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

adf

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

Adf

The Doctrine, Donroe

Posted on January 7, 2026 by fxpoet

There once was a time in the past
When Vene-zu-ela was cast
As queen of the ball
With Maduro’s fall
But life around Trump moves so fast

He’s already moved to expand
His target to Denmark’s Greenland
The EU’s gone crazy
And called Trump fugazy
While claiming that they’ll take a stand

But really, the Doctrine, Donroe
Explains that the US most grow
Its regional strength
And keep at arm’s length
It’s foes from Beijing to Moscow

It is truly difficult to keep up with all the things that are ongoing in the world these days as so much is happening so quickly. It is very easy to understand Lenin’s quote, “there are decades where nothing happens; and there are weeks where decades happen” given recent events. This is clearly one of the latter weeks.

So, Trump, after successfully taking down Maduro has turned his sights on Greenland, something he has discussed from Day 1 of this administration, but apparently now, there seems to be a willingness to discuss things on the other side. At the same time, from what I read on X, the city of Abadan in Iran has basically ‘fallen’, at least with respect to the Iranian regime’s control as the police are marching with the protestors now. The rumors are that the Ayatollah has already made escape plans to Moscow.

From a geopolitical perspective, if Iran sees a regime change, which appears increasingly likely, and if the US throws its support behind the replacement regime, it would appear to be a significant power play against China. After all, if sanctioned Iranian and Venezuelan oil was no longer being sold on the cheap to China, two places where they receive a significant amount of their daily requirements, (between 20% – 25% according to Grok) it would be a major blow.

But from our lens in markets, if the Iranian regime falls and sanctions are lifted, suddenly there is much more unsanctioned oil available, and its price is likely to decline further. This morning, oil (-0.6%) is slipping further after a sharp decline yesterday with Monday’s rally a wispy memory. I have maintained the trend here remains lower, and that was without government changes in sanctioned nations. As you can see from the chart below, nothing about this story has changed.

Source: tradingeconomics.com

In the meantime, be prepared for all those who had just shown their new bona fides about Venezuela to be explaining the Greenland story from their newly acquired “deep” knowledge. This poet certainly doesn’t know enough about Greenland to make any prognostications, but it would not surprise me if within a matter of weeks, we reach an accord with the territory where the US plays a much greater role in its activities while increasing its military presence on the island.

And to think, we are just finishing the first week of 2026. Do not be surprised if, as the year progresses, there are more government changes in Europe as the current leadership there has been shown to be weak and ineffective, and an increasing number of people are unhappy with the situation. While fears over the fall of NATO are rife now, if Germany, France and the UK wind up having snap elections, a distinct possibility at this point, and the new regimes are AfD, RN and Reform UK led, there could well be much greater agreement on the way forward for the alliance.

However, like most of you, I am neither a politician nor geopolitical analyst, I’m just a poet who watches the world and tries to make sense of how it impacts markets. So, let’s go down that road.

After another strong equity session in the US, where both the DJIA and S&P 500 made new all-time highs, the story in Asia seemed to be one of some early profit-taking after strong rallies. So, Japan (-1.1%), China (-0.3%) and HK (-0.9%) all slipped during the session with generally less excitement seen overnight than earlier in the week. India (-0.1%) continues to lag, and while Korea (+0.6%) managed to maintain its upward momentum, the rest of the region was relegated to +/- 0.4% or less in their movement.

As to Europe, only the DAX (+0.6%) is showing any positivity this morning, mostly on defense names still performing well, while the UK (-0.6%) is lagging after weaker than expected Construction PMI data (40.1 vs. 42.5 exp) and the rest of the continental bourses are little changed overall. Eurozone inflation was confirmed at 2.0%, cementing the idea that the ECB will remain on hold, so I suspect opportunities here will rely on global trends. As to US futures, at this hour (7:10) they are mixed, but with movement less than 0.2% in either direction.

In the bond market, yields are sliding around the world, perhaps on the understanding that oil prices are likely to slide given the potential for new, unsanctioned supply hitting the market. Certainly, there is no indication that government spending anywhere in the world is going to slow down, so that avenue is still closed. But, recapping, Treasury yields (-3bps) are not declining as much as most of Europe (-4bps to -5bps) or the UK (-8bps after the weak data). I continue to believe that this year is going to be extremely dull in bond land as central bank support is going to offset additional issuance.

We’ve already discussed oil, but metals, which is where the real action has been, are all lower this morning, very clearly on profit taking activity. Consider that gold (chart below from tradingeconomics.com) has been the least remarkable and still rallied 4% since the beginning of the year, so slipping -1.2% this morning can be no surprise.

Meanwhile platinum (-6.1%) which is the least liquid of all the precious metals, saw a nearly 20% gain this week prior to today’s decline. The chart below is not for the faint of heart!

Source: tradingeconmics.com

Silver (-3.1%) is somewhere in between these two, but the story has not changed at all. There continues to be significant demand for physical metals with paper futures no longer able to control the price action. One way to follow this is to look at the price on the Shanghai Futures Exchange where it is all delivery settlement and where the price trades at a substantial premium to the COMEX, on the order of $3-$4/oz.

Finally, the dollar is still there, and vs. most of its counterparts, doing very little this morning. the outlier today is ZAR (-0.5%) which is obviously hurting on the back of gold and platinum’s weakness. In fact, it is worth looking at the relationship between ZAR and gold, as per the below chart, to help you understand just how closely tied is the price action between the two.

The other currency that has been trending steadily is CNY, with it breaching the 7.00 level at the end of 2025 for the first time since September 2024. While this trend has been steady for the past year, a look at the longer-term chart shows the renminbi is nowhere near an extreme in either direction.

Source: tradingeconomics.com

I maintain my view that if China really does create domestic demand for its products, the renminbi will continue this rally and strengthen further. But we have heard this same story of Chinese government support for the domestic economy for at least a decade, and it hasn’t shown up yet.

On the data front, ADP Employment (exp 47K), JOLTs Job Openings (7.6M), ISM Services (52.3) and Factory Orders (-1.2%, -0.3% ex Transport) are the key releases this morning. we also get EIA oil inventory data with expectations for a decent build. There is only one Fed speaker, Governor Bowman, but the Fed just doesn’t seem as important this year as last.

The dollar is not the focus right now, neither are bonds. Metals remain top of mind with oil a close second. While recent price action in the former has been extremely volatile, nothing has changed my view that the long-term trend remains higher there. Similarly for oil, the long-term trend remains lower with recent events simply adding to the weight.

Good luck

Adf

Much Ado

Posted on January 5, 2026 by fxpoet

The market response to the raid
In Vene has so far been staid
The black, sticky goo
Despite much ado
Shows traders have not yet been swayed

And frankly, that seems to make sense
‘Cause years will pass ere they commence
To pump much more oil
But that shouldn’t spoil
The truth their reserves are immense

As of 9:00 last night, oil futures are essentially unchanged from Friday’s, pre-Venezuelan news, close. As you can see from the chart below, while there was an early blip higher of about 50¢, that quickly retraced.

Source: tradingeconomics.com

But, stepping back a bit, a look at the chart for the past year shows a very steady decline in the price and at this point, there seems to be little that will change that result.

Source: tradingeconomics.com

I have consistently made the case that oil supply exists all over the world, and that politics has been the chokepoint. Arguably, a new government in Venezuela has just removed one of those chokepoints, although from everything I can gather, given the decrepit state of the oil infrastructure in Venezuela after nearly 20 years of Socialist neglect, it will take quite a while to hit the market. But Guyana and Argentina are going to be growing their output considerably going forward, so, a slower rate of production here ought to not matter much.

One other thing I did read was that a key driver of the weekend’s events was growing concern by the US military that the Chinese were going to monopolize rare earth mining and processing from areas of southern Venezuela and that was too great a concern. Even if the timeline is long, it appears, at this stage, that the future of Venezuela’s oil production should start to trend higher, and that will simply add to pressures on prices. After all, we know that markets are forward looking.

One last thing to note is that acting president of Venezuela, Delcy Rodriguez, has called for “cooperation” with the US going forward, a very different tone than her initial comments of outrage. Perhaps she has figured out that this is a sweet deal for her, or perhaps she is simply afraid that she is not safe if she doesn’t cooperate. Whatever the reason, I suspect that things will progress positively from here.

In the meantime, let us try to turn our attention elsewhere, although it will be difficult as this action will clearly have many widespread, and at this point unforeseeable, impacts on markets other than oil. But try we must. With that in mind, let’s review markets overnight and see how the initial price action has evolved, and perhaps what it implies for the future.

Starting with equities, you’re hard pressed to find a market anywhere in the world that is suffering this morning despite the alleged increase in uncertainty. In fact, it appears that investors are pretty certain that today is a better day than Friday was given the new world order that is developing. Starting in Asia, the only market that fell overnight was India (-0.4%) seemingly on the idea that one source of their cheap oil may have been stopped. But elsewhere, Japan (+3.0%), China (+1.9%), Korea (+3.4%) and Taiwan (+2.6%) all had extremely strong sessions with HK, Australia and other smaller exchanges showing little to no gains. My only surprise here is China, which has invested significantly in Venezuela, lent them large sums of money and also had their advanced radar systems shown to be useless against US military aircraft. But in the end, fear was not on the agenda in Asia.

What about Europe? Well, here things are less excitable, with Germany (+0.65%) and Italy (+0.6%) the leaders as defense firms in both nations have performed well this morning. But otherwise, Europe is a nonevent this morning, which given their increasing global irrelevance, should be no surprise. The UK, France, and Spain have all barely moved and surprisingly, Switzerland (-0.7%) has fallen, although perhaps neutrality is not such a benefit anymore. US futures, though, are continuing their ride higher with the NASDAQ (+0.8%) leading the way in a sea of green. The net result here is, risk is still in vogue.

Turning to the bond market, only JGB yields (+6bps) are rising after PM Takaichi reiterated her call for more spending. Yes, this is a new 29-year high in 10-year JGB yields, but I suspect they have further to go. After all, as you can see from the below chart, yield suppression has been the game there for decades, so unwinding it will take some time.

Source: investing.com

But elsewhere in the fixed income world, yields are slipping across the board. Treasury yields (-3bps) are leading the way with all of Europe seeing declines between -2bps and -3bps. I might suggest this is a response to the prospect of declining oil and energy prices going forward, even though it will take time to see the increases in production.

As to commodities, as of this morning at 7:30, oil has bumped up 0.5%, although as you can see in the above chart, remains in a longer-term downtrend that shows no signs of breaking soon. Metals, meanwhile, remain the story of stories with the entire periodic table looking good (Au +1.9%, Ag +3.3%, Cu +2.9%, Pt +2.5%). I continue to read about reasons as to why this rally in metals is going to end soon, with most focused on the speed of the ascent last year. But the difference in this market vs. any paper financial market is, physical supplies matter here, and by all accounts, Ag, Cu and Pt are all in short supply for their industrial uses (think catalytic converters for Pt) and as industrial users recognize the shortage, they continue to bid up the price. While I expect all these markets to remain volatile this year, I suspect that the trend higher has a lot of runway yet.

Finally, the dollar is firmer this morning, despite the rally in metals. The euro (-0.3%) is the laggard in the G10 space as the EU was shown to be completely powerless, useless and irrelevant over the weekend. However, they did issue a carefully considered statement to cement the idea that they are powerless, useless and irrelevant as seen below.

I know I feel safer now! In addition to this demonstration, the timeline for a digital euro seems to be speeding up, a decision that will further undermine the single currency in my view. Nothing has changed my opinion, except perhaps strengthening it, that the world is going to bifurcate into USD stablecoins and digital CNY over the next few years, with most of Europe opting for USD. Elsewhere in the G10, movement has been less pronounced, +/-0.2% or less with nothing of note to mention. In the EMG bloc, most of the currencies here are a bit weaker, -0.3% or so, with two key exceptions, ZAR (+0.1%) and CLP (+0.2%), both benefitting from the large gain in the metals complex. Interestingly, MXN (-0.35%) is amongst the worst performers as the natural thought process seems to be, is President Sheinbaum next unless she effectively shuts down the cartels. I keep searching for reasons to understand bearishness on the dollar but have yet to find any that make sense. One other thing to note, there has been a resurgence in the discussion of how the dollar is losing its traction amongst central banks with respect to reserves held. Many are highlighting that the percentage of reserves in USD has fallen to its lowest level since the mid 1990’s. but a look at the chart below shows that while the recent trend has declined, it remains far above its lows, and far below its highs over time. In fact, one might say it’s right in the middle of the range.

Turning to the data this week, with the government having been back in action for a while, we are back to a full slate of data for the first week of a month.

Today	ISM Manufacturing	48.3
	ISM Prices Paid	59.0
Tuesday	PMI Services	52.9
	PMI Composite	53.0
Wednesday	ADP Employment	45K
	ISM Services	52.3
	JOLYs Job Openings	7.64M
	Factory Orders	-1.2%
	-ex Transport	-0.3%
Thursday	Initial Claims	216K
	Continuing Claims	1851K
	Trade Balance	-$58.4B
	Nonfarm Productivity	3.0%
	Unit Labor Costs	1.0%
	Consumer Credit	$10.2B
Friday	Nonfarm Payrolls	55K
	Private Payrolls	60K
	Manufacturing Payrolls	-5K
	Unemployment Rate	4.5%
	Average Weekly Hours	34.3
	Average Hourly Earnings	0.3% (3.6% Y/Y)
	Participation Rate	62.6%
	Housing Starts (Sept)	1.31M
	Building Permits (Sept)	1.35M
	Michigan Sentiment	53.2

Source: tradingeconomics.com

While some data remains stale (housing), the jobs data is December’s and will get a great deal of attention. One thing to remember here is that if the deportation numbers discussed by the government are correct (~500K actual deportations and ~2.0MM self-deportations), then the economy doesn’t need to create that many new jobs to keep things ticking along. I have seen estimates of somewhere between 0 and 20K jobs each month being sufficient to keep the Unemployment Rate steady to declining. I am sure, however, this issue will be the subject of much discussion by the economics community going forward, but as I have said time and again, the models in use today do not seem to reasonably represent the reality today. Expect a lot of huffing and puffing about this data, largely along political lines.

And that’s really it. Obviously, Venezuela has changed a lot of calculations about many markets, but in the end, while I remain concerned over an eventual risk-off outcome, I don’t see that as an immediate threat. Remember, too, the OBBB has taken effect and tax situations are going to be changing now, something that will undoubtedly help the economic data going forward.

Good luck

Adf

First Black Swan

Posted on January 3, 2026 by fxpoet

‘Ought Twenty-Six barely got started
And Trump has already departed
From previous norms
Of post-Cold War forms
Now socialists are broken-hearted

Their man in Caracas is gone
With outrage from Beijing to Bonn
But folks on the street
Believe it’s a treat
Please welcome this year’s first black swan

I certainly didn’t have the exfiltration of Venezuelan strongman Nicholas Maduro from his palace in the middle of the night on my bingo card, did you? But that is what we all woke up to Saturday morning. In a way, we cannot be surprised as President Trump indicated several weeks ago that he spoke with Maduro, told him if he left, he could have safe passage, and be left alone, but ostensibly Maduro turned him down. I’m guessing old Nick is questioning that decision right now.

As this all took place Saturday morning, no financial markets, other than cryptocurrencies, are open and based on Bitcoin’s movement of 0.1% as I type, it appears the issue is not seen as a major concern. There is much discussion regarding what will happen to the price of oil, as unquestionably, Venezuelan oil was part of the decision equation. But the Venezuelans have been producing less than 1 million bpd, far below their pre-socialist levels, and given they sit on the largest known oil reserves on the planet, far below what their ultimate capabilities can be. If you’re Chevron’s CEO, you must be thrilled this morning, as they are already operating in country there.

Too, remember that Venezuelan crude is heavy and sour, which is what most Gulf Coast refineries are tuned to utilise to distill diesel, gasoline and other products. It is too early to know what will happen to oil prices in the short run, but I would suggest that the longer-term view has to be lower prices going forward. Consider that the US already is the largest producer of oil and oil equivalents (about 20mm bpd) in the world. I would expect that Venezuela will be exiting OPEC under a new administration there, and with US oil expertise, will be seeking to expand that sector as rapidly as possible. In fact, achieving 10mm bpd within a few years does not seem unrealistic.

Now consider that by the end of the decade, the Western hemisphere could well be producing half the world’s oil supply, as already, despite degradation of capabilities in both Venezuela and Mexico, it produces more than one-third of the oil pumped. That would certainly put a crimp in Russia’s war machine as the price seems far more likely to head toward $50/bbl than $80/bbl or higher, and by all accounts, that would be hard on Russia’s budget.

Too, consider the geopolitical ramifications if China were suddenly paying full price rather than whatever discounts they currently get for sanctioned oil purchases. As well, what does a lower price do to the Iranian regime’s finances? Probably not very helpful.

It is way too early to know how things will evolve, but between growth in production in Guyana and Argentina, and the prospects for significant growth in Venezuela going forward, it should become cheaper to fill up your tank going forward.

We will see how markets open Sunday night, and I would not be surprised to see oil rally at the start, but I would contend the politics points to lower prices not higher ones.

Source: visualcapitalist.com

Note that neither Venezuela nor Argentina make this list individually. I would wager that by 2027, both will be prominent producers, along with Guyana.

Welcome to 2026! It is going to be an interesting year.

Good luck

Adf

A Vision For ‘Twenty-Six

Posted on January 2, 2026 by fxpoet

(With apologies to Clement Clarke Moore)

Tis the first day of trading in Ought Twenty-Six
With too much attention on raw politics
At home, eyes have turned to the mid-term elections
To see if results will force mid-course corrections
In Europe, they’re going all-in on Ukraine
With more billions promised, though that seems insane
Meanwhile, Mr Xi is convinced he can fix
The problems at home with his policy mix
And this, my friends, just skims the surface of things
As pols everywhere suffer arrows and slings
Remember, though, markets are what I’m about
And while I could err, I am never in doubt.

Let’s start at the top with Growth here in the States
Which likely will show more than marginal rates
In fact, Four percent seems a viable goal
As inward investment and tax cuts take hold
Remember, for Trump, if there’s one thing he’s not
It’s timid, and so he’ll demand, “Run it hot!”
Thus, growth will expand, though inflation might gain
And for the elections, that could be a pain
The problem is Jay, and whoever comes next
Have come to believe two percent’s just subtext
The greatest unknown is on government spending
And whether it grows or, at last, starts descending

The punditry’s certain the government fisc
Is going to increase inflation’ry risk
If true, CPI of near Four percent’s apt
If not, then Inflation ‘neath Three, could be capped

And what about elsewhere, in Europe? Japan?
In markets, emerging, do they have a plan?
Will they grow their ‘conomies, drawing investment?
Or will we soon witness a large reassessment?

In Europe, they claim they’ll be building more guns
To help them defend all their daughters and sons
As well, they’re committed to helping Ukraine
Continue to fight, despite so many slain
They’re planning to borrow a cool 90 Bill
But energy costs, these grand plans could well kill
Meanwhile, M Lagarde claims that rates are just right
And given growth there’s One Percent, I won’t fight
So, weak growth and low rates and energy blues
Lead me to believe that come year-end, the news
Will be that the Euro is failing to thrive
Do not be surprised when it hits One oh-Five

In England and Scotland and all the UK
Just like in the EU, they can’t make much hay
The budget’s a wreck yet they want to raise taxes
Though history shows growth will wane ere it waxes
As well, they continue their crack down on speech
While crimping their energy industry’s reach
So, power is costly, and billionaires flee
From here, ‘cross the pond, this is what I foresee
A ‘conomy heading right into stagflation
As long as Kier Starmer is leading the nation
For markets, the Pound will lose all its allure
With One-Ten the Boxing Day screen price du jour

A turn to the East where the Sun Also Rises
Will teach us that, really, there are no surprises
To date you’ve heard much ‘bout the rise in yen rates
With pundits opining the Carry Trades’ fates
This year, so they say, look for much stronger yen
As local investors buy yen bonds again
Thus, all the hedge funds who’ve been funding their trades
By borrowing yen, and they’ve done so in spades,
Will need to buy back all that Japanese Money
The outcome, for yen shorts, will not be so sunny
But what if this idea of yen heading home
Is wrong? This implies quite a different syndrome

At this point there’s no sign the government there
Is ready, more spending and debt, to forswear
Instead, what seems likely is more of the same
More government spending in all but its name
So, debt will continue to rise without end
And up to One-Eighty the buck will ascend

As well as Japan, in the continent vast
Of Asia, it’s China we come to at last
“Poor” President Xi has a problem at home
Consumption is not in the Chinese genome
For decades, the model’s been, build and export
Which helps explain why local usage falls short
But lately the rest of the world’s of a mind
That Chinese imports are a troublesome kind
So, Xi needs his people to learn how to spend
Else all that production may come to an end
But if they consume, what will that do to growth?
Its rate will decline, something for which Xi’s loath

Thus, GDP 5 means a weaker yuan
Well above Seven you can depend on
But if, against odds, Xi gets Chinese to spend
Six-Fifty is where yuan will be at year end.

Let’s shift our perspective to Treasury debt
A market of critical import, and yet
A market that’s been in a range for a while
So, what must occur for a change in profile?
The popular view is that deficit spending
Will drive an outcome of, high yields, never-ending
But Trump and his team are, quite hard, pushing back
Explaining that policy’s on the right track
Twixt tariffs and growth, tax receipts have been flying
While RIFs in the government are underlying
The idea that deficits soon will be shrinking
In truth, this is not what the punditry’s thinking
But one thing is clear that will keep yields from climbing
QE, which is back, is designed for pump-priming
So, Jay and his heir will keep buying and buying
And 10-Years at Four Percent seems satisfying

It’s not just the government, though, that’s in debt
Those corporates who borrowed at ZIRP, have not yet
Refinanced the trillions they owe, to this day
And now they’re competing with Bessent and Jay
While Scott will find buyers, if not least the Fed
For corporates that path may be flashing bright red
If credit spreads widen will companies fail?
And will that unravel the stock markets’ tale?
Right now, spreads for IG sit near one percent
And Junk’s above eight with investors content
However, the biggest risk this year could be
The absence of corporate debt liquidity
If IG spreads widen 200 bps more
The outcome could be a GFC encore

This takes us to stocks, both at home and abroad
Which last year saw rallies we all did applaud
But will this year bring us some more of the same?
Or have things been altered? Is there a new game?
If my crystal ball is in any way clear
The outcome could well be a frightening year
Remember, the driver of last year’s returns
Was government spending which lacked all concerns
Thus, Cantillon nailed it with where cash would go
And stocks were the winner, of that much we know
But this year the mountain of debt coming due
Could well force decisions of what will ensue
And too, don’t forget if the deficit shrinks
It’s likely to be a great stock market jinx
So, don’t be surprised if December this year
A 10% fall ‘cross all stocks does appear

And what of that black, sticky stuff that they drill
Which powers the global economy still
When its price increases, it causes much pain
For most everyone, it can be quite the bane
Consumers, instead, like those prices to sink
But drillers, in that case, cause output to shrink
So, which will it be, will Trump’s mantra come true
Or will, new production, most drillers eschew
I think what is missed is technology’s traction
And how costs per barrel will tend toward contraction
As well, nations worldwide, at last understand
That Carbon Dioxide just cannot be banned
Come Christmas, next, we will see growth in supply
With Fifty per barrel the price we’ll espy

The last place to look is at bright things that shine
Which saw prices move in a vertical line
While gold was the starter, by year end t’was clear
That silver and platinum said, wait, hold my beer
The latter two rising thrice fifty percent
With neither responding to any event
Which brings us to this year, can these trends maintain?
Or are we now set up for infinite pain?
It seems to me that til the summer at least
All three will continue to rise, as with yeast
But when we reach solstice do not be surprised
If views on their future become bastardized
In other words, look for corrections in price
With early year gains given back in a trice
But still, by the end of the year I believe
Five Thousand in Gold is what we will perceive
For Silver, One Hundred could well be the spot
And Platinum, Three Grand, would not be too hot.

To all of my readers and friends, please forgive
My musings if they got too ruminative
This year will see change across many degrees
And some will be painful, while others will please

In sum, I think President Trump can succeed
In changing behavior, though not corporate greed
Reducing the number of government staff
As well as with regs, he can cut those in half
Inward investment will focus on stuff
Instead of on stocks, for the markets that’s rough
Dollars will still be in greater demand
While Treasury yields will be stuck in the sand
IG and Junk are unlikely to win
As rising expenses cut margins quite thin
And still, through it all, precious metals will gain
Though G7 central banks all will abstain
Come Christmas next, nothing will look quite the same
And maybe my views can help you build a frame.

Thank you all for tolerating my punditry and I hope that you all have a wonderful, healthy and successful year ahead.

Adf

All But Assured

Posted on December 10, 2025 by fxpoet

A cut has been all but assured
Though since last time we have endured
Some fears Jay’s a hawk
So, when he does talk
Will this cut, at last, be secured?

And now there’s a narrative view
Though rates will fall, what he will do
Is try to convey
Now it’s out the way
Another one may not come through

Good morning all and welcome to Fed Day. The question, of course, is will this be a frabjous day? As I write this morning, the Fed funds futures market continues to price a roughly 90% probability of a 25bp cut this afternoon, but the prospects for future rate cuts have greatly diminished as you can see in the table below from the CME.

It wasn’t long ago when the market was pricing 100bps more of rate cuts by the end of 2026, meaning a Fed funds rate of 2.50% – 2.75%. However, the narrative has shifted over the past several weeks after very mixed signals from FOMC speakers and data releases that have indicated the economy is not cratering (e.g. yesterday’s JOLTS data printing at 7.658M, >400K higher than expected). You may recall that shortly after the last FOMC meeting at the end of October, the probability of today’s rate cut had fallen to just 30%.

It appears that the new discussion point is this will be a hawkish cut, an idiom similar to jumbo shrimp. At this point, the bulk of the discussion has been around how many dissents will be recorded with the subtext being, what will Chairman Powell have to promise potential dissenters in order to bring them along to his side of the ledger. My take is if you thought the last press conference was hawkish, you ain’t seen nothin’ yet. In fact, I would not be surprised to see a virtually categoric call to this being the end of the cutting cycle for the foreseeable future.

Remember, we also will see the new dot plots and SEP which will help us understand the broad picture of where FOMC members currently stand on the matter. Personally, I expect to see a wide disparity between the ends of the distribution, and it wouldn’t surprise me to see some expectations of no rate changes for 2026 with other calls for 150bps of cuts and no consensus view at all.

At this point, all we can do is wait. However, the market discussion has centered on the fact that 10-year Treasury yields (+1bp) have been climbing lately, and that this morning they have touched 4.20% again while, at the same time, 2-year Treasury yields (no change) have been slipping as per the below chart I created from FRED data.

The steepening yield curve, which now appears to be turning into a bear steepener (when long dated yields rise more quickly than short-dated yields) is ringing alarm bells in some quarters. The narrative is that there are growing concerns over both the quantity of debt outstanding and its rate of growth as well as the fact rate cuts will engender future inflation.

A key part of the discussion is the fact that what had been a synchronous system of global central bank policy easing is now starting to split up. While we have known the BOJ is in a hiking cycle, albeit a slow one, today, the BOC is not only expected to leave rates on hold but explain they have bottomed. We have heard that, as well, from the RBA earlier this week, and the commentary from the ECB may be coming along those lines. So, is the US the outlier now? And will that weaken the dollar? Those are the key questions we will need to address going forward.

But before we move on, there is one market I must discuss, silver, which exploded to new historic highs yesterday, trading through $60/oz and is higher again this morning by 0.6% and trading at $61/oz. someone made the point yesterday that for the second time in history, you need just 1 ounce of silver to buy one barrel of WTI. The first time was back during the silver squeeze in January 1980, but that was quite short-lived (see chart below from macrotrends.com). This one appears to have legs.

I don’t know that I can find another indicator that better expresses my views of fiat currency debasement alongside an expanding availability of oil. To my mind, both these trends remain quite strong, and this is the embodiment of them both combined.

Ok, so as we await the FOMC, let’s see if anybody is doing anything in financial markets of note. As testament to the fact that virtually everybody is awaiting the Fed this afternoon, US equity markets barely moved yesterday, and Asian markets were similarly quiet, with only Taiwan (+0.8%) moving more than 0.4% in either direction. The large markets were +/- 0.2% overall. In Europe, the movement has been slightly larger, but still not impressive with Germany (-0.4%) the laggard of note while the UK (+0.3%) is the leader. A smattering of data released from the continent doesn’t seem to be having any real impact, nor did comments by Madame Lagarde claiming the rates are in a good place and displaying some optimism on future GDP growth. Of much greater concern is the headlong rush to a digital euro CBDC, where they are seeking to exert control over the citizenry. If for no other reason, I would be leery of expecting great things from the Eurozone going forward. Not surprisingly, at this hour (7:30) US futures are little changed ahead of the meeting.

In the bond market, yields are creeping higher all around the world with European sovereign yields higher between 2bps and 4bps this morning. Perhaps investors are taking Madame Lagarde’s views to heart. Or perhaps the fallout from the recently released US National Security Strategy, where the US basically dismisses Europe as strategic, has investors concerned that European governments are going to be spending that much more on defense without having the financial wherewithal to do so effectively, thus will be borrowing a lot and driving yields higher. At this point, European sovereign yields have risen to levels not seen since the Eurozone bond crisis in 2011, but it feels like they have further to climb (see French 10-year OAT yields below from Marketwatch.com).

In the commodity market, oil (+0.5%) cannot get out of its own way. While it is a touch higher this morning, it sits at $58.50/bbl, and that long-term trend remains lower. We’ve already discussed silver and gold (-0.25%) continues to trade either side of $4200 these days, biding its time for its next move (higher I believe). Copper (+1.4%) is looking good today, although it is hard to find economic news that is driving today’s price action.

Finally, the dollar is a touch softer this morning, about 0.1% in the DXY as well as virtually every major currency in the G10. Interestingly, today’s outlier is SEK (+0.4%) which is rallying despite data showing GDP (-0.3%) slipping on the month while IP (-6.6%) fell sharply. As to the EMG bloc, there is very little movement of note with the biggest news this evening’s Central Bank of Brazil meeting where they are expected to leave their overnight SELIC rate at 15.0% as inflation there, released this morning at a remarkably precise 4.46% continues to run at the top of their target range of 3.0% +/- 1.5%.

Ahead of the FOMC, we only see the Employment Cost Index (exp 0.9%), a number the Fed watches more closely than the market, and we hear from the BOC who are universally expected to leave Canadian rates on hold at 2.25%.

And that’s really it. I wouldn’t look for much movement ahead of the 2pm statement release and then the fireworks at 2:30 when Powell speaks can drive things anywhere. The most compelling story will be the number of dissents on the vote, as there will almost certainly be several. According to Kalshi, 3 is the majority estimate. With President Trump continuing to discuss the next Fed chair, I have a feeling there will be 4 and that will be a negative for bonds (higher yields) and a short-term negative for the dollar. In fact, it is just another reason to hold precious metals.

Good luck

Adf

It Won’t End Well

Posted on December 9, 2025 by fxpoet

From Europe, we’re hearing some squawks
They’ve not been included in talks
‘Bout war and Ukraine
So, to inflict pain
They’ve threatened a US detox

It seems they believe if they sell
All Treasuries held we would yell
Please stop, it’s too much
And lighten our touch
Methinks, for them, it won’t end well

Markets continue to be dull these days. While we are clearly not in the summer (it is 15° here in NJ this morning), doldrums certainly seem to be descriptive of the current situation. Equities bounce back and forth each day, neither trading to new highs, nor falling sharply. The same is true with the dollar, with oil, with gold of late and even, on a slightly longer-term view, of Treasury bonds. I guess that could be the exception, depending on your horizon, but as you can see from the chart below, it has been several months since 10-year yields have traded outside the 4.0% – 4.2% range.

Source: tradingeconomics.com

Now, much digital ink has been spilled trying to explain that the latest 15bp rise in yields is a signal that the US economy is about to collapse under the weight of its $38+ trillion in debt, but I sense that is more about reporters trying to get clicks on their articles than a reflection of reality.

However, this morning I saw a story that I think is worth discussing, even though it is only a hypothetical. Making the rounds is the story that Europe and the UK are extremely unhappy with President Trump’s approach to obtaining a peace in Ukraine and so have threatened their so-called ‘nuclear option’ of selling all their Treasury holdings to crash the US bond market and the US economy alongside it. From what I have seen, if you sum up all the holdings in Europe and the UK it totals $2.3 trillion or so, although it is not clear if that is controlled by the governments, or there are private holdings included. My strong suspicion is the latter, although I have not yet been able to confirm that.

But let’s assume those holdings are completely under the control of European central banks and governments and they decide that’s what they want to do. What do you think will happen? Arguably, much depends on how they go about selling them. After all, it’s not as though there is anybody, other than the Fed, who can step up and show a bid on the full amount. So how can they do this? I figure there are only two viable options:

They can sell them slowly and steadily over time, perhaps $200 billion/day (FYI daily Treasury market volume averages about $900 billion). That would clearly put significant downward pressure on prices and push yields higher but would likely encourage the hedge fund community to double up on the bond basis trade thus slowing the decline. However, if they did that for 11 days, US yields would undoubtedly be higher. Too, remember that if the market started to get unstable, the Fed would step in and absorb whatever amount they deemed necessary to prevent things from getting out of hand.

Perhaps, since their ostensible goal is to destabilize the US bond market, they would literally all coordinate their timing and try to sell them all at once. At that point, since nothing happens in the bond market without the Fed being aware, it would likely have an even smaller impact as the Fed would certainly step in and take down the entire lot. After all, through QT, their balance sheet has shrunk about $2.3 trillion over the past 18 months, so they have plenty of capacity.

My point is, I believe this is an empty threat, as it seems most European threats tend to be. Consider that the Eurodollar market remains the major source of funding throughout Europe, and it requires collateral (i.e. Treasury bills and bonds) in order to function. If Europe no longer had that collateral, it feels like they might have a lot more problems funding anything on the continent.

Another issue is that if we assume they successfully sell all their Treasuries, that means they will be holding $2.3 trillion in cash. Exactly what are they going to do with that? If they convert it into euros and pounds, the dollar will certainly fall sharply, meaning both the euro and pound will rise sharply. Please explain how that will help their economies and their exporters. They are getting killed right now because their energy policies have made manufacturing ridiculously expensive. See how many cars VW or Mercedes sells overseas if the euro rallies 15%.

Now, the article linked above is from the Daily Express, not a website I trust, but they reference a WSJ article. However, despite searching the Journal, and asking Grok to do the same, I can find no actual article that mentions this idea. Ostensibly, if you want to search, it came out on December 1^st, although if that is the case, why is it only getting press now?

It is a sign of the absence of market news that this is a story at all. With market participants inhaling deeply so they may hold their breath until 2:00 tomorrow afternoon when the FOMC statement is released, they need something to do. I guess this was today’s distraction. As I said above, this is clickbait, not reality.

Ok, let’s tour markets. US equity market slipped a bit yesterday and Asian markets were dull as well with modest gains and losses almost everywhere. The exception was HK (-1.3%) which suffered based on concern the FOMC will provide a ‘hawkish’ cut tomorrow and that will be the end of the road. But China (-0.5%) was also soft despite hopes that when the Politburo meets in the next weeks, they will focus on more domestic stimulus (🤣🤣) just like they have been saying for the past three years. Australia (-0.5%) slipped as the RBA left rates on hold and sounded more hawkish, indicating there were no cuts in the offing.

European bourses are mixed, although starting to lean lower. The CAC (-0.6%) is the laggard here although Italy and Spain are also softer while Germany (+0.2%) leads the gainers after a slightly better than expected Trade Balance was reported this morning. The hiccup here is that the balance improved because imports fell (-1.2%) so much more than exports rose (0.1%). Hardly the sign of economic strength.

We’ve discussed bonds on a big picture basis, and recall, yields rose yesterday in both the US and Europe. This morning, though, yields are little changed in the US and in Europe, with sovereign yields, if anything slightly lower. JGB yields also slipped -1bp last night and the big mover was Australia after the RBA, with yields climbing 5bps.

In the commodity markets, while the trend remains slightly lower in oil (+0.3%), as you can see from the chart below, $60/bbl is home. As I have written before, absent an invasion of Venezuela or peace in Ukraine, it is hard to see what changes this for now. I guess if China stops filling up its SPR, demand could shrink and that would accelerate the decline.

Source: tradingeconomics.com

In the metals markets, $4200/oz has become gold’s (+0.3%) home lately while silver (+0.9%) has found comfort between $58/oz and $59/oz. Neither is seeing much in the way of volatility or new interest, but both trends remain strongly higher.

Finally, the dollar, which rallied a bit yesterday, is little changed this morning. USDJPY is interesting as it has traded back above 156 this morning, contradicting all that talk of a Japanese repatriation trade. Again, it is difficult for me to look at the yen chart below and conclude the dollar has peaked.

Source: tradingeconomics.com

Elsewhere in the space, this is one of those days where 0.2% is a major move. Historically, December is not a time when FX traders are active.

On the data front, the NFIB report rose to 99.0 this morning, its highest reading in three months and the underlying comments showed a modest increase in optimism with many businesses looking to hire more people but having trouble finding qualified candidates. This is quite a juxtaposition with the narrative that small businesses are firing workers that I have read in several different places and is backed by things like the recent Challenger Gray survey which indicated that US businesses have fired more than 1.1 million workers so far this year. This lack of clarity is not going to help the FOMC make decisions, that’s for sure. As to the rest, the ADP Weekly Survey is due to be released as well as JOLTS Job Openings (7.2M) and Leading Indicators (-0.3%) at 10:00.

The very fact that the biggest story I could find was a hypothetical is indicative of the idea that there is nothing going on. Look for a quiet one as market participants await Powell and friends tomorrow.

Good luck

Adf

The Narrative’s Turned

Posted on November 26, 2025 by fxpoet

Last Friday it certainly seemed
The bears had achieved what they’d dreamed
Most bulls were in hell
As stock markets fell
While bears felt that they’d been redeemed

But since then, the narrative’s turned
And short-sellers all have been burned
In fact, round our sphere
Investors all cheer
For Jay to cut rates, Fed hawks spurned

The holiday spirit is alive and well this morning, and in truth has been all week. And not just in the US, but around the world. Literally, I am hard-pressed to find a stock market that has declined in the past twenty-four hours, with most on multi-day rallies. And so, I must wonder, has everything really gotten that much better in the world?

A quick tour around the world of problems extant includes:

Russia/Ukraine war
Chinese property deflation
Net zero insanity
TDS
K-shaped economies
Rise of Socialism
Excessive global debt/leverage
Cost of living

I’m sure there are others, but I just wanted to touch on a few and try to figure out why investors have turned so positive. After all, a look at the S&P 500 chart below shows that we are less than 2% from the historic highs set back on October 29^th.

Source: tradingeconomics.com

So, let’s run through the list.

The war in Ukraine continues apace, although we cannot ignore the uptick in ostensible peace talks that have been occurring in the past week. I’m game to accept those talks as a positive.
The Chinese economy continues to overproduce amid weakening domestic demand as property prices show no signs of bottoming. This is one of the major reasons for the massive global imbalances we have experienced over the past two decades and President Xi has basically proven that they only model he understands is mercantilism. With President Trump addressing that directly, this will continue to generate uncertainty and volatility, so there will be up days, but also plenty of down ones.
The ongoing waste of resources in this Quixotic effort, especially by the Europeans will serve only to further depress their economies while adding debt to pay for their ill-advised policies. As long as this continues, Europe will be poorer in the future and that doesn’t bode well for their equity markets.
Nothing will change TDS but its bifurcation of the population, and not just the US but globally, is likely to be a net negative for everything.
The K-shaped economy is a major problem, and not one restricted to the US. As long as this remains the case, it will breed social unrest, as we continue to see, and have encouraged policies that have proven time and again to be disastrous, but sound good to those in the bottom leg of the K, i.e. Socialism. I assure you, Socialism will not enhance market capitalization.
See above
The global debt problem continues to hang over the global economy like the Sword of Damocles, ready to decimate economies with just the right (wrong?) catalyst. Of course, this is why rate cuts are so favored, and QE more so, but while those may be solutions for government accounts, they will simply exacerbate the last on this list
I specifically point to the cost of living since the economists’ concept of inflation, the rate of change of prices, is irrelevant to most people. The price level is the key, and there is no world where the price level will decline absent a major depression, which is why run it hot is the favored plan. If growth can be raised sufficiently so that people believe life is affordable again, it will alleviate the K-shaped problem as well as the socialism problem. But that is a big IF.

And yet, as you can see from this screenshot from Bloomberg.com, as I type, every market is in the green.

My conclusion is that either investors have grown to believe that the key short-term problems, like Russia/Ukraine will be effectively addressed, or under the guise of YOLO, they are all in on AI and the stock market and see it as the only way forward. I wish I could be so sanguine, but then I am just an old misanthrope. I hope they are right!

Ok, well, absent any real new news, and leading up to the Thanksgiving holiday here in the US, market signals are telling me everything is right with the world. You see the equity markets above, and US futures are higher as well at this hour (7:30), albeit only about 0.2%.

In the meantime, with risk in such demand, it is no surprise that bond yields are edging higher with Treasuries +2bps, after trading below 4.0% during yesterday’s session on a weak ADP weekly employment report (-13.5K) as well as PPI data that seemed less concerning. European sovereign yields have all edged higher by 1bp this morning, again synchronous with risk on, and JGB yields also edged higher by 1bp after the government there explained they would be borrowing ¥11.5 trillion (~$73.5 billion) in extra debt to fund Takaichi-san’s supplementary budget. The big outlier is Australia, where AGBs rose 10bps after CPI rose a hotter than expected 3.8% in October, not only putting paid any thoughts of a further rate cut but bringing rate hikes back into view.

In the commodity markets, oil (-0.2%) continues to slide lower, now below $58/bbl, and following its recent trend as per the below tradingeconomics.com chart.

Javier Blas, the widely respected Bloomberg oil analyst, put out an op-ed this morning explaining that he saw higher oil prices in the future. That is at odds with my view, but I have linked it here so you can help determine if his reasons make sense. I believe he underestimates both the impact of technology making it ever cheaper to get oil, and the political incentives to drill for more of the stuff by those nations that have it. Net zero will not survive much longer in my view.

In the metals markets, prospects for lower interest rates have helped encourage further buying and this morning we see the entire complex higher (Au +0.7%, Ag +1.5%, Cu +1.3%, Pt +1.0%). To the extent that the leverage story remains, and governments are going to continue to print money to pay their debts, metals prices across both precious and base, should continue to appreciate in price.

Finally, the dollar, which slipped a bit yesterday, is mixed this morning. the yen (-0.3%) is sliding along with KRW (-0.6%), but really, there seem to be more gainers than that. The biggest mover was NZD (+0.8%) after the RBNZ cut its base rate, as expected, but indicated the cutting cycle is over. AUD (+0.3%) has also rallied on that inflation report. I haven’t focused much on the renminbi (+0.1%) lately, largely because the daily movement is typically small, but if you look at the chart below, you can see that the trend has been steady all year, with CNY appreciating nearly 4% since the beginning of the year. There are many analyses that indicate the renminbi is massively undervalued, so perhaps this is part of the trade deal with the US. But it will be difficult for Xi to countenance too much strength as it will negatively impact his mercantilist policies.

Source: tradingeconomics.com

Lastly, the pound is gyrating this morning as Chancellor Rachel Reeves offers her budget. The highlights are a larger than expected fiscal buffer of £22 billion achieved by raising taxes by more than £29.8 billion on gambling and real estate. However, the recent history of tax hikes in the UK, as they try to tax the wealthy, is that the wealthy simply leave and the result is tax deficits. Maybe it really is different this time!

And that’s what we have going into the weekend. Data today brings September Durable Goods (exp 0.3%, 0.2% ex transport), Initial Claims (225K), Continuing Claims (1975K) and Chicago PMI (44.3). I see no reason for this recent rebound to end as clearly everybody is feeling good into the holiday. As I highlighted above, there remain myriad problems around, none of which will be solved soon, but apparently, that doesn’t matter. So go with it!

There will be no poetry tomorrow or Friday so Monday, we will see how things have evolved.

Good luck and have a great holiday weekend

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Circumspect

Posted on November 24, 2025 by fxpoet

Said Williams, I really don’t think
Inflation will get us to blink
The jobs situation
Has led the narration
That growth has now started to shrink

But is that assumption correct?
In truth, it’s quite hard to detect
Atlanta’s Fed states
The ‘conomy’s great
And so, rate cuts are circumspect

Friday, John Williams was the latest FOMC member to regale us with his views and left us with the following:

“I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions. Therefore, I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral, thereby maintaining the balance between the achievement of our two goals…

“My assessment is that the downside risks to employment have increased as the labor market has cooled, while the upside risks to inflation have lessened somewhat. Underlying inflation continues to trend downward, absent any evidence of second round effects emanating from tariffs.”

The reason his comments are important is because, not only is he a permanent voting member as NY Fed president, but he is also deemed quite close to Chairman Powell, and the belief is Powell okayed the text, implying Powell is still leaning toward a cut. The Fed funds futures market certainly thinks so as the probability of a cut jumped from 32% on Thursday to 75% this morning. In fact, that seemed to be the driver of the rebound in equity markets on Friday as futures market started their all-day rally right as he spoke at 7:30 in the morning.

Source: tradingeconomics.com

As to the Atlanta Fed’s GDPNow forecast, it ticked higher on Friday and is now sitting at 4.2% for Q3, certainly not synchronous with a major employment crisis.

This week, we will start to get much more information from the BLS and BEA although there is still a huge hole in that output, notably CPI, PCE and GDP. It will likely take several more months before the rhythm of data gets back to the pre-shutdown cadence and more importantly, it offers the same level of completeness that existed back then. I guess the FOMC will have to earn their keep for a while longer.

But Williams triggered a solid risk-on session with equities rallying and Treasury yields slipping, while the dollar held tight. However, I want to touch on one more thing before looking at markets, where the overnight session was rather bland, and that is in reference to a Substack article by Michael Green I read over the weekend that offered a more quantitative approach toward understanding why despite what appears to be solid economic activity, so many people are so unhappy, unhappy enough to believe Socialism is a better choice for the nation going forward.

The essence of the article, which is very well worth reading as he does all the math to prove his points, is that the delineation of poverty in the US (and I suspect in many Western nations) is laughably low. For instance, the current poverty line is $31,200, which we all know is far below livable, while the current family median wage in the US is ~$80,000. Seemingly, most folks should have no problems. But Green does the calculations to show that if a family of 4 earns less than ~$140,000, they are going to struggle, even if they live in a lower cost area, not NYC where you probably need $350,000 to live. Between health care, childcare, housing and food, etc., less than that $140k means you are not only living paycheck to paycheck but falling behind as well.

Read the article, linked above, and afterward, you can get a better appreciation for how Zohran Mamdani was elected Mayor of New York City, promising all sorts of free stuff, even though he has approximately zero chance of delivering any of it.

At any rate, that is background for the week ahead. In Asia, Japan was closed for Workers Day, but Takaichi-san continues to make news regarding her hawkish stance on China. Meanwhile, bourses in the region had a mixes session with some nice gainers (HK +2.0%, Australia +1.3%, Indonesia +1.85%) although the bulk of the rest of the region saw relatively little overall movement, +/-0.2% or so. I guess they didn’t understand the benefits of the Fed potentially cutting rates. 🙃

Meanwhile, in Europe, things are far less interesting with a mix of gainers (Spain +0.5%, Germany +0.3%) and laggards (France -0.3%, Italy -1.1%) and the only notable news released being the German Ifo Expectations which slipped although remain solidly within its recent range. Turning to US futures, at this hour (7:00), they are pointing higher by 0.5%.

In the bond market, Treasury yields continue to slide, down -2bps this morning and now back at 4.05%. Clearly, the change in sentiment regarding the Fed rate cuts is dragging this yield lower for now. In Europe, sovereign yields are little changed, overall, with some showing a -1bp decline and others completely lifeless. Of course, JGB yields are unchanged given the Tokyo holiday.

In the commodity space, oil (-0.25%) continues to drift lower and the trend remains very much in that direction as can be seen in the chart below. There was a very interesting article by Doomberg on Substack this week, reviewing their call that the idea of peak cheap oil is a myth, and there is a virtually unlimited supply of hydrocarbons available with only the politics preventing more production. (For instance, consider the UK essentially shutting down their North Sea oil production despite being in the midst of a self-inflicted energy crisis with the highest electricity prices in the world. That’s not geology, that’s politics.) But geology shows there is plenty to go around and growing supply will continue to pressure prices lower.

Source: tradingeconomics.com

Meanwhile, the metals markets are fairly quiet this morning with gold (+0.25%) and silver (+0.1%) showing far less movement than we have seen of late. The one thing to note is that while both these metals are well off their highs from last month, they both seem to have found a comfortable resting place for now, and nothing about the global macroeconomic situation leads me to believe that the direction is lower from here.

Finally, the dollar is a touch softer this morning with the euro (+0.25%) the largest gainer in the G10 although JPY (-0.3%) remains under pressure overall. However, in the EMG bloc, INR (+0.5%) and the CE3 (HUF +0.4%, CZK +0.4%. PLN +0.5%) are all firmer with many other currencies in this bloc creeping higher by 0.2% or so. Interestingly, the DXY has barely slipped and remains above 100 for now.

This week, we are going to see a lot of the delayed September data come out, so like the NFP report from last week, which was old news, the question is, will we learn anything? But here is a listing to keep in mind:

Tuesday	Sep Retail Sales	0.4%
	-ex autos	0.4%
	Sep PPI	0.3% (2.7% Y/Y)
	-ex food & energy	0.3% (2.7% Y/Y)
	Case Shiller Home Prices	1.4%
	Consumer Confidence	93.5
Wednesday	Sep Durable Goods	0.2%
	-ex Transport	0.2%
	Initial Claims	227K
	Chicago PMI	43.8
	Fed’s Beige Book

Source: tradingeconomics.com

Obviously, Thursday is the Thanksgiving holiday and Friday there is nothing slated to be released. Housing Data, Personal Income and Spending and PCE data are all still up in the air as to when, and what exactly, will be released. The good news is it appears the entire FOMC is taking the week off as no Fed speakers are currently on the calendar.

If I recap what we know, the market remains beholden to the idea that the economy needs a Fed rate cut and was encouraged by Williams’ comments Friday. However, questions about AI accounting methods are being raised and there is a growing split between those looking for an equity correction and those who think the near-future is going to be all roses. From this poet’s perspective, nothing has changed my view that the Fed wants to cut rates, they just need cover to do so, and some softer data will give that cover. But I also look around the world and find almost every other nation is in a worse situation than the US from a macroeconomic perspective, and it is that issue that informs my view that the dollar remains the best of a bad lot. So, while fiat currencies will remain under pressure vs. commodities, I’d rather hold dollars than yen, euros, pesos or pretty much anything else.

Good luck

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fxpoetry

Explaining the rhyme and rhythm of the FX markets each day

Tag Archives: #oil

Too Potent a Force

Spinning More Heads

The Doctrine, Donroe

Much Ado

First Black Swan

A Vision For ‘Twenty-Six

All But Assured

It Won’t End Well

The Narrative’s Turned

Circumspect