Greatly Vexed

Posted on May 5, 2026 by fxpoet

For weeks it appeared that the war
Was something we all could ignore
As equities rallied
And most people tallied
Their gains as those prices did soar

But yesterday, things took a turn
And suddenly, stocks, folks, did spurn
While oil went higher
As missiles did fire
And UAE oil did burn

The question today is what’s next?
Will Hormuz soon wind up annexed?
Or will Iran’s forces
Back up their discourses
And keep Mr Trump greatly vexed?

For nearly two weeks, it appeared that the market was completely willing to accept the narrative that the Iranians were on their last legs and that the Strait would be reopened soon, thus relieving the pressure on the oil markets, and global markets in general. After all, US equity markets, as well as those in Korea and Taiwan, were making new all-time highs regularly despite the ongoing stress in Iran.

But yesterday, those happy thoughts were called into question as evidenced by the equity markets’ collective sharp decline throughout Europe and the US. Of course, most of Asia was closed on Monday, but the few markets that were open performed well then. Alas, last night was a different story with more losers (HK, India, Australia, New Zealan, Singapore) than gainers (Malaysia, Indonesia). Even if markets don’t decline much further, there has been a distinct change in sentiment about things, at least in my view.

The timing of the progress in potential negotiations and the question of potential escalation of fighting again are suddenly weighing more heavily on investor perceptions than they had for the last several weeks.

In the meantime, if we turn our attention to economic data, yesterday’s Factory Orders came in much stronger than expected, just the latest in a line of “surprisingly” strong data points from the US. If we look at the chart below from macromicro.me, showing the Citi Surprise Index and their earnings index, we can see that both the economic indicators and US corporate earnings results are moving higher. This seems at odds with the narrative of imminent collapse that is still making the rounds but is likely the cause of the equity market’s resilience.

In fact, this morning, markets are once again pointing in a more favorable direction as yesterday’s skirmishes in the Gulf have been quickly forgotten, it seems, and European bourses are all higher (Germany +1.0%, France + 0.6%, Spain +1.1%) recouping yesterday’s losses although UK equities (-1.0%) are suffering on a combination of yesterday’s concerns as well as a surprisingly negative HSBC earnings report. And US futures are also higher at this hour (5:45) by about 0.4% across the board. It is difficult to get markets downbeat for very long these days, which is remarkable given the sentiment indicators which have consistently been reading quite poorly.

This dichotomy is quite interesting to me as I am currently reading “Narrative Economics” by Robert Shiller, where he describes how social narratives have, throughout history, led to economic outcomes, whether positive or negative. His implication is that the data tends to follow the current zeitgeist, and then almost regardless of any government efforts to change that narrative, the zeitgeist is what drives the economy. For those of us who have been observing markets for any extended length of time, I don’t think this is a surprising revelation, although Shiller does a great job highlighting all the different times the narrative drove the bus.

And that is what makes the current situation so remarkable, the narrative is that things are terrible with the nation dramatically split politically while gasoline prices have risen so much and inflation is a major problem. You can see that in the Michigan Sentiment Survey and the political polls. Yet Retail Sales remain firm and we just saw those strong Factory Orders, two things which one would expect to soften given the current narrative.

Perhaps what we have seen is the impact of social media and ‘influencers’ whose goal is to show the good life and why/how you should live it. Given they only maintain their followers if they show an ideal situation, there will be no shaming for ostentatious consumption, that is their stock in trade. So, while during the Great Depression, social pressures were such that buying anything new, like cars or houses, was seen as inappropriate, today, buying new cars is seen as a requirement, the more expensive the better. Or going on an expensive holiday, or some other extravagance. I wonder if the gloomy narrative will end up overcoming the influencers. I suppose much will depend on just how much longer the war in Iran continues, as a clear end soon would almost certainly see a major sentiment change and another wave higher in risk assets while the longer it drags on, the more likely negativity overwhelms.

But this morning, having already looked at equity markets, we see a key piece of that story is oil (-2.0%) having slipped back. Perhaps the fact that there have been no new skirmishes has people back to a brighter outlook. Or perhaps, as the conspiracy theorists would explain, governments are in manipulating the price lower again. As I look at the chart, though, it remains remarkable to me that despite the Strait having been closed for two months now, oil prices have not risen further.

Source: tradingeconomics.com

The question at this point is how quickly things can return to any semblance of normal when the hostilities end. From what I have read, and I am not an expert, it almost seems like every day the Strait remains closed will require one and a half days more before things get back to the pre-war situation. Of course, even if that is the case, if the war ends, the zeitgeist will change far faster and that will likely be overlooked.

Meanwhile, given the current gold/oil relationship, we cannot be surprised that gold (+0.6%) and silver (+1.3%) are higher this morning.

In the bond market, after yields rose sharply yesterday (Treasuries +8bps), this morning, things are less dramatic with 10-year Treasury yields slipping -1bp and European sovereign yields all softer with Greece and Italy (-5bps) seeing the largest declines although German bunds (-1bp) were more in line with Treasuries. There has been much discussion lately about 30-year Treasuries and how they have traded back above 5.0% again, indicating it is a sign of the apocalypse. However, if you look at the chart below, you can see we have been at or above that level several times in just the past year. I understand 5.0% is a big round number, but I don’t see this as an imminent disaster because of the move. (Don’t misunderstand, the US fiscal situation is a major problem with many potential problems going forward, I just don’t think this is the final straw.)

Source: tradingeconomics.com

Finally, turning to the dollar, after modest gains yesterday, it is little changed this morning. The RBA raised rates by 25bps, as expected and AUD is unchanged, as are the euro and pound. With the BOJ on holiday, JPY (-0.2%) is slipping slightly, but not showing any major activity. However, we have seen several EMG currencies improve with MXN (+0.3%) and BRL (+0.4%) both benefitting from the increased risk appetite we are seeing in overall markets. The thing about the dollar is it has not been interesting for quite some time, trading within a fairly narrow range. However, while we continue to hear many pundits describe the dollar’s ultimate demise, there is an interesting story in the FT about the dollar’s dominance in global markets as can be seen in the chart below from Kobeissi on X.

This is not a demonstration of the world shunning dollars, just sayin!

On the data front, this morning brings the Trade Balance (exp -$60.5B) along with ISM Services (53.7) and JOLTs Job Openings (6.83M). We also see New Home Sales (668K) and hear from two Fed governors, Bowman and Barr.

But it is all still about the war and oil, and until something definitively changes there, I expect we will chop with every headline.

Good luck

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Ere Fears They Shed

Posted on May 4, 2026 by fxpoet

The status is still very quo
As ships still cannot come or go
However, Iran
Proposed a new plan
With nukes as a part of the show

But thus far, whatever they said
Has not moved discussions ahead
So, oil’s crept higher
As traders require
More certainty ere fears they shed

While President Trump has announced a new plan to help escort ships trapped in the Persian Gulf through the Strait of Hormuz, thus far, none have taken the chance. Over the weekend, Iran ostensibly put forth another peace proposal, and this time their nuclear activities were part of the plan, a major change, although President Trump has rejected it overall. To me, though, this is major progress as it demonstrates that there is a negotiation ongoing.

My armchair analysis, FWIW, is that Ahmed Vahidi is watching his nation crumble and beginning to really feel the pinch of the US naval blockade as his revenues shrink rapidly. While there are many estimates of how long Iran can withstand a lack of revenue, and I have no idea what that answer is, I feel it is reasonable to assume that if he doesn’t have enough to pay his soldiers, many of them will simply go home. Already I have read reports that many of their payments to soldiers and proxies have been dramatically reduced as the US continues to tighten the financial screws via sanctions on banks and companies that have been acting as Iran’s middlemen. I believe it is widely agreed on all sides of the conversation that the Iranian economy has been virtually collapsing with the rial having fallen 95% in value, access to basic staples limited and suffering widespread.

The one thing of which I feel certain is that Vahidi wants to remain in power, and I would estimate as the pain increases, and the money stops flowing, his grip on power is slipping. Staying in power without nuclear weapons is likely much preferred to being deposed.

In the end, like every negotiation, the parties start far apart and get closer over time. Now, my view is likely not worth all that much, but the oil market’s view is worth billions of dollars and if we look at how the price of oil has behaved, while uncertainty remains, (especially after a report this morning that Iran fired on and struck a US naval vessel, although that report has been denied), the market does not appear to believe that this is going to continue that much longer.

Source: tradingeconomics.com

Several things continue to occur as at $100/bbl; there is some level of demand destruction; production elsewhere in the world continues to grow (I read that Venezuelan production rose to 1.25 mm bpd ,more than had been assumed prior to the Iran war); and the Saudi east-west pipeline is now pumping its capacity 7 million bpd, thus the amount of oil ‘missing’ has been reduced from the initial headline 20 mm bpd to somewhere along the lines of 12 mm bpd, still extremely painful to the global economy, but obviously not (yet) catastrophic. However, since oil prices remain around $100/bbl, and have not risen to $150/bbl or $200/bbl as many pundits had forecast, there remains a great deal of confidence that this is going to end before too much more time has passed. I certainly hope so for everyone’s sake.

Away from that, there is precious little other news to note as Asia is basically on holiday until Thursday and the UK is closed today, so market activity has been more muted. But let’s take a look. In the equity markets, weirdly HK (+1.2%) was open despite both China and the UK being closed and given HK’s history, I would have thought it would have responded to one of those situations. But the big news was Korea (+5.1%) which was dramatically higher on rallies in Samsung and SK Hynix shares, both of which have been major beneficiaries of their semiconductor businesses booming alongside AI demand. I guess we shouldn’t be surprised Taiwan (+4.6%) followed that path and in truth, there were more positive outcomes (India, Philippines, Malaysia, Singapore, New Zealand) than laggards (Australia). Remarkably, everything I read is that Asia is the region most negatively affected by the Iran war, yet here we continue to see equity markets rising.

In Europe, things are less optimistic this morning with red across the screen led by Spain (-1.6%) and France (-1.0%) although both the UK and Germany are nigh on unchanged. One of the weekend stories is that the US is now going to be raising tariffs on European auto imports to 25% from the 15% initially agreed as Trump claims the Europeans weren’t following the agreement. As to US futures, this morning they are marginally lower as I type (7:30) but remain just ticks away from the all-time highs set last week. Again, it is difficult to accept the idea that the world is about to end based on the market’s current behavior. Look at the chart below and worry does not seem to be prevalent, nor has it been for any extended length of time in the past 5 years.

Source: tradingeconomics.com

In the bond market, yields are higher this morning with Treasuries (+4bps) leading the way and European sovereigns all higher by between 3bps and 4bps as well. It’s interesting that this is the behavior but I suppose it has to do with the Keynesian view that higher economic activity leads to higher rates. If we look at the PMI data from around the US and Europe, manufacturing has been doing quite well. Look at the ISM Manufacturing chart below for the past 3 years and it is clear that investment is growing there.

Source: tradingeconomics.com

It is a similar tale in Europe with Manufacturing PMI data this morning all being released healthily above the 50 level and rising from last month. The market response to lift yields seems anachronistic, but such is life. However, it is worth highlighting that if we take a bit of a longer-term perspective on 10-year Treasury yields, while they are pushing toward the top of a 4.00% – 4.50% range, you can see that range has largely been intact for the past 3 years. It is not clear to me that it is time to panic on yields yet.

Source: tradingeconomics.com

In the commodity space, with oil (+3.3%) having risen on the reports of a US ship being attacked, we cannot be surprised to see gold (-1.2%) and silver (-2.6%) both slipping along with copper (-1.6%). This is especially true with China and most of Asia on holiday as official buying of gold is probably on hold for now.

Finally, the dollar is firmer this morning as risk is under pressure across the board. US futures are lower, European stocks are lower and oil is higher. So, gains of 0.25% for the dollar against most currencies are the norm. There was a very sharp appreciation in the yen early in the overnight session and another one a few hours ago, as you can see in the chart below, with many believing the BOJ was in again during quiet markets, but it has completely reversed. My take is the BOJ would not have spent reserves like this and would have been far more emphatic if they wanted to move the market again.

Source: tradingeconomics.com

But, as market in Asia were quite thin, any large sell order would have been able to force a move like these. In addition, with the dollar now several percent below their level of concern, I suspect they will save their ammunition. In the EMG bloc, ZAR (-0.5%) continues to feel most of the pressure from Iran as the combination of higher oil prices and lower gold prices are a double whammy. As well, NOK (+0.35%) continues to respond positively to the oil price. Net, the dollar remains in demand for now.

On the data front this week, it is a mixed week until Friday’s NFP data is released.

Today	Factory Orders	0.5%
	-ex Transport	0.7%
Tuesday	Trade Balance	-$60.5B
	ISM Services	53.7
	JOLTs Job Openings	6.83M
	New Home Sales	668K
Wednesday	ADP Employment	99K
Thursday	Initial Claims	205K
	Continuing Claims	1800K
	Nonfarm Productivity	1.4%
	Unit Labor Costs	2.6%
	Consumer Credit	$11.0B
Friday	Nonfarm Payrolls	60K
	Private Payrolls	73K
	Manufacturing Payrolls	5K
	Unemployment Rate	4.3%
	Average Hourly Earnings	0.3% (3.8% y/Y)
	Average Weekly Hours	34.2
	Participation Rate	61.7%
	Michigan Sentiment	49.5

Source: tradingeconomics.com

In addition, Fed speakers are back on the circuit (I sure hope Warsh shuts them all up) with 12 speeches from 9 different speakers. The funny thing is, we already know their views, Miran wants to cut and everybody else is on hold, so what are they going to say?

The war remains the only thing that matters right now, so watch for headlines that an agreement is coming closer. If that happens, oil will slide along with yields and the dollar while metals and stocks will rally. (Of course, apparently, we don’t need anything else to get stocks to rally!)

Good luck

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Twiddle Their Thumbs

Posted on May 1, 2026 by fxpoet

While nations worldwide celebrate
The holiday Marxists made great
Most markets are closed
With traders disposed
To twiddle their thumbs and just wait

Almost every market in both Asia and Europe was closed last night and this morning as the May Day holiday, which while it became a labor celebration in the late 1800’s was actually a pagan ritual in ancient times, coincides with the Golden Week holidays in most of Asia. Yes, US markets are open, and so are UK markets, but that’s pretty much it.

The biggest market news, I would argue, was the BOJ intervention that we saw early yesterday morning, and then, apparently, again during the session. Bloomberg calculated they spent ¥5.4 trillion in their efforts, a cool $35 billion or so. As you can see from the chart below, it did look like there might have been a second, smaller wave this morning, but there is no confirmation of that happening. The second sharp decline could simply be an order in thin holiday markets.

Source: tradingeconomics.com

Of course, the Japanese intervening in the FX markets is not that newsworthy in the big picture, they have done so many times. What was much more interesting was the fact that they ostensibly intervened in the oil market as well, selling futures to help cap the price there. While there are many market participants who decry official intervention in markets, and I understand their concerns, long ago I recognized that governments, by the very fact that they make the rules, are going to do what they want. And while some will claim this was a sop to President Trump to help keep energy prices down, it helps the Japanese economy as well. Japan has been negatively impacted to a much greater degree than the US by high oil prices.

Source: tradingeconomics.com

My final thought on this subject is that it is likely to be a huge win for the Japanese as well, shorting oil at $108/bbl, or whatever their price is will be seen as genius when the end game plays out and oil prices tumble due to massive supplies becoming available.

But really, it is hard to look around and see much more than that. While there is still some discussion of Powell’s decision to remain on the FOMC after his chairmanship ends, I don’t think the market cares all that much anymore as all eyes are now on Mr Warsh to see how he navigates things.

Otherwise, every other story is clickbait and largely unrelated to financial markets today. Rather, it is a good day to play golf, or sit outside and read a book, at least in NJ where it is sunny and heading to 65 degrees.

So, let’s do a quick recap of the few things that did happen overnight. Apple reported strong earnings last night which helped confirm the new record highs in US equity markets, at least in the S&P 500, and helped all US markets to a strong session yesterday. This morning, though, the NASDAQ futures are pointing slightly lower, -0.2%, as I type at 7:15 although the other major indices are in the green. Overnight saw Tokyo (+0.4%) rally a bit as did Australia (+0.7%) and New Zealand (+1.0%), but they were the only markets open. The rest of Asia was on holiday. In Europe, only the UK (-0.5%) is open today with a lackluster performance on weaker banking profits and forecasts.

In the bond market, Treasury yields (+2bps) have moved a bit higher as have UK gilt yields (+2bps) with the rest of Europe closed. One of the interesting things about the bond market is the fact that US economic activity continues to prove remarkably resilient as yesterday’s data showed strong Personal Income and Spending data (0.6% and 0.9% respectively), with GDP growing 2.0% and Initial Claims falling to 189K, its lowest print since 1968! Meanwhile US energy exports have been growing to record levels, and the US economy is benefitting massively from the relative abundance of energy available here, especially with NatGas prices still one-sixth their price in Europe. I must admit it doesn’t feel like the data points toward the need to cut rates.

Turning to commodities, oil (-0.6%) has not been able to reverse the impact of the Japanese intervention yet as all eyes remain on Iran to see if the blockade will force them to concede soon. As well, the fact that the UAE has left OPEC, the 4^th nation to do so in the past seven years, is an indication that OPEC has lost virtually all its pricing power. I remain medium term and longer term bearish on oil as the political constraints fall away with the war just accelerating that process. As to the metals markets, after a nice rally yesterday, gold (-1.0%) is backing off a bit while silver and copper are essentially unchanged.

Finally, the FX markets are also extremely quiet overall once you move away from the yen, which today is also little changed from yesterday’s closing level. In fact, the entire market has only moved +/-0.25% or less from yesterday. There is no story here.

And in fact, there is no story anywhere today. ISM Manufacturing (exp 53.0) and Prices Paid (80.0) are on the docket and that’s it. No speeches, and quite frankly I expect very little price action overall as most trading desks will take my advice and leave early.

Good luck and good weekend

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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

Throwing Shade

Posted on April 29, 2026 by fxpoet

For OPEC, the times are a changin’
With membership now rearrangin’
Thus, looking ahead
They’ve nowhere to tread
With more nations set for estrangin’

The proximate cause is the war
Which Gulf members rightly deplore
Meanwhile the blockade
Will keep throwing shade
On all their decisions before

One of the key features of the Fourth Turning, as so ably described by Neil Howe and William Strauss in their 1997 book of the same name, is that it is a time when institutions that have been part of the global system are torn down as they are no longer fit for purpose. By the end of the turning, new institutions have arisen to take over those roles going into the future.

I will be the first to say that I don’t have any idea what may replace OPEC, but with the UAE’s announcement that they are exiting the group as of Friday, May 1^st, OPEC is in a world of trouble. OPEC was founded in 1960 as Gulf states sought to establish control over oil markets that had been developed by the “Seven Sisters” major global (and notably foreign) oil companies. Of course, the 1973 oil embargo and the follow on in 1979 cemented their power for two generations. Thus, Saudi Arabia and friends punched far above their weight on the global stage because of their oil reserves.

But the fracking boom in the US in the 2010’s laid the groundwork for OPEC’s demise as suddenly, not only was there a major producer outside the group (there had always been a few like Norway and the UK), but there was a major producer that had power in its own right. Thus, the seeds were sown back in 2014 or so, as fracking in the US took off, for the end of this organization. And that’s where we stand today. The US is the largest producer of hydrocarbons in the world by a long shot these days, as not only do they dominate oil production, but, too, natural gas and associated liquids.

So, now the world’s last standing superpower is no longer reliant on imported energy, and in fact, is a major energy exporter. Remember, energy = life, or put another way, energy = economy. Arguably, this is the biggest geopolitical shift the world has seen in decades, since the end of the Cold War.

Returning to the thesis of institutions being torn down and rebuilt, I cannot foresee what type of institution is even necessary to replace OPEC. Arguably, it will slowly disintegrate as it has lost all its coercive power, and each nation will simply pump as much oil as they can going forward. For everyone who believes there is a long-term shortage of oil, and that oil prices are heading higher, I will take the other side of that bet. History has shown that every shortage is followed by a glut, and this one will be no different.

There are many commentaries that Iran can withstand the US naval blockade longer than President Trump can stand the political heat. I disagree with that on both sides of the equation. First, as a second term president, Trump is not seeking re-election and just doesn’t give a f*ck about a lot of things. Second, any stress Iran has felt in the past occurred while the government and infrastructure there were completely intact. Now, Ahmad Vahidi, the effective leader of the nation, lives in a series of holes in the ground with no electronic communications because he knows that his days are numbered if he becomes public, and that’s a hard way to govern. Second, the extraordinary damage that has been inflicted on the nation from the bombing campaigns has resulted in much less tolerance for additional stress. Add to that the blockade is starving Vahidi and the IRGC of money to pay their proxies and soldiers, and the fact that at some point soon, Iranian oil wells are going to start to be shut in risking permanent damage, and Iran’s options are few and shrinking.

Right now, oil prices (+3.3%) are continuing to trade higher, although have not yet returned to the initial spike levels from the opening night of the attacks and they could climb higher still in the short-term. But I am highly confident that by autumn, they will be much lower as the roughly 1 billion barrels that are around in floating storage and stuck in the Persian Gulf come back to the market.

Source: tradingeconomics.com

In the meantime, this will continue to lead the news, but my view is this is already a fait accompli. However, until such time as it ends, we must deal with the daily twists and turns. Personally, I think it is healthy that there is another topic of interest, AI and the associated companies and their stocks, which has captured a growing share of the market’s collective mindshare. We need more than one thing lest every X-pert who previously knew about Covid, Ukraine, Russia and now Iran, would suck up all the air in the room.

Touching quickly on AI, Torsten Slok, the Chief Economist at Apollo, posted an interesting, and I believe very useful, take on AI and its future impact on employment, calling it The Jevons Employment Effect. In essence, as William Stanley Jevons explained for coal in 1865, the more efficient use of a resource results in increased demand for that resource. So, Slok’s idea is that as workers become more efficient, there will be more demand for efficient workers which will expand economic output as productivity is enhanced. Worth a thought to counter the entire black pill view that AI is going to take all the jobs.

Ok, I’ve gone on too long, so let me quickly tour markets here. The inverse relationship between precious metals and oil remains in place with gold (-0.6%) and silver (-0.4%) both softer this morning. We did learn that central bank purchases of gold in Q1 rose to 244 tons as they took advantage of the decline in prices post the peak. Considering my view that oil’s price is going to fall sharply going forward, I think that may bode well for gold then.

In equity markets, yesterday’s declines in the US were followed by a mixed session in Asia with Japan the perfect symbol as the Nikkei (-1.0%) fell while the TOPIX (+0.6%) rose along with most other Japanese indices. China (+1.1%), HK (+1.7%), Korea (+0.7%) and India (+0.8%) were all in fine fettle although other regional exchanges were less optimistic overall. Turning to Europe, though, red is today’s color, with the UK (-0.8%), Spain (-0.7%) and France (-0.6%) all under decent pressure after inflation data showed continued stickiness which will prevent any central bank easing tomorrow by either the BOE or ECB, although the idea that either will hike rates remains ludicrous in my eyes, but they are error-prone, I will give them that. As to US futures, at this hour (7:30) they are hanging around unchanged ahead of the FOMC meeting this afternoon.

In the bond market, yields are creeping higher across the board with virtually every market currently open in Europe and the US showing yields higher by 1 basis point. It is hard to get excited here.

The dollar, too, is dull and boring today with little movement broadly. NOK (+0.65%) is responding to the ongoing rise in oil prices, as is BRL (+0.4%) which is also benefitting from the idea that rising inflation will prevent the BCB from cutting rates much further. On the flip side, ZAR (-0.4%) is under pressure on the back of gold’s weakness and rising oil prices as they import the bulk of their energy. But the G10 is a bit boring with the exception of AUD (-0.3%) and NZD (-0.4%), both of whom released CPI data last night that while high, was not as high as forecast.

And that’s really it for today. I chuckled at an article in Bloomberg discussing Chinese companies and their needs in the FX market as they explained it could move the CNY between 6.80 and 6.85, which given the current rate is 6.836, means it’s not moving at all!

On the data front, before we hear from Powell at 2:00, hopefully for the last time, we get Housing Starts (exp 1.4M), Building Permits (1.39M), Durable Goods (0.5%, 0.4% ex Transport) and the Goods Trade Balance (-$87.0B), with the FOMC statement and comments clearly the most important thing. Then, this evening after the close we get earnings reports from MSFT, META, GOOG and AMZN, which has the market on tenterhooks.

The clock is ticking in Iran and that remains the biggest unknown, its timing, for the market and the world writ large. Let’s hope it ends soon.

Good luck

Adf

Less Than Ideal

Posted on April 28, 2026 by fxpoet

Some mornings the quiet is real
With limited news of appeal
But traders still need
Their families, to feed,
A story far less than ideal

Yes, oil prices have traded a bit higher overnight and this morning, albeit amid extremely low volumes. In fact, it is the volumes that speak to how little people seem to care about markets right now. We are seeing extremely low volumes across oil, gold, stocks, bonds and even FX markets are quiet. It’s not that they haven’t moved a bit, it’s just that there is no conviction amongst the trading community as to where things should be heading.

Of course, this is never true of the narrative community, who will spin up something to get clicks, but frankly their stuff, which is often the thinnest of gruel, has even less traction now. Arguably, reading through as much as I could this morning, the most noteworthy thing was the following clip I saw on X (and it is a worthwhile use of 13 seconds, I assure you) showing Representative Ilhan Omar discussing World War Eleven. I wish there was more to say, but since there is not, let’s head to the markets.

The most relevant argument in markets right now is how long can Iran hold out while their revenue stream is stopped by the US naval blockade and correspondingly, how long before they have to start shutting in production? How full is their storage? I have seen estimates from what I believe are credible sources of between half full and 80% full which would mean, even in the best case for them, they have about another 2 weeks before shut-ins begin. And if that happens, they are looking at the permanent destruction of upwards of half their current output. In other words, this war is not merely existential for the IRGC and their grip on power, but potentially for Iran’s longer-term future as an economy.

In the meantime, oil prices (+3.3%) continue to grind higher on limited volumes as you can see in the chart below with the lower bars indicating volumes.

Source: finance.yahoo.com

As consumers, we are all feeling the pain of this price action, but BP just reported record profits, and we can expect similar outcomes from all the oil majors, making hay while the sun shines as all corporates do. At the same time, gold (-1.6%) and silver (-3.2%) continue their direct negative correlation to oil. This relationship seems quite robust at this point. It appears that the ongoing dollar strength on the back of the rise in oil prices is undermining the status of gold as a haven asset. I continue to believe this is a temporary phenomenon, but for those long gold, it is nonetheless a painful reminder of how markets can remain perverse.

Speaking of the dollar, yesterday’s modest declines have been reversed this morning with the greenback gaining on the order of 0.25% this morning across the board. The biggest news here was the BOJ meeting last night where, as expected, Ueda-san left policy unchanged, although the vote was 6-3, with the three dissents seeking a rate hike. From what I can tell, Ueda-san prattled on for an hour in his press conference without giving any clear direction as to the future, confusing one and all by explaining they may not reach their objectives but may raise rates anyway. You can see in the chart below when Ueda started speaking as it initially sounded hawkish, but here we are, 7 hours later and it was as though he never opened his mouth.

Source: tradingeconomics.com

The overriding concern in the yen is whether it will weaken through (dollar above) the 160 level, which it briefly touched back in late March, but has since been trading just below. That is perceived by many as the ‘line in the sand’ regarding intervention. However, if we go back to the summer of 2024, when the BOJ last intervened, USDJPY was pushing 162 before they pulled the trigger as you can see below. It certainly suits them that the market is afraid of pushing this envelope, but my take is it will happen before too long.

Source: tradingeconmics.com

As to the rest of the FX space, zzzzz is the story. Perhaps the other interesting thing is that NOK (-0.15%) is weaker despite oil’s climb. Everything else is softer vs. the dollar by -0.2% and -0.4% with no real outliers. FX is just not that interesting, like most markets these days.

In the equity space, yesterday’s US performance was uninspiring, but we saw more weakness (Tokyo -1.0%, HK -1.0%, China -0.3%, India -0.5%, Australia -0.6%) than strength (Korea +0.4%, Malaysia +0.7%) across Asia. However, there are no new stories to drive things here with the Iran war and energy prices the only topic of note. In Europe, markets are feeling better this morning with gains across the board led by Spain (+1.0%) and the UK (+0.6%). I must admit I am confused by the Spanish performance as the only data point of note released this morning was Spanish Unemployment which jumped to 10.83% (such precision), far above last month’s 9.93% and a full point above economists’ forecasts. But I guess if you look at the longer-term history of Spanish Unemployment, this is still far better than it has been in the past and the trend remains intact.

Source: tradingeconomics.com

Meanwhile, US futures are pointing lower at this hour (7:25) with OpenAI having missed its own targets for user acquisition undermining the overall AI thesis thus far this morning. Plenty of time for that to change though, at least based on how buying remains the default position.

Finally, bond markets have sold off with yields continuing to edge higher across the board. While it’s not really a rout, as you can see from the Bloomberg screenshot below, every European sovereign yield is higher along with treasuries, although JGB’s managed to remain unchanged overnight.

Certainly, there is nothing new in the bond market right now, although I imagine as the Iran war drags on, we will see increased government borrowing across the board which ought to pressure yields higher.

And that’s it, really, for this morning. We see the Case-Shiller Home Price Index (exp 1.1%) at 9:00 this morning and Consumer Confidence (89.0) at 10:00. Neither of these is going to matter to traders anywhere, not even algos.

Until there is a change in the situation in Iran, it is hard to see more than lackluster interest across most markets. I imagine that if this extends for weeks, the offsetting forces of reduced supply and demand destruction will find an equilibrium point, which may well have already been found around $100/bbl. Remember this with respect to the dollar, since oil is priced in dollars almost universally, there is going to continue to be demand for the greenback everywhere in the world. It is hard for me to make a significant bearish case for the dollar right now, at least in the medium or long-term. In the short term, who knows?

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

An Eye Blink

Posted on April 22, 2026 by fxpoet

Last night it appeared a reprieve
Was offered, though I don’t believe
That Trump will delay
Much more than a day
Ere US Marines, wins, achieve

But as of last night, markets think
That peace will come in an eye blink
Thus, futures have rallied
While bond prices dallied
And oil has started to sink

This is the Tuesday night look, which is subject to significant change by the time I wake up tomorrow morning. But here are the futures prices at 9:30pm:

Source: tradingeconomics.com

As you can see, US futures are higher and the Nikkei 225 is also modestly higher with no indication that there is concern over the US landing on Kharg Island and other Iranian key strongholds. All this comes after news has filtered out that Ahmad Vahidi, who appears to be the senior most IRGC leader left, has arrested the civilian government members who were scheduled to meet with the US and hammer out a deal. To my eyes, and from what I have read from what I believe is an excellent source, marines will be on Kharg Island before the week is out. It strikes me if that is the case, the current equity rally, which has been impressive, will get challenged.

As to bonds, last night they were essentially unchanged with 10-year yields at 4.29%. Again, this is not the stuff of major concern. And oil? Modestly lower and back below $90/bbl.

The early results are confusing
With recent attacks Iran’s choosing
But elsewhere there’s hope
That peace is in scope
Despite lots of, others, accusing

As of 6:20 this morning, although there have been several ships fired upon by Iranian gunboats, the US has not escalated, and the President has indicated he is waiting for news today on the situation. One of the takes is that the Iranians are going to come to the table and seek a deal, although it is difficult for me to believe that Vahidi is ready to cede power. But like virtually everybody else, nobody really knows what is happening.

However, markets appear to have made up their mind that the worst is over and there is no reason to panic any further. In fact, it appears they are getting excited about the opportunities that will come about because of all the post-war reconstruction that will be necessary and will certainly be profitable for those companies engaged.

The other story from yesterday was the confirmation hearings for Fed Chair nominee Kevin Warsh. I imagine it went about as largely expected with every Democrat despising him and every Republican liking him, but until the DOJ case against Powell regarding the reconstruction of the Eccles Building is finished, Senator Thom Tillis has said he will not allow a floor vote. Warsh did consistently explain that the Fed has lost its way and has not achieved its goals so it is time to start thinking of new approaches. And it is certainly true, as the below chart shows, that the Fed has been a failure with respect to its inflation target of Core PCE at or below 2.0%, a number last seen in February 2022 (the left=most bar on the chart).

Source: tradingeconomics.com

And with that in mind, let’s turn to markets this morning and see how things played out overnight and are evolving right now at 7:00. US futures are virtually in the same place they were last night as per the below screenshot from tradingeconomics.com

Asian markets were mixed overall with Tokyo (+0.4%), China (+0.7%) and Taiwan (+0.7%) all having a decent day while HK (-1.2%) and Australia (-1.2%) led the way lower for those regional exchanges that were under pressure. But in truth, it was about 50:50 with respect to gainers and losers. Certainly, there was no strong theme. Meanwhile, in Europe, markets have drifted a bit lower, but the CAC (-0.3%) and Spain’s IBEX (-0.3%) seem to be the worst of it. Net, it is hard to get too excited about anything in the equity space right now.

Similarly, bond markets are somnolent with Treasury yields edging lower by -1bp and similar price action in European sovereigns with the entire continent, and the UK, showing small yield declines of between 0bps and -2bps. Overnight, JGB yields were unchanged as well. While we continue to get inflation reads that include the war and the sharp rise in energy prices, there is no indication prices are running away yet. For example, the UK (3.3% headline, 3.1% core) released CPI this morning as did South Africa (3.1% headline, 3.2% core). Frankly, if you look at the chart below showing headline CPI for both nations (South Africa in blue, UK in grey), you would be hard-pressed to attribute any price pressure to the war given what has been going on in both places for the past three years.

Source: tradingeconomics.com

Turning to the commodity markets, oil (+0.8%) has rebounded from last night’s levels, but not that much, although WTI is back above $90/bbl, barely. NatGas (+1.15%) remains the absolute bargain in the energy world with US prices at $2.72/MMBtu, vastly cheaper than oil on a per unit basis of energy. Interestingly, in the metals markets, the recent negative correlation between gold and oil has broken down this morning with the shiny stuff rallying and taking all its friends along for the ride (Au +0.8%, Ag 2.0%, Pt +2.5%, Cu +0.7%).

Finally, the dollar doesn’t really care about anything right now, virtually unchanged against most of its counterparts this morning. There are a few outliers, notably NOK (+0.9%) which continues to benefit from the oil story, CLP (+0.3%) which is higher on copper’s rally and NZD (+0.3%) which continues to gain on rising expectations of higher rates there. One other amusing thing was a story in Bloomberg this morning about CNY and how its recent strength, it has gained more than 6% over the past year as the below chart highlights, is causing problems for Chinese exporters.

Source: tradingeconomics.com

Of course, this has been a US (and global) complaint for a long time, that the renminbi has been manipulated to remain excessively weak to provide a competitive advantage for Chinese exporters. In fact, according to the OECD, the CNY’s PPP value is approximately 3.303 vs. its current level of 6.82, meaning it is trading in markets at half its appropriate value.

Source: ceicdata.com

My sense is that TEMU would not be able to sell all that sh*t so cheaply if that was the exchange rate, just saying. In fact, this is something President Trump has been bashing the Chinese on for years. But Bloomberg managed to offer a sympathetic tone for those “poor” Chinese companies who have seen the CNY gain 6% in a year.

Off the soap box and on to data where the only releases are the EIA oil inventories with a modest expected crude oil draw. This comes after the API indicated a 4.1-million-barrel draw last week. There are no Fed speakers on the docket with the FOMC meeting coming up next week, so my take is today will be all about the ongoing earnings releases, which thus far have been quite positive, and waiting for President Trump, who ostensibly will be speaking at 3:00pm this afternoon. It is hard to have a strong opinion in this market, that’s for sure. Unchanged seems to be the best bet absent a major headline announcement.

Good luck

Adf

Blow-By-Blow

Posted on April 20, 2026 by fxpoet

It wasn’t all that long ago
That if people wanted to know
The news, they would turn
To TV to learn
The latest events blow-by-blow

But now TV news when it airs
Has reached the point nobody cares
‘Cause it’s been on X
Without any checks
For networks, the stuff of nightmares

Which brings us to info this morning
That claims, Tehran, talks have been scorning
But also, we hear
A framework is near
For risk takers, this is a warning

I wonder if all of you face the same situation I do, which is answering the question, what is real? The fog of war is truly a descriptive term for the inconsistencies in the information that comes out of the Trump administration, the mainstream media that covers it with their own spin, the Iranians (who seem to be fighting aggressively among themselves) and then looking at prices in financial markets as well as economic data, much of which seems to be inconsistent. How exactly are we to gain an understanding of the big picture, let alone the intricacies of particular markets, given the overwhelming volume of noise we absorb every day.

The below table shows the prices of key markets when I last wrote compared to this morning:

Market	April 14	April 20
Oil	$97.35	$88.50
Gold	$4778	$4796
10-year yields	4.295%	4.267%
S&P 500 futures	6906	7090
DXY	98.04	98.24

Source: tradingeconomics.com

I know this is an incomplete listing of things, but I just wanted to touch on the basics. A quick look shows that oil has had, by far, the largest move, nearly a 10% decline, but after that, very little net activity. Sure, there has been some volatility in the interim as you can see in the following charts from tradingeconomics.com, but markets always have a certain amount of inherent volatility, it is the nature of the beast.

In the same order as above:

Oil

Gold

10-year Treasury

S&P 500 Futures

DXY

Of course, much of the movement came after Friday’s announcement by President Trump that the Strait of Hormuz was now open, and the overnight reversals have been a response to the Iranians contradicting that statement and firing on several ships.

It appears that as of now, the Strait is not yet open for free navigation, although apparently there are going to be a second round of talks tomorrow in Islamabad. An interesting story I read indicated that the internal divisions between the IRGC and the secular government in Iran are huge, which is one reason we seem to be hearing multiple things regarding negotiations and goals. We also must remember that all sides in a conflict like this issue propaganda for their own populations that may have nothing to do with their stance in the negotiating room.

The net of all this is, reading about things, no matter how well-read you are, doesn’t really capture the reality on the ground in my view. However, someone else made the point that focusing on the actions, not the words, may be a better tell of the situation, and the action of note is that US troops continue to move into the region, not out of it. I fear there is much more to come here, and the general lack of market volatility is not a sign of calm, but a sign of ignorance on the part of market participants, i.e. nobody really knows what to do!

With that in mind, let’s see how markets have behaved in the wake of the Iranian rejection of the statement the Strait was open. Starting in equities, apparently, Asian investors didn’t care as we have seen gains in Tokyo (+0.6%), China (+0.6%), HK (+0.7%) and Korea (+0.4%). In fact, if I look across the entire region, the only notable decline was in Indonesia, and that was only -0.5%. Otherwise, generally speaking, equity investors in the region are sanguine about the current situation. This seems a bit odd to me as Asia is the region that is most negatively impacted by everything going on, but then, I’m just an FX guy.

In Europe, though, things are not as happy with all major indices lower this morning. Germany (-1.4%), Italy (-1.4%), Spain (-1.4%) and France (-1.2%) have set the tone while the UK (-0.8%) is not quite as negatively impacted. I continue to read a great deal about the European rearmament efforts, but net, it doesn’t appear investors are flocking to the continent right now. Uncertainty as to energy availability remains a key impediment, at least in my mind, with respect to a strong investment thesis here. As to US futures, despite the Iranian denial regarding the Strait, the major indices are only lower by -0.6% across the board.

In the bond market, Treasury yields have edged higher by 2bps since Friday, but as you saw above, remain essentially unchanged from last week. European sovereign yields are higher by between 3bps (Germany) and 6bps (Italy) as concerns continue apace regarding the future for European inflation as well as economic activity. JGB yields slipped -2bps overnight amid news that the BOJ is reportedly not considering a rate hike at their meeting next week. In addition, I must note a strong earthquake, measuring 7.4 on the Richter Scale, occurred a few hours ago, so we shall watch closely for how things evolve. Recall it was Fukushima that set off the European madness to end their nuclear power efforts. Hopefully, regardless of the outcome, nothing so incredibly stupid will come of this.

In the commodity space, oil (+5.9%) is obviously higher, but not even back to $90/bbl. There are many conflicting narratives regarding the availability of oil, how much is in storage, how much inventory is around and whether we are going to see production increases outside the Middle East. No market is more directly impacted by the Strait than oil, and since we have no idea how that will evolve, it is hard to see into the near future. Ultimately, I remain of the view that there is loads of oil around and over time, it will come to market keeping prices in check. But it is going to be a bumpy ride. Turning to metals, as has been the case lately, oil and gold (-0.9%) have maintained their negative correlation with the barbarous relic taking silver (-1.7%) and copper (-1.5%) along for the ride.

Finally, the dollar remains an afterthought to traders right now, barely moving against most of its counterparts as the opportunities elsewhere for outsized gains remain far larger. Looking across the major currencies, they are all within 0.2% of Friday’s close, although the direction is uniform with a modest dollar rally.

On the data front this week, perhaps the most interesting thing will be Fed Chair nominee, Kevin Warsh, and his senate confirmation hearings. But here is what the data looks like.

Tuesday	Retail Sales	1.4%
	-ex autos	1.4%
	Control group (ex-gasoline)	0.2%
	Business Inventories	0.3%
Thursday	Initial Claims	212K
	Continuing Claims	1820K
	Flash Manufacturing PMI	52.5
	Flash Services PMI	50.0
Friday	Michigan Sentiment	47.6

Source: tradingeconomics.com

Much has been made lately about the dichotomy between the Michigan sentiment survey printing its lowest level in the 84-year history of the index while the S&P 500 is making new, all-time highs. As I mentioned at the top, what should we believe?

If pressed, my own view is that the US is going to increase the military activity, but that oil prices are already anticipating that action. Much will depend on the success of that situation which remains unknown although I remain positive regarding our military’s capabilities to complete their mission. That will define risk appetite, which I anticipate would be reduced initially, although any signs of success would see that reverse. But again, I’m just an FX guy, so take it for what it’s worth.

Good luck

Adf

PS, this is where I have been the past several days which prevented (?) me from writing, if you care.

Completely Reversed

Posted on April 14, 2026 by fxpoet

The market response was, at first
That things moved from bad to now worst
But by session’s end
The short-term downtrend
Was over, completely reversed

The narrative now making rounds
Is by starting naval lockdowns
Trump’s turned Iran’s table
And thus, may be able
To finish the goal he expounds

The irony, to me, of the entire Iranian situation is that, generically, the US shouldn’t need to care about Iran anymore. Back in 1979, when the US imported a majority of its oil, everything in the Middle East was critical for the economy as a whole, and therefore politically. But that is no longer the case, and if the Iranian leadership had simply wanted to repress its own people and espouse its Muslim fundamentalism, without sponsoring terrorism around the world, Iran would have faded from the view of the US establishment. While there would have undoubtedly been some who would say it was a terrible humanitarian crisis, and the US should do something about it, unfortunately those situations are rampant around the world.

Don’t get me wrong, I think the Iranian regime has been one of the cruelest and most repressive on the planet, I’m simply highlighting that to the US, it was an oil source throughout history. Now that it’s no longer a key oil source for the US, it has no political constituency in the US. And yet, here we are with 3 aircraft carrier groups in the vicinity doing incalculable damage to the nation because that leadership was not satisfied to simply repress its own people but felt it was their mission to destroy other nations, notably Israel and the US. That’s all I will say about the rationale for the current events.

But speaking of current events, it seems that President Trump’s decision to blockade the Strait of Hormuz has shown early signs of being quite effective. Two stories have made that point, first that the Chinese have suddenly made their first comments about the war, explaining that free navigation through the Strait is an imperative and second, that the Iranians appear to be quite interested in a second set of discussions after the ones last weekend fell apart.

The interesting thing about markets is their ability to anticipate the way things work out, as despite the early panic over the weekend regarding the talks failing and the blockade being enforced, price action yesterday was entirely positive, reversing all the Sunday night fears. Once again, the oil chart for the past week shows the continued ups and downs, with the latest leg back down. This morning, WTI is lower by a further -2.3% and back well below $100/bbl.

Source: tradingeconomics.com

In truth, we cannot be surprised at either of these stories as the Iranian leadership knows it cannot live without its oil exports, nor the Chinese without its access to that oil. While it is still unclear how things will evolve from here, a successful conclusion of the war, with Iran giving up its enriched uranium and pledging to stop trying to go nuclear is seemingly closer to fruition than before all this started. Certainly, the market believes that is the case given the S&P 500 has traded back above its pre-war level and is now within 100 points of its all-time high just above 7000.

Source: tradingeconomics.com

And here’s the thing about the oil market. As we know, every shortage is followed by a glut. Every non-Gulf producer has been going full bore since this began and oil prices spiked, and this was alongside the massive releases from strategic petroleum reserves around the world. If you add up the amount of oil that is sitting in tankers in the Persian Gulf, along with the amount that is in storage there, and the amount of both Russian and Iranian oil that had been in transit and unsanctioned, the numbers are staggeringly high. The math I saw from Alyosha (Market Vibes) is somewhere around 600 million barrels are going to come flooding into the market in fairly short order once the Strait is reopened, and it will be reopened, of that I am certain. At the same time, the war has reduced revenues of the gulf nations for the past 6 weeks, and they will want to be pumping as much as possible, at any price (remember, in Saudi Arabia, the cost per barrel to pump oil is estimated to be between $3 and $6, so $30/bbl oil is still profitable.). While this is not an investment discussion nor advice of any type, I have exited all my oil focused positions at this point.

There is another related story here as well, this about the Chinese economy. Last night they released their trade data, and it was substantially worse than expected. As you can see from the chart below, the surplus barely topped $50 billion, compared to a consensus estimate of $112 billion with not only a massive increase in imports, 27.8% and likely highly energy related, but a significant decline in exports, just a 2.5% rise there. Again, if you wonder why suddenly President Xi is interested in reopening the Strait of Hormuz, the fact that it seems to be having a direct impact on the Chinese economy is one of the reasons.

Source: tradingeconomics.com

(A note about the data above shows that each February, the export numbers decline as a result of the Chinese New Year celebrations but always rebound strongly in March. And this was March data released that fell so sharply, a far more concerning outcome for Xi.)

So, with all this in mind, how have other markets fared? Well, equity investors around the world are over the moon as you can see from the Bloomberg screen shot below. ‘Nuff said.

Bond yields have also fallen across the board as the decline in the price of oil, plus the idea that the war may end sooner than some had expected, thus reducing the inflationary pressures greatly, has bond investors grabbing for yield. Yesterday saw Treasury yields slip -2.5bps though this morning they are unchanged. In Europe, sovereign yields are all lower by between -3bps and -6bps while JGB yields fell -4bps overnight with even larger declines in the rest of Asia. Fear is clearly not a factor this morning.

It should not be surprising that precious metals prices have rallied as well, between lower yields and a growing belief that forced sales have stopped. So, gold (+0.5%), silver (+2.5%) and platinum (+0.5%) are all having a good day. But so are the base metals with copper (+0.8%) not only recouping its war-related losses, but actually back within spitting distance of its all-time highs set in January above $6.00/lb.

Source: tradingeconomics.com

Finally, the dollar is giving back more of its war-related gains and lower across the board this morning, with G10 currencies gaining on the order of 0.3% to 0.4% across the board, while EMG currencies show similar gains with one major outlier, INR (+1.4%) easily explained by the fact that India has been the hardest hit economy from the war, and so the prospects it is ending have had a very beneficial impact on the rupee. But to be clear regarding the dollar, all we have seen is that it has moved back to the middle of its yearlong trading range between 96.50 and 100.00 based on the DXY as per the below.

Source: tradingeconomics.com

On the data front, yesterday’s Existing Home Sales numbers were weaker than forecast and many pundits have been claiming that as a signal of much greater economic weakness. We shall see. This morning we have already seen the NFIB Business Optimism Index released at a weaker than forecast 95.8, not a great sign, but as you can see below, still well above levels of a few years ago.

Source: tradingeconomics.com

We also get PPI (exp 1.1% M/M, 4.6% Y/Y headline, 0.5% M/M, 4.1% Y/Y core) and a few more Fed speakers. With CPI already having been released, PPI loses much of its luster, although it helps economists estimate PCE a bit better. One cannot be surprised that Governor Miran explained he expected to see inflation back to target by this time next year, but I am not holding my breath for that outcome.

Summing it all up this morning, risk is back baby!!! If ever you were curious about whether markets anticipate events, today is exhibit A. I certainly hope the market is correct and we are about to wind down the Iran war but be wary as it ain’t over til it’s over. If it has ended, look for previous narratives to be resurrected regarding markets, notably the dollar’s demise, but I am not holding my breath over that either.

Good luck

Adf

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fxpoetry

Explaining the rhyme and rhythm of the FX markets each day

Tag Archives: #oil

Greatly Vexed

Ere Fears They Shed

Twiddle Their Thumbs

That’s Nuts

Throwing Shade

Less Than Ideal

A Bad Bet

An Eye Blink

Blow-By-Blow

Completely Reversed