so that will be the driver for now. I would be remiss if I didn’t highlight, again, that the best way to manage inflation risk for us all is to own USDi, the fully backed, inflation-tracking cryptocurrency that is returning 12.588% annualized this month and depending on the exact CPI print this morning, set to return something on the order of 8% or so in June. Remember, Treasury bills return 3.6% annualized, so this is a way to keep up with prices. Check out www.usdicoin.com for more information and the ability to mint your own!

Good luck

Adf

Quite Sublime

Posted on May 7, 2026 by fxpoet

Though skeptics do not yet believe
That Trump, a peace deal, will achieve
The markets are saying
This sunshine they’re haying
And fading this move is naïve

So, oil continues to fall
And stocks are just having a ball
It’s peace in our time
And all quite sublime
To many, though, this tale is tall

It is not clear what else to say about the current situation other than the markets are starting to believe that the Iran conflict is coming to a close. The headlines from the administration and news from Pakistan seem to indicate a deal is near, something we all should welcome. Certainly, the market is ready to accept this as gospel, at least based on the current risk appetite being demonstrated across all markets. So, this morning, oil (-2.8%) continues its rapid decline, down more than $18/bbl from its highs just one week ago.

Source: tradingeconomics.com

The commentariat refuses to accept that the conflict is ending and I cannot tell if that is because they hate President Trump so much, they cannot stand the idea of him concluding things having achieved objectives, or because if the conflict is over, they will need to find the next thing to prove their ‘expertise’ and they don’t know what that is yet (hantavirus anyone?) Regardless, markets are on board with this narrative as the moves we saw yesterday are simply extending this morning.

Meanwhile, the data from yesterday showing that ADP Employment was a stronger than expected 109K and the JOLTs quit numbers rose, meaning more people are willing to quit their jobs for a new one, indicating a growing confidence in the labor market, point to a continuation of the US equity rally, and by extension, the global rally. (As an aside, I chuckled at the article in the WSJ this morning about how the next target of taxes should be ‘compute’ since AI is going to replace human workers. My comment here, which has been confirmed by my time this week at the Consensus 2026 cryptocurrency conference, is that machines are great, but people still want to deal with people they can trust!)

Anyway, with the conflict ostensibly coming to a close, there is not much else to discuss outside actual market activity, so let’s see how things responded to this news.

By this time, you have all checked your PA’s and saw the green from yesterday there. Overnight, Asian markets were also quite positive with Japan (+5.6%) exploding higher after their Golden Week holidays ended. Excitement on tech as well as a market that is looking forward to Treasury Secretary Bessent’s visit were the drivers. But we also saw strength in China (+0.5%), HK (+1.6%), Korea (+1.4%) and Taiwan (+1.9%). In fact, looking across the region, you are hard pressed to find a true laggard, as India (0.0%) was the worst performer of note. European markets, though, are not quite in as fine a fettle with most of them essentially unchanged this morning although the UK (-0.7%) is lagging after some underwhelming earnings reports as it appears profit taking is today’s motive. As to US futures, at this hour (6:45), they too, like Europe, are essentially unchanged

In the bond markets, yields continue to slide with Treasury yields lower by -2bps and virtually all European sovereign yields slipping -1bp. Overnight, JGB yields fell -3bps as markets there reopened and essentially all Asian government bonds saw yields decline as well. Apparently, fears over rampant inflation are ebbing. You may recall on Tuesday I discussed the 30-year Treasury as it traded above 5.0% on Monday and stayed there for about a minute. That had engendered a great deal of apocalyptic discussion. However, here we are this morning with 30-year yields slipping another -2bps, and now 10 bps below that little spike, and back below 5.0%. But I think it is worthwhile to offer a little perspective on the 30-year bond and the idea that 5.0% is deadly. Here is the chart of 30-year Treasury yields since 1985. Perhaps the anomaly was much lower yields, not 5.0%!

Source: finance.yahoo.com

Precious metals are continuing to benefit from the peace initiative and oil’s delice with gold (+1.0%) and silver (+4.0%) both stronger again after big gains yesterday. In fact, I am starting to read more about why silver is set to make massive gains because of shortages, a narrative that was set aside for the past two months but seems to be reawakening. Now, I am no technician, but I am given to understand that if you look at this trend line in silver from its January peak, we have broken above the line and that portends a massive move higher. (full disclosure, I am long silver so would be happy to see that but have not spent the extra money yet!)

Source: tradingeconomics.com

Finally, the dollar is softer again this morning, which should be no surprise based on the overall market zeitgeist this morning. So, the DXY (-0.15%) is a pretty good approximation of what is happening, although we have seen some larger moves, notably NOK (+0.8%) which seems to be responding to the fact that the country is going to reopen some shuttered oil and gas drilling sites in the North Sea as Europe tries to figure out where to get energy from. As to the yen (0.0%) after a series of what appeared to be modest interventions by the BOJ during Golden Week, it appears the market may be explaining that the fundamentals are still pointing to yen weakness and while the BOJ may be able to cap the dollar for a short time, establishing real JPY strength will take a lot more effort, and real policy changes (i.e. much higher interest rates).

Source: tradingeconomics.com

Turning to the data this morning, we get the weekly Initial (exp 205K) and Continuing (1800K) Claims data, which continues to hover near historic lows despite the angst over the labor market. We also see Nonfarm Productivity (1.4%) and Unit Labor Costs (2.6%) and hear from several more Fed speakers, although most of their comments are back page news. Of course, tomorrow we will see the NFP report, and that will certainly garner all the attention. Personally, I will be focused on the Manufacturing Payrolls outcome as a proxy for the reshoring initiative and the potential for continued strong economic activity going forward.

And that’s really it. Despite the ongoing narrative of the dollar’s demise, it remains well within its recent trading range, and I keep reading about other nations issuing dollar debt as that is the market with the most liquidity. Over time, I continue to see the dollar as the best fiat around, although I still like stuff more than paper.

Good luck

Adf

That’s Nuts

Posted on April 30, 2026 by fxpoet

Seems Jay is a narcissist too
Refusing to leave when he’s through
He claims he won’t try
To stop the new guy
But sticking around is the clue

Meanwhile, in his last vote as Chair
The poll, for his views, didn’t care
As one wanted cuts
And three said that’s nuts
Seems politics is in the air

Starting with the FOMC meeting, as universally expected, they left policy on hold with the Fed funds rate target 3.50% to 3.75%. However, in an extension of the last meeting’s three dissents, this time there were four, so the vote was 8-4 to leave rates on hold. However, that seems a bit disingenuous to my eyes, as while Governor Miran wants a 25bp rate cut, as he has said all along, the other three ‘dissents’, regional presidents Hammack, Kashkari and Logan, “did not support inclusion of an easing bias in the statement at this time.”

However, after having read the statement numerous times, I challenge anyone to highlight where they expressed an easing bias. Here is the exact wording:

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, on average, and the unemployment rate has been little changed in recent months. Inflation is elevated, in part reflecting the recent increase in global energy prices.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

But that is the narrative. Of course, the fact that there were four dissents led to much tongue wagging by the narrative set with some claiming that Powell had lost the room, while others claimed that this is a warning to Warsh that he will not be able to get his way.

During Warsh’s nomination hearing, one of the things he discussed in terms of the institutional changes necessary, was that there needed to be less communication by FOMC members as it didn’t do anything to help the process. I heartily agree with this approach, and perhaps this was all the regional presidents, who are looking ahead and seeing that they will not be able to move markets anymore, certainly a heady feeling I’m sure, trying to stake their turf.

Meanwhile, Chair Powell, the arch traditionalist as we have been told, will be breaking with tradition and remaining on the board in his governor’s role after his chairmanship has ended, although he claims this is to ensure the institution remains protected from politics. (🤣🤣🤣🤣🤣🤣🤣🤣🤣). Whatever. I am willing to wager that Mr Powell is a consistent dissent as long as he is on the board.

In the end, no policy changes were expected nor forthcoming. As of the close of yesterday’s session, the Fed funds futures market looks like this:

Source: cmegroup.com

Basically, market participants do not believe the Fed is going to do anything for nearly the next two years. I hope they are right!

Remember Monday?
Ueda explained…nothing
That’s what the yen heard

Early this morning
Katayama, with a smile,
Hinted at bold action

Monday’s BOJ meeting resulted in no policy changes, as was widely expected, but Ueda-san perfectly illustrated the futility of central bank chiefs trying to guide markets with their words instead of deeds. Basically, he fumbled around exhibiting no commitment to anything. And, one look at the chart below shows that traders continued to sell the yen in the wake of the BOJ meeting on the 28^th. However, traders are nothing if not attentive to signals and while it took her a little while, Japanese FinMin Katayama livened things up a bit after Tokyo markets closed as follows [emphasis added]:“We are nearing the point where bold action on exchange rates will be necessary,” and more entertainingly, “I just want to remind everyone: whether you’re traveling or taking a break, don’t put down your smartphone.”

Source: tradingeconomics.com

One of the problems for them is that we are coming to Golden Week, with the first of the holidays already past yesterday. But Friday through next Wednesday are all Japanese holidays with no markets open. On the one hand, lack of liquidity can suit the BOJ as any intervention may have a much larger than normal impact. On the other, holiday activity is very rare. The term ‘bold action’ is, I believe, step 6 in the 7 steps to intervention and as you can see from the above chart, traders are listening. The problem Katayama and Ueda have is that the fundamentals remain negative for the yen. Is it really speculative to respond to weakening Japanese economic data that is worsened by the current energy situation vs. surprisingly strong US economic data where the energy situation is a benefit for the US?

If history is any guide, the dollar is likely to trade below that 160 level for a little while as traders may not want to test things during the Golden Week lack of liquidity, but ultimately, I suspect that dollar can push higher and the BOJ will be in. Their problem, though, is fundamental, and until the fundamentals change, the yen will be under pressure.

Speaking of fundamentals, let’s take a quick look at GDP figures and ask ourselves about the prospects for currencies in the future. The below chart from tradingeconomics.com shows annual GDP for the US (grey bars), Germany (blue bars), France (red bars) and Italy (black bars). See if you can tell the difference! The US number for Q1 is to be released this morning and expected at 2.3%.

Yesterday’s US data surprised on the high side with strong Durable Goods and Housing data. This follows stronger than expected Retail Sales data as well, which is the opposite of the situation in Europe. In fact, a look at the Citi Surprise Index below shows just how surprisingly bad things are in Europe relative to the US.

Again, please explain to me the case for the euro’s strength.

Ok, on to markets. Bonds were the big tell yesterday as yields in the US rose sharply, up 8bps at their peak, although have since retraced -3bps to 4.40%.

Source: tradgineconomics.com

While that is not the highest yield we have seen since the war began, it is near the upper bound, but I suspect that has more to do with the fact that the US economy, as demonstrated above, is anything but weak right now. Maybe the dollar should be considered a petrocurrency going forward! European sovereign yields tracked Treasury yields and this morning, they too are lower by between -2bps and -4bps. One noteworthy aspect is that ahead of the BOE meeting this morning, 10-year Gilt yields are above 5.0% for the first time since 2008, higher even than during the Liz Truss inspired liability management crisis.

Of course, the other thing weighing on bonds is the oil price (+0.1%) which while it is little changed this morning has climbed steadily and is higher by nearly 12% in the past week. The entire discussion here is about the naval blockade and whether it will be able to force Iran to capitulate soon. Certainly, President Trump is doing all he can to apply increased pressure on the Iranians with more secondary sanctions on all the banks that have surreptitiously handled Iranian money in the past. WTI remains below the spike highs from the first night of the war, but it has been climbing steadily of late. There is no doubt that there has been material damage done to the oil infrastructure in the Middle East and it will take time to repair once the fighting is done. As the blockade continues, it appears some of that destruction is being priced in. However, with the UAE out of OPEC and Venezuela likely to leave as well, there will be a race to see who can pump oil fastest. I remain convinced that there is a firmer cap than floor over time.

Perhaps the biggest surprise today is that gold (+2.0%) and silver (+3.2%) have rebounded sharply despite oil’s continued rally. That inverse correlation had been quite strong, although I continue to have a difficult time understanding its underlying cause. Nonetheless, commodities across the board are in demand today.

In the equity markets, yesterday’s US performance was lackluster ahead of the big earnings releases, two of which were quite strong (GOOG and AMZN) while two were less optimistic (MSFT and META). Asian markets were broadly negative as rising oil prices continue to weigh on the region with the Nikkei (-1.1%) and Hang Seng (-1.1%) leading the way lower amid mostly poor outcomes throughout the region. Only Singapore (+1.1%) and New Zealand (+1.0%) managed to buck the trend, after better-than-expected PMI data. Meanwhile, in Europe the picture is mixed with France (-0.5%) and Spain (-0.3%) softer while Germany (+0.3%) and the UK (+1.0%) are in better shape. The BOE just announced no policy change but seemed to sound more hawkish as they are going to try to use monetary policy to prevent higher oil prices. Historically, that has been a catastrophic central bank error, but I will not be surprised if they go down that road. As to US futures, at this hour (7:15), they are pointing higher across the board by between 0.3% and 0.6%.

Finally, the dollar is softer this morning, with the yen (now +2.0%) leading the way, although that is hardly a dollar story and decidedly limited to the yen. But, vs. the G10, the greenback is universally softer (EUR +0.3%, GBP +0.35%, AUD +0.6%, CHF +0.7%). Frankly, this doesn’t make sense to me, but markets will do that to you. Versus the EMG bloc, the dollar is also softer across the board with KRW (+1.0%) the leader as it follows the yen higher, and the rest of the block showing gains of between 0.25% and 0.5%. I still stand by my view that the dollar benefits over time, but apparently not today.

And while I fear I have gone on too long already today, there is a lot of data coming out as follows: Personal Income (exp 0.3%), Personal Spending (0.9%), Q1 GDP (2.3%), PCE (0.7%, 3.5% Y/Y) and Core PCE (0.3%, 3.2% Y/Y), Initial Claims (215K), Continuing Claims (1820K) and then later this morning, Chicago PMI (53.0) and Leading Indicators (-0.1%). With the Fed ostensibly showing a hawkish bias, all eyes will be on the Core PCE data. But really, my take is the combination of position liquidation in the yen and the twists and turns in the war are going to be today’s drivers. While you cannot catch a falling knife, I do see this dollar downtick as quite temporary.

Good luck

Adf

Disconcerting

Posted on April 27, 2026 by fxpoet

The third time, it wasn’t a charm
As thankfully, Trump saw no harm
But it’s disconcerting
The left keeps on flirting
With killing Trump by firearm

But absent more news on the war
Investors, most stocks, still adore
And there’s still a call
The dollar should fall
Though so far, they’re down on that score

It is certainly disconcerting that there have been three bona fide assassination attempts on President Trump in the past two years, something I fear speaks loudly about his opponents. Fortunately, this one also failed. Interestingly, as this occurred at the White House Correspondents Dinner, the entire Washington press corps, who largely detest the man, were there. I wonder if this experience will alter their rhetoric, which I would argue has been the key driving force behind these attempts. Alas, I fear that will not be the case, at least not for more than a few days at best.

But that was a far more exciting weekend than anybody imagined as there is no new news regarding the Iran war with potential talks never occurring over the weekend. Neither have the marines moved in on Kharg Island, so the status quo, a US naval blockade, remains the primary situation. This leads to two questions; first, how long can Iran withstand the lack of revenue with the government, or more accurately the military, still operating effectively? And second, how long before Iran’s oil wells need to be shut in, which is likely a death sentence on those wells, and by extension, on Iran’s long-term revenue stream?

Frankly, that’s what the weekend brought, so let’s turn to markets. While the DJIA lagged on Friday, both the NASDAQ and S&P 500 rallied to yet further new all-time highs as US corporate earnings remain robust and the market looks ahead to this week where 5 (MSFT, GOOG, AMZN, META, AAPL) of the Mag7 report earnings this week on Wednesday and Thursday. As well, Wednesday brings the FOMC decision, with no change expected. As to US futures this morning, as I type (6:50), they are essentially unchanged.

Overnight, Asia’s session was mixed with Japan (+1.4%) putting in a nice performance along with Korea (+2.15%), India (+0.8%) and Taiwan (+1.8%) although there were laggards (HK, Australia, Indonesia, Singapore) as well, with much smaller declines. China was basically unchanged. Perhaps the biggest news was that an oil tanker from the US arrived in Japan for the first time, although certainly not the last time. European bourses are all a bit firmer this morning, seemingly responding to decent earnings throughout many nations there. Thus, Germany (+0.6%) is leading while Spain, France and Italy (+0.5% each) lag slightly and the UK (+0.1%) brings up the rear as King Charles prepares to visit President Trump and the US starting today, ostensibly trying to resurrect the once special relationship that has deteriorated over time.

In the bond market, nothing continues to happen with Treasury yields higher by 1bp this morning and similar price action across all of Europe. JGB yields (+4bps) were the big mover as market participants await three key central bank meetings this week, the Fed, ECB and BOJ. But here’s the thing, of all the major economies around, Japan’s is the only one where the bond market is offering any real signal. The below chart from tradingeconomics.com shows US (blue line), German (tan line) and Japan (green line) 10-year yields over the past 5 years.

While we all remember the pain in markets when the Fed, and then all other central banks, figured out that the Covid policy inflation wasn’t going to be as transitory as they hoped and pushed rates up at a historically fast pace in 2022, since then, it is pretty easy to make the case that neither US nor Germany (and by extension the rest of Europe) have seen any substantive change in their bond markets. I am speaking in a big picture reference here, not the day-to-day noise that we see. Meanwhile, Japan has finally begun to feel the pressure of a massive debt/GDP ratio and rising inflation.

Contrary to popular belief, Treasury bonds remain the reserve asset of choice around the world as every nation needs to hold a certain amount of USD simply to function in the world today (which is why there is so much recent discussion regarding USD swap lines for numerous countries). While it sounds great for the panican set to discuss how Chinese “official” holdings of Treasuries have collapsed and that is a signal they are selling bonds, the reality is they have switched their custodians from the Fed to Clearstream and Euroclear in Brussels and Luxembourg while many of those assets are now held in large Chinese ‘private’ banks rather than on the PBOC’s balance sheet.

Source: @Brad_Setser

Notice the large grey bar at the right, foreign assets of the state banks. Which brings us to the central bank meetings this week where no major central bank is expected to change policy. Japan seems the diciest call, but the word was put out last week that June is the likely date. As well, the ECB’s own market watching website is now looking at June as a probable rate hike as per the below from ecb-watch.eu.

For the FOMC, no change today and now that the DOJ has referred the cost overrun investigation to the IG at the Fed, the hold on Kevin Warsh by Senator Tillis has been lifted. I expect he will be confirmed in time for Powell to leave on his scheduled date. It remains to be seen if Powell will stay on the FOMC (his term technically runs until January 2028), but historically, once a Fed chair leaves that role, they step away completely. Ultimately, until the markets begin to understand that inflation is going to be structurally higher than in the past, I suspect bond yields are going to remain range bound.

In the commodity space, oil (+0.7%) is a touch higher as the market seems to be becoming increasingly concerned that the impacts of the closure of the Strait of Hormuz are going to be longer lasting than previously assumed. However, the futures curve remains steeply backwardated as per the below chart form tradingview.com.

Personally, I see this as confirmation of my own view that oil prices are likely to decline over time as more and more supply becomes available with new projects. If anything, this war has accelerated that process. Meanwhile, metals prices are essentially unchanged this morning, biding their time for the next big piece of news.

Finally, the dollar is under modest pressure this morning, down about -0.2% across the board as risk appetites continue to build with the war receding in traders’ collective mindset. But here, too, just like in the bond market, it is difficult to make the case that anything of note has happened to the dollar, writ large, over the past year. I know I show this chart frequently, but it is simply to hammer home the idea that the dollar is not collapsing. It has basically had a 3.5% range 96.50 – 100.00 for the past twelve months. I’m sorry, that is not a death omen!

Source: tradingeconomics.com

On the data front, there are a total of 5 central bank meetings with no changes expected anywhere, and then PCE data later on.

Tonight	BOJ Rate Decision	0.75% (unchanged)
Tuesday	Case-Shiller Home Prices	1.1%
	Consumer Confidence	89.2
Wednesday	Housing Starts	1.4M
	Building Permits	1.39M
	Durable Goods	0.5%
	-ex Transport	0.4%
	Goods Trade balance	-$86.0B
	BOC Rate Decision	2.25% (unchanged)
	FOMC Rate Decision	3.75% (unchanged)
Thursday	BOE Rate Decision	3.75% (unchanged)
	ECB Rate Decision	2.0% (unchanged)
	Q1 GDP	2.2%
	Personal Income	0.3%
	Personal Spending	0.9%
	Initial Claims	215K
	Continuing Claims	1820K
	PCE	0.7% (3.5% Y/Y)
	Core PCE	0.3% (3.2% Y/Y)
	Chicago PMI	53.0
	Leading Indicators	-0.1%
Friday	ISM Manufacturing	53.0
	ISM Prices Paid	80.0

Source: tradingeconomics.com

It remains difficult to get too excited about the data, though, as war stories remain top of mind. Until something changes there, I suspect we will see equities continue to rally on earnings data with the rest of the markets doing very little overall, data be damned.

Good luck

Adf

A Bad Bet

Posted on April 24, 2026 by fxpoet

While nothing is terribly clear
It seems there’s more worry and fear
The war’s gonna start
To blow things apart
Once more, thus risk gets a Bronx cheer

At this point the navy is set
With carriers, three, as the threat
Meanwhile, Iran’s leaders
Are fighting seceders
It could be they made a bad bet

As the week draws to a close, there is no clarity regarding the potential for a peace deal to end the war as both sides continue to claim the other is the problem with respect to getting to talks. There continues to be a massive amount of propaganda from both sides and maritime traffic remains at a standstill in the Strait of Hormuz. Arguably the most noteworthy occurrence was that the USS George H.W. Bush has arrived in theater, bringing the navy armada up to 19 ships, I believe. That is an enormous amount of firepower. In fact, there is a theory that the entire purpose of the ceasefire was to allow the US to move all its assets into theater to ensure that the next action completes the process.

But there has been a change amongst the views of market participants about how things are going to proceed as evidenced by the price of oil. Arguably, there is no better barometer of the situation than that price and as you can see from the below chart, crude oil’s price (+1.6%) has traded higher consistently all week.

Source: tradingeconomics.com

Too, the fact that we are approaching the weekend has me thinking that the next step in this war is about to kick off. President Trump has shown that he favors military action when markets are closed and I am pretty certain that view hasn’t changed. So, keep alert for the news when you wake up tomorrow morning.

However, until such time that the situation on the ground there changes, we are left with a great deal of pontification (present company included, although I try to simply focus on the markets and how their price action offers indications of current events). Beyond the war, there is precious little new news of market import, though, right now. Data continues to be a secondary consideration for traders and investors as everything is being distorted by the sudden impacts of the sharp rise in energy prices. Politics is always a long-term phenomenon, with the daily machinations rarely having a market impact. Which leaves us with speculative activity, which never rests!

With that in mind, let’s look at the markets and see what they are telling us (or me at least). Having already highlighted the fact that oil has been creeping higher all week, which I reiterate, implies to me that market participants have begun to believe further military action is imminent, we cannot be surprised that gold (-0.4%) and silver (-0.7%) are slipping as the correlation between the metals and oil has turned negative since the war began about 2 months ago. Historically, this had almost always been a positive correlation, but right now, that relationship has clearly inverted as you can see in the below chart.

Source: tradingeconomics.com

It certainly remains an enigma that what many perceive to be the ultimate safe haven, gold, is performing so relatively poorly during the greatest strife we have seen in a number of years. But there you go.

Of course, for risk appetite, the most consistent place to look is the equity market. Yesterday saw US markets slip a bit, about -0.5% or so across the board, but they remain within spitting distance of their all-time highs. Certainly, no panic yet. And this morning, as I type (7:05), the futures markets show the NASDAQ firmer by nearly 1.0% while the DJIA is lagging, -0.2% and the SP500 is in between (+0.3%). Last night, Tokyo (+1.0%) had a strong session after inflation data was released right at expectations and has not yet shown signs of running away higher. At the same time, market participants are increasingly certain the BOJ will remain on hold next week, although there is now a 60% probability priced for a 25bp rate hike at the June meeting. The rest of the region was mixed with China (-0.35%), India (-1.3%) and Indonesia (-3.4%!) all under pressure, the latter suffering after 4 major banks there were downgraded by Fitch, while Taiwan (+3.2%) soared after positive earnings data and economic data showing IP exploding higher by 28.7% in March.

In Europe, though, there are no happy faces with Spain’s IBEX (-1.4%) leading the way lower for the entire continent (CAC -1.1%, DAX -0.4%, FTSE 100 -0.6%). It is a bit surprising as the only data of note was German Ifo Business Climate (84.4 and the grey line) and Expectations (83.3 and the blue line), both of which printed at their lowest levels since August 2023 and are both clearly trending lower.

Source: tradingeconomics.com

Bond yields are doing very little this morning, with Treasury yields lower by -1bp while European sovereign yields are all higher by between 1bp and 2bps. Bond investors remain quite concerned about energy driven inflation but are also looking at the negative impacts on economic activity and so remain uncertain which way to go. One thing to remember is that yields have really done very little over the past 6 months, at least, and that Treasury yields continue to be the global driver. You can see the similarity in the shape of the price curves for both Treasuries and Bunds below, and both lines are pretty flat to my eye with one blip higher at the beginning of the war.

Source: tradingeconomics.com

Finally, the dollar is softer this morning, which is not in accord with its usual relationships to other assets. Although it turns out that in the course of the hour I have been writing, things have changed and I cannot see a reason. So, oil is now lower by -1.6%, gold is higher by 0.2%, and the dollar is softer across the board by 0.2% or so. For me, I’m happy the relationships still hold, but I would love to be able to offer a catalyst for the change in sentiment. And yes, US futures are higher across the board now.

Regarding the dollar, though, I couldn’t help but notice the Bloomberg article regarding the carry trade and how it has come back into favor as implied volatilies have fallen over the past month. What this tells me is that there are no long-term views in the FX market despite all the dollar is going to collapse pap that comes from the FinTwit (FinX?) community. Shorting yen remains the favored funding vehicle and the discussion is how BRL, MXN and TRY are the asserts favored to be held. The thing about the carry trade is, it is great until it isn’t, but they don’t ring a bell before things change. It is also a very different thing to short JPY and be long USD against it, with the USDJPY market amongst the most liquid markets in the world. But if you are long BRL and short JPY, be prepared for a pretty wide spread on a forced exit because things have changed. And if that is TRY or ZAR, the spread will be even wider! Just sayin’.

On the data front, this morning brings Michigan Sentiment (exp 47.6) unchanged from the preliminary reading which was the lowest in the 84-year history of the series. Are things really that bad? Maybe, but that certainly doesn’t jibe with the Retail Sales and PMI data. The problem with survey data is there is an element of politics that distorts the reading and President Trump is such a polarizing figure, it exacerbates the situation. Nobody likes high gasoline prices, but it is hard to reconcile gasoline prices, which by the way, remain lower than what we saw in the immediate wake of Russia’s invasion of Ukraine as per the chart below, with such a dramatic decline in confidence, hence my view of the political angle.

Source: tradingeconomics.com

Personally, I am on the lookout for the next military incursion or a deal this weekend, with diametrically opposed market impacts on Monday morning. Once again, my advice is risk mitigation is the way you stick around to play again next week.

Good luck and good weekend

Adf

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fxpoetry

Explaining the rhyme and rhythm of the FX markets each day

Tag Archives: #inflation

One Sixty

No Black Swan

Actively Chided

Starting To Bite

Hot, Hot, Hot

His Denouement

Quite Sublime

That’s Nuts

Disconcerting

A Bad Bet