Feeling the Blues

Posted on April 2, 2026 by fxpoet

Last night we saw two things of note
The first was exciting, not rote
The Artemis II
Launched higher and flew
Just like Jackie Gleason would quote

The other was Trump’s broad address
Regarding the Middle East mess
He said that the war
Was closing the door
So, Mullahs have no nuke access

For markets, though, this latter news
Was clearly at odds with their views
So, rallies we’ve seen
Have all been wiped clean
And bulls are now feeling the blues

I will start with the highlight of the evening, the successful Artemis II space launch, where NASA’s latest mission to send four astronauts to orbit the moon and come home began. As a child of the Sixties, I well remember being at Camp Mah-Kee-Nac, in Lenox Mass, with the entire camp gathered around a small black and white TV to watch Neil Armstrong step on the moon. A remarkable time and achievement that portends a great future.

The other story, though, was less optimistic, at least for markets in the short term. The President’s address did not signal an end was near, at least not to the market’s collective ear. Instead, Mr Trump made a series of statements and claims, many of which we have heard before, but here they were all gathered in one place.

*TRUMP: IRAN’S NAVY IS GONE, AIR FORCE IN RUINS
*TRUMP: MOST OF IRAN’S LEADERS ARE DEAD
*TRUMP: IRAN’S ABILITY TO LAUNCH MISSILES AND DRONES CURTAILED
*TRUMP: DON’T NEED OIL FROM MIDDLE EAST
*TRUMP: WILL NEVER LET IRAN HAVE NUCLEAR WEAPON

*TRUMP: CORE STRATEGIC OBJECTIVES IN IRAN NEARING COMPLETION
*TRUMP: THESE STRATEGIC OBJECTIVES NEARING COMPLETION
*TRUMP: MUST COMPLETE MISSION IN IRAN
*TRUMP: WE WILL FINISH THE JOB VERY FAST
*TRUMP: GETTING VERY CLOSE TO FINISHING JOB IN IRAN
*TRUMP: WE ARE ON TRACK TO COMPLETE ALL MILITARY OBJECTIVES
*TRUMP: WE WILL NOT LET MID EAST ALLIES GET HURT OR FAIL
*TRUMP: WILL HIT IRAN EXTREMELY HARD OVER NEXT 2-3 WEEKS
*TRUMP: WILL BRING IRAN BACK TO STONE AGE WHERE THEY BELONG
*TRUMP: NEW LEADERS IN IRAN LESS RADICAL, MORE REASONABLE
*TRUMP: IF THERE IS NO DEAL, WILL HIT IRAN’S ELECTRIC PLANTS
*TRUMP: WE HAVE NOT HIT THEIR OIL EVEN THOUGH EASIEST TARGET
*TRUMP: WILL HIT IRAN WITH MISSILES IF WE SEE THEM MAKE A MOVE
*TRUMP: WE HAVE ALL THE CARDS THEY HAVE NONE
*TRUMP: ON THE CUSP OF ENDING IRAN’S THREAT TO AMERICA

He also explained that the rising gasoline prices were a result of Iranian attacks on tankers but that the US was well supplied and would weather any storm in the short run with no problems. However, this is not what markets were looking for, that is very clear. So, the past two days of rainbows and unicorns are a distant memory this morning. A look at the chart of the S&P 500 below shows the end of last week’s concerns grew into optimism right up until 9:00pm EDT last night when Mr Trump took to the podium.

Source: tradingeconomics.com

While futures are only lower by -1.0% at this hour (6:30), the response in both Asia and Europe was quite negative overall. For instance, in Asia, Tokyo (-2.4%) led the way lower although weakness was virtually universal (China -1.0%, HK -0.7%, Australia -1.1%, Taiwan -1.8%) while the biggest loser was Korea (-4.5%) which has been in the process of unwinding what appears to have been a massive bubble there as per the below chart.

Source: google.com

European bourses are also lower across the board with the UK (-0.1%) the clear winner (least bad?), while the continental exchanges (Germany -1.85%, Spain -1.3%, Italy -1.2% and France -0.9%) are all faring poorly this morning. It is very clear that the idea the war would be ending soon has been pushed back. I have to say, that given the ongoing buildup in military assets in the Gulf region by the US, that always struck me as an odd belief. I guess we will need to wait a few more days/weeks to see.

In the bond market, too, price action from the beginning of the week has reversed. Treasury yields have rebounded 5bps this morning, although remain well below the recent peak of late last week, and you can see how Europe and Asia behaved in the Bloomberg screen shot below.

I expect that we will continue to unwind the price action from the early part of this week as the situation appears far closer to the market beliefs of last Friday than yesterday.

Turning to commodities, oil (+7.8%) has rebounded sharply as you can see in the below chart, actually trading now at its highest level since the initial spike move the evening the attacks began.

Source: tradingeconomics.com

Brent crude rose a similar amount and interestingly, the spread between Brent and WTI has collapsed to just $0.52, it’s narrowest level since May 2022. That leads me to believe the market is pricing in a great deal more interest in US exports as oil supply will be curtailed for a while going forward. In keeping with the unwinding theme, precious metals were sold off aggressively with gold (-3.4%) and silver (-5.5%) retracing much of their recent gains. Both are still well above the spike lows seen two weeks ago, but I imagine that there is further to decline based on the current vibe.

Finally, the dollar has rebounded sharply against all comers this morning with the DXY (+0.6%) back above the 100 level as the euro (-0.7%) probes 1.15 again and the yen (-0.5%) trades back toward 160.00. Nothing in the G10 has been spared, although CAD (-0.4%) and NOK (-0.4%) are the best performers as clearly oil’s rise is helping them both. In the EMG bloc, it should be no surprise that ZAR (-1.1%) is the laggard given the move in gold and platinum (-3.4%). But even CNY (-0.4%) has seen substantial selling while INR (-0.5%) and KRW (-0.2%) also continue to slide. The CE4 are all weaker by -0.7% and CLP (-0.9%) is feeling the weight of copper’s decline. The only outlier really, today, is Brazil (0.0%) which is unchanged as remember, they are a major oil producer and far away from the current problems.

On the data front, this morning brings Initial (exp 212K) and Continuing (1840K) Claims as well as the Trade Balance (-$59.2B), none of which seem likely to matter to markets. Yesterday saw generally stronger than expected data with ISM Manufacturing ticking up to 52.7 while Retail Sales surprised a tick higher as well at 0.6%, 0.5% ex autos. ADP Employment was also modestly better than expected. As such, it continues to be difficult to call for a significantly weaker US economy, at least based on the data we continue to see. However, the Atlanta Fed’s GDPNow reading was revised to 1.9% for Q1 yesterday, down a tick from the previous estimate. Still, that is not a collapse.

Pulling it all together, the war in Iran is going to continue for at least 2-3 more weeks and there is no clarity on whether the US is going to attempt to take Kharg Island. It still seems to be part of the discussion, but as I wrote yesterday, strategic ambiguity is a key part of President Trump’s method. In the meantime, my take is we are much more likely to behave like the end of last week going forward, than the beginning of this week. That means risk will be reduced and the dollar will benefit.

Good luck

Adf

No Longer Benign

Posted on March 27, 2026 by fxpoet

The war in the Gulf shows no sign
Of ending by any deadline
Some victims now bleeding
Are bonds, with yields speeding
To levels no longer benign

Already we’ve seen, efforts, great
By nations, impacts, to abate
So, price caps on gas
Worldwide came to pass
But will central banks raise their rate(s)?

Nothing of note has changed in the Iran war as the US continues to refrain from further attacks while negotiations to end the conflict ostensibly continue. Both sides have made their demands, but from what I have read about them, neither side can accept the others wishes. If pressed, my take is the ongoing US pause is simply allowing the Marines and 82^ndAirborne to get into place for their attempt to take over and control Kharg Island and the other small islands in the Strait. Frankly, I would not bet against their tactical success in that endeavor. However, it is not clear how Iran will respond in that situation. After all, if the US does control Kharg Island, that means Iran no longer controls their own revenue stream, and that is truly existential for the regime. However, I could be completely wrong about this, which is why I am not a military strategist.

But I think it is worthwhile taking a peek at the bond market this morning. For the first few weeks of the war, while yields edged higher, there was no indication that investors were getting terribly nervous about the longer-term impacts of the war. However, that no longer seems to be the case. I have several charts below showing US, UK and German 10-year yields over the past six months, and then a longer-term perspective showing those same yields over the past 20 years.

Six months of yields

Source: tradingeconomics.com

Long-term charts (source marketwatch.com)

UK Gilts

German bunds

US Treasuries

As you can see from the first chart, yields across all three of these nations have risen sharply now in the past month. In fact, the numbers are US (+52bps), UK (+83bps) and Germany (+47bps). It is very clear that fixed income investors are getting worried, and reasonably so given the idea that inflation readings, at least in the short-term, are going to be much higher. As to the longer-term view, though there is certainly a similarity amongst the movement of yields of all three nations, UK yields are currently at their highest level since the GFC, July 2008; German yields are at their highest level since the Eurozone bond crisis in 2011, but Treasury yields were higher at the beginning of this year, and 25bps higher in late 2023.

This is not to dismiss the potential problems that may arise if government bond yields continue to rise, especially given the already extraordinarily high debt/GDP ratios that exist throughout the G10. However, I am not prepared to concede that the US is going to collapse because 10-year yields are back at 4.50%.

What we have seen, though, almost everywhere in the world, is government attempts to cap prices on energy, whether gasoline, diesel or even electricity, to help moderate some of the obvious pain that higher energy prices are inflicting on their populations. We have also heard a great deal from central bankers about needing to tighten monetary policy to combat the rising inflation, despite the fact that inflation is coming from a supply shock in energy rather than either excess demand or money supply. I fear that will not work out that well if they do so, but as is often the case, central banks (and governments in general) feel they must “do something” when an exogenous event, out of their control, occurs. Ultimately, history has shown that is when policy mistakes are made. Here’s hoping the hostilities end quickly enough so nations don’t make those mistakes.

Away from bonds, with yields higher this morning across the board (US +5bps, Germany +5bps, UK +11bps, Japan +11bps) and the rest of the European sovereigns somewhere in between, if we turn to oil (+2.7%), WTI is pushing back up to $100/bbl this morning, which I take as an indication market participants are getting nervous things will last longer than they thought a few days ago. You can see the chart below that oil has rallied steadily all week since the Tweet that things were going to be ending soon back on Monday.

Source: tradingeconomics.com

The more interesting price action to me, this morning, is that gold (+0.7%) is also higher this morning, which may be the first session since the first day of the attacks, where both have risen in sync. There is a story around that Turkey sold 58 tons of gold right when things began, but even at $5000/oz, that is only about $9 billion of gold compared to average daily trading volumes of between $200 billon and $300 billion (according to Grok). My point is that would not be enough to move markets like we have seen in gold, but it could well be a harbinger of what other nations did as well. Again, there is no sense that the long history of gold’s role is changing here.

As to equity markets, yesterday’s weakness in the US has been followed across Europe (DAX -1.6%, CAC -1.1%, FTSE 100 -0.75%, IBEX -1.4%) but the picture in Asia was more nuanced. While the Nikkei (-0.4%) slipped a bit, both China (+0.6%) and HK (+0.4%) managed to rally as did Malaysia, Singapore and Thailand albeit not very much. On the downside, though, India (-2.2%) made up for the fact it was closed on Thursday, while Korea (-0.4%) and Taiwan (-0.7%) both slipped and the rest of the region edged lower by lesser amounts. As to US futures, at this hour (7:30) they are lower by about -0.35%.

Finally, the dollar continues to be a major beneficiary of the war as the DXY is back above 100 this morning with several EMG currencies coming under greater pressure today. We see CLP (-1.1%) feeling the pain of copper’s inability to rally at all, as well as INR (-0.6%) and MXN (-0.5%) suffering this morning. NOK (+0.2%) continues to benefit from oil’s recent strength, and CAD (+0.1%) is holding its own on the same basis, but both the euro (-0.15%) and pound (-0.2%) are struggling as the energy problem there is a major detriment to their economies.

The only US data this morning is Michigan Sentiment (exp 54.0) while yesterday’s Jobs data continues to show that layoffs are not increasing in any meaningful way, which I believe is a result of the dramatic change in immigration policy as well as deportations. Like so much of what is ongoing these days, old models regarding the labor market are no longer representative of the new reality on the ground. I suspect this is true across large segments of the economy which just means that relying on econometric models will be a fraught exercise going forward. Here is a reason to pity the central bank community as they are truly flying blind now.

And that’s all there is today. To me, we are biding our time until the Marines land on Kharg Island and then we will see a new phase of the war. It is a high risk, high reward venture as success would certainly reopen the Strait of Hormuz and oil prices would plummet quickly. Failure, however, would leave Iran with greater control over that key chokepoint and potentially cause greater difficulties elsewhere in the world, not least because it would call into question the US ability to project power. War is not only hell, but also incredibly risky.

Good luck and good weekend

Adf

The Beating War Drum

Posted on March 26, 2026 by fxpoet

Each day it gets tougher and tougher
To figure out things that can buffer
Portfolios from
The beating war drum
And so, we are all set to suffer

Remember, too, I’m just a poet
And I do my best not to show it
But my Spidey sense
Says come some days hence
The end will be nigh and we’ll know it

Basically, as Herbert Stein explained back in 1986, “If it can’t go on forever, it will stop.” The pressures on the global economy are increasing dramatically as not only markets in oil and natural gas, but also fertilizer and helium (critical for semiconductor manufacturing) markets are being significantly impacted. And frankly, the world as we know it now cannot exist without a healthy supply, and supply chain, in all those things. It is this pressure, which is building up on both sides of this war, that will ultimately push both sides to some resolution. Iran cannot live without the oil and its revenues, but it can certainly destroy a lot of other nations in its death throes. That is not the outcome we want to see.

And frankly, it appears to me that markets are pricing an off-ramp, because otherwise, I would expect the inelasticity of demand for oil would have driven oil prices much higher than we have seen. But, while that may be the medium term (next several weeks) view, on a day-to-day basis, one never knows what’s going to happen. Yesterday, there was a sense that things were going to deescalate. But overnight, that sentiment changed and now risk is under pressure as oil heads higher once again.

Here’s the problem, if you read all the headlines about the situation in the Persian Gulf, you are no more well-informed than if you ignore them all. We continue to be bathed in opinions and propaganda from both sides, and it is certainly not within my ability to determine what is truth, assuming any of it is. Which takes us back to markets as our best indicator, because as it has been said, opinions are like a$$holes, everybody has one and they all stink.

So, let’s go to the tape. Yesterday saw a positive outcome, but as you look at the chart of the S&P 500 below, you can count that from the beginning of March, when this all began, there have been 19 trading sessions including today. Nine of those sessions saw green candles (higher) and 10 saw red candles (lower). This does not strike me as a market where investors have capitulated in any serious manner. As I mentioned earlier in the week, despite all the angst, right now the S&P 500 is lower by just 6.5% from its all-time high from late January. That’s not even a correction by most definitions, let alone a war footing.

Source: tradingeconomics.com

As it happens, today is a down day, with US futures sitting lower by about -0.5% across the board as of 7:00. And that is consistent with what we observed overnight with both major Asian (Tokyo -0.3%, HK -1.9%, China -1.3%) and minor Asian (Korea -3.2%, Taiwan -0.3%, Indonesia -1.9%, Australia -0.2%) markets all lower in the session. Clearly, rising oil prices continue to weigh heavily on every nation in Asia as they are the primary recipient of Middle East oil and, as oil prices rise once again, it hurts all those nations. I assure you that as much as we dislike rising gasoline prices, it is nothing compared to what those nations are feeling.

Europe, too, is lower across the board this morning led by Germany (-1.4%) which is not only suffering from general risk-off sentiment but has the added disincentive of declining consumer confidence as measured by the GfK indicator falling to -28.0, its lowest level in two years. a quick peak at the chart of this indicator shows that while things have rebounded since the darkest days of the 2022 inflation problems, the downward trend is strengthening again.

Source: tradingeconomics.com

But the rest of European bourses are also under pressure with the UK (-1.1%), France (-0.9%), Spain (-0.9%) and Italy (-1.1%) all falling sharply.

As has been the case on days like this, bond prices are under pressure as well, with yields correspondingly rising. So, after a 6bps decline in the 10-year Treasury yield yesterday this morning it has backed up by 4bps. As to European sovereign yields, the picture is quite ugly as you can see in the below Bloomberg screenshot.

‘Nuff said.

Which takes us to the driving force in all markets these days, oil (+2.6%) which is rebounding with WTI back above $90/bbl and Brent above $100/bbl. The one consistent thing I have seen on X this morning is that the propagandists on both sides seem to be preparing for a final outcome soon. Whether it is the idea that the US is going to run away with its tail between its legs, or the Iranians are going to collapse, the timeline definitely seems to be shortening. Hence my view that this will not be ongoing very much longer.

Turning to precious metals, as has been the case for the entire war, with oil rising, both gold (-2.0%) and silver (-4.2%) are under pressure. I must admit the consistency with which this price action holds; oil up, gold down, is somewhat baffling to me. My initial thesis was that we were seeing central banks liquidate gold to help pay bills, but why would they only do that on days when oil rose? Something else is going on here and I have not yet been able to figure it out. I do not believe that gold, after 5000 years as the safest of moneys, has suddenly lost that mojo. I also know that the premium for physical metal in Shanghai remains substantial. With this in mind, it is not hard to conclude that the futures market, where the price action is most visible, has seen a great deal of manipulation by someone trying to keep prices low, although to what end I cannot tell. We need to watch closely.

Finally, the dollar, as has been its wont, is higher this morning alongside oil, albeit not dramatically so. There are still numerous analysts who are calling for the dollar to decline sharply going forward, once the war premium is gone, but then they have been expecting that for a year and have not been able to explain its stability since early last year.

Like the CME’s futures page, the ECB publishes its own market-implied probabilities for the deposit rate there as per the below from ecb-watch.eu

Now, I grant that if I look at the table at the bottom of the screenshot and compare it to the CME futures probabilities below, the market is pricing in more rate hikes in Europe than the US.

But I can never get over the actual interest rate involved as an important part of the interest rate parity decision process and mechanics. Sure, if the ECB hikes 50bps over the next three months and the Fed only hikes 25bps, that is a marginal advantage to the euro but owning euros after that is still a negative carry trade. Ultimately, the question is exactly how aggressively will central banks around the world address the initial bout of higher inflation that is coming alongside the higher oil prices. In truth, I think the US has far more leeway to raise rates as the underlying economy is in far better shape than that of the Eurozone, but as we heard yesterday, Madame Lagarde will not be “paralyzed” by events, i.e. she will hike rates if someone whispers in her ear to do so. I sincerely hope none of the central banks go down that road.

Elsewhere in the FX world, it is worth noting that USDJPY is pushing back toward the 160 level, although is unchanged this morning. As to today’s trading, NOK (+0.5%) is the big winner on oil’s strength, with BRL (+0.2%) the only other currency showing strength vs. the greenback. Otherwise, modest weakness (GBP -0.1%, AUD -0.2%, CNY -0.25, MXN -0.2%, ZAR -0.4%) is the order of the day.

On the data front, yesterday had some surprising outcomes with the Current Account ($-190.7B) falling to its lowest deficit in five years. meanwhile, oil inventories showed a much large build of crude and even distillates, while only gasoline saw an inventory draw. Perhaps that helped yesterday’s oil price decline. This morning, Initial (exp 210K) and Continuing (1850K) Claims are on the docket and that’s really it. There was an interesting article in the WSJ this morning describing how many cities are actually shrinking because of the change in immigration patterns we have seen since the border was closed. The importance of this is that old expectations of how much job growth defines economic strength need to adjust to the new population realities and frankly, nobody knows the adjustments yet. But the old idea that we need to see 200K new jobs each month seems to way overstate how to stabilize the Unemployment Rate.

And that’s really it. Today is a risk-off session and likely to remain so unless we get a new headline about a potential end to the conflict. But based on the recent pattern, tomorrow seems just as likely to be a risk-on session, although with the weekend coming, and the propensity for military action to start on the weekend, perhaps not. As to the dollar, it ain’t dead yet!

Good luck

Adf

Dire Straits

Posted on March 19, 2026 by fxpoet

Said Jay, I will not be ignored
And so, I ain’t leaving the board
When my time as Chair
Is up, and I swear
I will see the president gored

So first off, we ain’t cutting rates
‘Cause here in the United States
Inflation’s a worry
And I’m in no hurry
To help Trump escape dire straits

I guess we cannot be surprised that Chairman Powell was combative during his press conference yesterday after the Fed left rates on hold, as expected. There was only one dissent this month, Governor Miran, still looking to cut rates. However, while standing pat given the high level of uncertainty that exists from the war situation makes sense, compare the dot plot from this meeting to the December meeting below it. The dispersion of views on the committee has really tightened up a lot. While the median for 2026 continues to point to one cut, it appears that the Fed now believes we are near r*, although they didn’t say that exactly.

March 2026 dot plot

December 2025 dot plot

The other noteworthy comment from the Chair was when he explained he had “no intention of leaving” the Fed until the Justice Department investigation is completed. And, if Kevin Warsh is not confirmed by the Senate by the end of Powell’s term as Chair on May 15^th, he will remain as Chairman pro tempore, the same situation as his previous nomination when the Senate delayed his confirmation.

The market response to both the combative tone and the hawkish rhetoric overall was a further 1% decline in the S&P 500 from an already weak place as per the below chart where I highlighted the time of the Statement release. You can see how things behaved thereafter.

Source: tradingeconomics.com

But that wasn’t all that happened yesterday, PPI came out MUCH hotter than forecast with headline at 0.7% (3.4% Y/Y) and core at 0.5% (3.9% Y/Y) as inflation concerns rose to the fore. If you look at the PPI chart below showing both headline (blue bars) and core (gray bars), it is very difficult to discern a pattern of declining producer prices.

Source: tradingeconomics.com

In fact, it is hard to look at this data and reconcile it with the Fed’s SEP forecasts describing the view that inflation, even their measure of core PCE, is going to smoothly return to their 2% target over any particular timeline.

One last event of note was the Iranian response to an attack on its main Natural Gas field, South Pars, where they inflicted serious damage to the Ras Laffan LNG facility in Qatar, which happens to be the largest in the world and is on the wrong side of the Strait of Hormuz to boot. The result has been a significant rise in the price of European (and UK) natural gas, with both soaring more than 20% this morning while, Brent crude has jumped 7.2% as opposed to WTI’s unchanged status today. This has taken European NatGas to ~$22.MMBtu compared with the US price of $3.15. Ask yourself how long Europe can afford to pay 7x US prices for NatGas and maintain any competitive ability to manufacture anything. (As an aside, this remains a key reason that I see long-term prospects for the euro so dimly.) But if we look at the longer-term chart of European NatGas, despite the dramatic increase since the Iran conflict began, it is nothing compared to what we saw in the wake of Russia’s invasion of Ukraine.

Source: tradingeconomics.com

Summarizing yesterday’s session in one word, I would say, Aaaaaaggggghhhhhh!

I assume I have depressed you enough with yesterday’s activities, but I will run through market responses overnight. You won’t be surprised to learn they have not been positive.

In fact, I guess I will start with bonds this morning, which I didn’t discuss above, but not surprisingly given the high PPI readings and the sharp rise in oil and gas prices, have suffered a lot. Yesterday, Treasury yields reversed their early declines and closed higher on the day by 6bps. They have edged up another 1bp this morning and are back above that 4.20% range I have focused on. Meanwhile, European sovereign markets were all closed when the FOMC meeting concluded, which added to the pressure on bond yields which started with the US PPI data. Net, yesterday, German bunds rose 4bps and this morning they are higher by a further 3bps. But as you can see from the below Bloomberg screenshot, they are the champs in Europe today.

JGB yields also rose sharply, up 6bps and we saw similar rises throughout Asian bonds. Right now, it is very clear that inflation is a bondholder’s concern, not recession.

As to equity markets, you will not be surprised to know that every market in Asia declined, most by more than -1.0% with the Nikkei (-3.4%) the worst performer followed closely by India’s Sensex (-3.1%), but there was no place to hide in Asia. In Europe, the damage is equally broad, although there is one outlier, Norway (+0.5%) which is obviously benefitting from the sharp rise in oil prices. But otherwise, -1.5% to -2.5% is today’s story across the board there. Interestingly, at this hour (6:45) US futures are little changed to slightly lower, just -0.1%. Perhaps this is a sign that all is not lost. Or maybe the algorithms just haven’t started their day yet. One noteworthy decline is South African shares (-4.0%) which is suffering from gold getting sold off yet again yesterday and today.

Since we already touched on energy, a quick trip through metals markets sees a major rout ongoing with gold (-2.75%) and silver (-5.2%) both suffering greatly, as is copper (-2.5%) and platinum (-6.1%). I continue to believe that gold is being liquidated to pay for other losses as the primary attraction of the barbarous relic remains. One thesis is that Middle Eastern central banks are liquidating their holdings as, given the dramatic decline in their oil revenues, they need money for continuing operations, and arguably, that’s what the gold is for. Essentially, gold is the rainy-day fund. As to the other three metals, those hint more at slowing economic activity rather than forced liquidation. After all, there was a lot of euphoria on the way up, so if the narrative is changing, as that dissipates, so will demand.

Finally, the dollar has given back a small portion of yesterday’s solid gains but remains at the top of its 96.00 / 100.00 trading range as defined by the DXY and shown in the chart below.

Source: tradingeconomics.com

Again, considering energy policies and availability around the world, the US, which is the largest energy producer in the world and a net exporter of energy products, seems better positioned than any of its competitors to weather the current economic gyrations. However, if we look across specific currency pairs this morning, we see relative strength elsewhere on the order of 0.2% to 0.3%. Frankly, it is a bit surprising to see ZAR (+0.4%) rally given what is happening in both gold and the South African equity market, but stepping back slightly, given the rand’s weakness since the end of January, I guess we cannot be that surprised that there is consolidation. Certainly, there is nothing about the chart for the last month that indicates the rand is about to reverse course and strengthen dramatically.

Source: tradingeconomics.com

The big picture here remains, in my view, that the US has more pluses than minuses vs almost all its counterparts.

On the data front, I didn’t even mention last night’s BOJ meeting, where they left policy on hold, as it didn’t seem to have a major impact. Perhaps, Ueda’s mildly hawkish comments have helped the yen a bit this morning. As well, the Swedish Riksbank left policy on hold and in a short while we expect both the BOE and ECB to leave policy rates on hold. The one which might move is the UK, where last time they voted 7/2 to leave policy unchanged but analysts think 4 members could vote for a cut. However, my sense is that cutting rates at this time, before there is evidence that the economy is truly suffering from the war, would be a surprise. Otherwise, we get the weekly Initial (exp 215K) and Continuing (1850K) Claims as well as the Philly Fed (10.0) and then at 10:00 we see New Home Sales (720K). One other thing to note is that yesterday’s EIA data showed a substantial build in crude inventories, but a large draw in gasoline and distillates. It is this activity that helps explain the rise in crack spreads, and why the refiners should be having a very good quarter.

And that’s it for today. Quite frankly, that’s enough for me. As it happens, there will be no poetry tomorrow, so I will get to recap today and tomorrow on Monday and see what has changed in the Persian Gulf as well as any other new news.

Good luck and good weekend

Adf

Not Be Sublime

Posted on March 13, 2026 by fxpoet

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

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

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

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

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

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

Source: tradingeconomics.com

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

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

Source: tradingeconomics.com

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

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

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

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

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

Source: tradingeconomics.com

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

Source: cmegroup.com

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

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

Source: tradingeconomics.com

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

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

Good luck and good weekend

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How Long Can This Stand?

Posted on March 9, 2026 by fxpoet

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

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

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

Source: tradingeconomics.com

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

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

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

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

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

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

Source: tradingeconomics.com

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

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

Source: Bloomberg.com

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

Source: tradingeconomics.com

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

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

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

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

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

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

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

Source: tradingeconomics.com

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

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

Good luck

Adf

Far Too Extreme

Posted on February 23, 2026 by fxpoet

Said Roberts and five more Supremes
Those tariffs, are far too extreme
They don’t pass the test
And so, we request
You find a new revenue scheme

Said Trump, while I think you are wrong
Your actions won’t stop me for long
We have many laws
That give me good cause
For tariffs, that help make us strong

For whatever reason, this is what first popped into my head upon hearing the tariff ruling on Friday. I guess I confused love for law, but whatever. At any rate, I’m sure you have seen far too much on this subject already so I will be brief. The Supreme Court ruled against President Trump’s use of the IEEEA law to enable the imposition of tariffs on foreign nations. They did not discuss what to do about the ~$200 billion that has already been collected under that law. The companies that sued want the money rebated, but that was not part of the decision, and of course, the logistics of that would be extraordinarily complex.

But in the end, President Trump simply imposed a sweeping 15% tariff across the board under a different law, which to my understanding can remain in place for 150 days. The equity market shook off the news, rallying across the board on Friday (DJIA +0.5%, S&P 500 +0.7%, NASDAQ +0.9%), so it didn’t seem to be that big a deal. But then when Asia opened Sunday night, risk was in a much less desired state. Early returns show equities softer across the board (-0.75% at 10:00pm), the dollar (DXY -0.4%) under pressure and gold (+1.25%) and silver (6.25%) seeing significant haven demand.

One of the things that appeared to be in question was whether countries that had signed trade deals accepting tariffs and promising investments as part of the deal, would renege, but thus far, that has not happened.

My take is the tariff discussion is no longer a concern to investors. Playing the lead role once again is Iran, as concerns over a potential US military strike rise, with a new actor joining the cast, Mexico, which appears to be suffering significant chaos after the elimination of a cartel leader, “El Mencho” has resulted in fire fights throughout the country there. Obviously, given the proximity to the US, this has the potential to be quite significant, although since the border with Mexico has been effectively sealed, my take is all the action will stay in country there.

Historically, when there’s a war
The first move is stocks to the floor
But generally speaking
Post first mover freaking
The buyers step up to the fore

So, if tariffs are not going to be the primary topic of discussion, and I sincerely hope that is the case, after we finish congratulating the US men’s ice hockey team for the thrilling Olympic victory this weekend, what’s next on the agenda? Iran.

The US continues to amass forces in the Middle East and from various sources, including MSM and X and Substack, the growing consensus is that some type of military action is going to occur. The question now seems to be whether it will be an attempt to decapitate the regime, or just to impede its ongoing buildup of armaments, notably ballistic missiles.

Negotiations are set to resume this week in Geneva and given the stakes, especially for the Ayatollah, it remains unclear as to his willingness to cede to American demands of essential disarmament and the end of terrorist support. For President Trump, the risk is that any military action does not work as quickly and smoothly as either the first attacks on the nuclear sites, or the exfiltration of erstwhile Venezuelan president Maduro. If there is something quick and relatively clean that achieves a clear objective, I think it can be a huge boon for the President, but if anything drags on, it will have numerous ramifications for both the mid-term election and the markets. Let’s focus on the latter.

Below is a long-term chart of the S&P 500 which shows both the extraordinary recent performance relative to its previous history, as well as helps highlight some of the downturns seen during that time. Of course, the noteworthy feature is that the downturns don’t last very long.

Source: finance.yahoo.com

If we move from right to left on the chart (these are monthly candles), the first spike down is Liberation Day in April 2025, when President Trump first announced his tariff plans. Obviously, that is long past investors’ concerns now, especially given the events on Friday. The next major decline took place in February 2022, when Russia invaded Ukraine. But remember what also happened around that time, the Fed began its aggressive rate hiking when it figured out that inflation may not be transitory after all. You probably remember that 2022 was one of the worst market performances for both stocks and bonds. It is a worthwhile question to ask how much of that was the Russia/Ukraine situation and how much was the Fed. My money is on the Fed. Moving left, we see the Covid spike lower in Q1 2020 and then a baby dip during the repo shock of late 2018, when the Fed lost control of the Fed funds rate. After that, we go back to the GFC in 2008-09 and the bursting of the dot com bubble in 2000 – 2003. Sure, in 2003, the US invaded Iraq, but I don’t think that was the market driver.

My point here is that any impact from military action is likely to be very short-lived in equity markets. The other market that will certainly be impacted is the oil market. A look at the long-term story there shows that, here too, there are many things that have a major impact on oil other than war.

Source: finance.yahoo.com

The huge decline on the left was the GFC and ensuing recession. The drop in 2014 was the realization that shale oil was going to add an enormous amount of supply to the market. You can see the Covid spike to negative prices and then the run up in prices in the wake of the Russian invasion in 2022, which was relatively short-lived, and we have been declining ever since.

Much of the commentary regarding Iran right now revolves around their ability to close the Strait of Hormuz and how that would cut 20% of the world’s oil supply from reaching the market. (It would cut almost all of Iran’s oil off from the market as they have virtually no pipeline network). But even here, the evidence is that a price spike will be relatively short-lived.

I raise these issues because while war is inflationary, that is generally not because of the impact on oil prices, but rather because of the increased government spending that accompanies war (remember LBJ’s guns AND butter policies leading to the inflation of the 1960’s and 70’s.).

Summing the discussion up, while in the immediacy, there will be market responses to military actions, I do not believe they will have long-term impacts.

Ok, I went on way too long, so let’s do a hyper quick tour of markets this morning and I will leave the weekly data until tomorrow.

Equities – mainland China is still closed, (they open tomorrow) but the rest of Asia mostly ignored the war drums. HK (+2.5%), Korea (+0.65%), India (+0.6%) and Taiwan (+0.5%) all showed strength although Australia (-0.6%) seems to have suffered on the tariff story. Tokyo, too, was closed last night. In Europe, despite slightly better than expected German Ifo data, the DAX (-0.45%) is today’s laggard while the IBEX (+1.0%) and FTSE MIB (+1.0%) both have seen strong support, ignoring any uncertainty regarding the US tariff situation and benefitting from positive earnings results. The UK and France have done little. As to the US futures market, at this hour (7:15) they have risen from their early evening lows but are still softer by -0.35% across the board.

Bonds – the bond market remains the enigma, in my mind, as it is basically locked in place and has been for months. Treasury yields (-1bp) have edged lower and European sovereign yields are essentially unchanged, as are JGB yields. It continues to baffle me that bond markets, which typically sense fear first, do not seem to care about all that is ongoing in the world right now, whether war, government spending, or commodity prices.

Commodities – this morning, oil (0.0%) is ignoring Iran, which is maybe the most surprising thing of all. Perhaps this is telling us that concerns over a closure of the Strait of Hormuz are overblown, or perhaps if that does happen, we will see a dramatic spike higher. Again, like the bond market, something feels amiss. In the metals markets, while both gold (+0.8%) and silver (+2.25%) are higher than Friday’s closing levels, they are well below last night’s opening levels. I guess fear is abating, at least for now.

FX – As to the dollar, it’s early decline has largely been erased with both the euro and pound unchanged, AUD (-0.4%) sliding and the rest of the G10 under pressure. In the EMG space, MXN (-0.5%) is feeling a little stress from the increased violence that has begun and there seems to be some sympathy in that move with CLP (-0.3%) and BRL (-0.2%). On the flip side, CZK (+0.5%) is the biggest gainer as the market continues to respond to recent central bank hawkishness.

In the US today we see the Chicago Fed National Activity Index (exp 0.3 in January) and Factory Orders (-0.5% from Dec). But remember this, as per the below, don’t look for that much activity in NY as this is the picture out my backyard this morning, I’m estimating 10” of snow, so skeleton staffs will be the rule.

Good luck

Adf

Not All in Sync

Posted on February 20, 2026 by fxpoet

The story that’s tripping off lips
Is whether the buildup in ships
And aircraft we’ve seen
Is likely to mean
A war with Iran’s in the scripts

But markets are not all in sync
As equities clearly don’t think
That war would be trouble
While bond traders’ double
Their bets war will drive stocks to drink

Economic data is clearly not a key driver of market movement these days, arguably because we continue to get mixed outcomes, with some things looking good (Initial Claims, Philly Fed) while others are less positive (Trade Balance, Leading Indicators), although granted, it is not clear to me what the Leading Indicators purpose is anymore. My point, though, is that we have not seen unambiguous strength or weakness across the data set for several months. This allows every pundit to frame the economic situation through their own personal lens, whether bullish or bearish. A perfect example is the dichotomy between the strength of US corporate balance sheets, as per Torsten Slok and seen below,

and the rise in corporate bankruptcies as per this X post from The Kobeissi Letter (a great follow on X) which shows the following chart.

So, which is it? Are things good or bad? My understanding is that strong balance sheets and a high number of bankruptcies are not typically correlated, but I could be wrong.

Given the lack of direction, markets have turned their focus to other things, with most headlines currently garnered by the ongoing buildup of US military power in the Middle East as President Trump tries to pressure Iran into ceding its nuclear and missile programs. (Of course, the announcement that all information on UAP’s (fka UFO’s) has many excited, and of course, the Epstein files continue to garner attention, as does the SAVE Act, but none of those are even remotely related to financial markets.)

But even here, we are seeing very different responses by the financial markets. For instance, equity markets continue to perform pretty well, even though Tokyo and Australia sank a bit last night. Look at the monthly and YTD returns in Europe, Japan and Australia below:

Daily Weekly Monthly YTD

Source: tradingeconomics.com

It strikes me that if war was a major concern, investors wouldn’t be stocking up on risk assets. Rather, havens would be in more demand, which we are also seeing with gold (+0.4%) and silver (+3.3%) rising overnight as despite extreme volatility in the precious metals space, there is clearly underlying demand for these havens.

Bond yields over the past month have declined, indicating that despite ongoing deficit spending, investors are seeking their perceived safety whether in Treasuries, Bunds or JGBs as per the below chart of all three.

Source: tradingeconomics.com

Finally, the dollar, despite frequent calls for its death, has been edging higher in a classic risk-off response as no matter how much some may hate the dollar philosophically, when bad things happen, its massive legal and liquidity advantages outweigh virtually everything else. Once again, the DXY has moved back to the middle of its trading range, just below 98.00 this morning, and to my eyes, shows no signs of an imminent collapse. Rather, if hostilities do break out in Iran, I expect the greenback to rally to at least the top of this trading range at 100, and depending on the situation, it could easily go higher.

Source: tradingeconomics.com

All this is to point out that nobody knows nothing. Narrative writers continue to try to keep up with the action, and it is increasingly difficult to do so as things change on the ground so rapidly. Let me be clear when I say I have zero inside information regarding any of this, I am merely an observer. However, my observations are that there will be some type of military action in Iran as to build up this much fire power in a concentrated area and not use it would be remarkable and I can see no way in which the Ayatollah can accept the terms being offered as it would end his leadership if he does. I guess we will find out soon enough as President Trump has put a 10-day timeline on things.

Arguably, the only market I didn’t mention here was oil (-0.5%) which is consolidating after a 20% rise in the past two months. Remember, if military activity is directed at oil production or transport, we could see a sharp spike here and that will not help equities or economic data, although both gold and the dollar are likely to benefit.

Source: tradingeconomics.com

I don’t think there is anything else to discuss market wise so let’s turn to the data. This morning brings a bunch of important stuff as follows:

Personal Income	0.3%
Personal Spending	0.4%
PCE	0.3% (2.8% Y/Y)
-ex food & energy	0.3% (2.9% Y/Y)
Q4 GDP	3.0%
Flash Manufacturing PMI	52.6
Flash Services PMI	53.0
Michigan Sentiment	57.3
New Home Sales	730K

Source: tradingecomomics.com

We also hear from two more Fed speakers, but at this point, they are all singing from the same hymnal explaining policy is in a good place and unless there are major changes in the data, there is no reason to change.

Arguably, the PCE data is the key for markets here as if it continues to run hotter than target, hopes for further rate cuts will continue to dissipate. In fact, the next cut is now priced in for July with a second for October.

Source: cmegroup.com

Remember, too, at that point it will be Kevin Warsh’s Fed, not Jay Powell’s, and Warsh has a very different idea about the way things need to be done. Interestingly, as this 4^th Turning proceeds and old institutions come under increasing pressure, their efforts to fight back and maintain the status quo is no longer behind the scenes as evidenced by this Bloomberg article this morning.

As I have written before, President Trump is the avatar of the 4^th Turning and the institutions that are going to change are desperate to maintain the status quo. This is, truly, the big fight that will continue through the end of the decade in my view. Every institution that has been overseeing the global situation, whether politically, financially or militarily, is coming under pressure as income and wealth inequality have driven an ever wider disparity of outcomes. As much power as the rich have, there are a lot more people who are not rich. Ask Louis XVI how much being rich helped him.

On a lighter note, I watched the gold medal skating performance of Alysa Liu and it was truly magical. A much better thought for the weekend!

Good luck and good weekend

Adf

Chock Full of Crises

Posted on February 19, 2026 by fxpoet

Their mandate includes stable prices
And that they should use all devices
To work to achieve
That goal lest they leave
A legacy chock full of crises

“Most participants, however, cautioned that progress toward the Committee’s 2 percent objective might be slower and more uneven than generally expected and judged that the risk

of inflation running persistently above the Committee’s objective was meaningful.”

These words [emphasis added] are from the FOMC Minutes released yesterday afternoon. To set the stage, the Fed left rates on hold then, although there were two votes for another cut. However, a full reading of the Minutes shows there were those who would have considered a hike as well. Now, I am just a guy in a room who observes market behavior through the lens of too many years involved on a daily basis, and my resources are virtually nil, especially compared to the Federal Reserve. I don’t have a PhD in economics (although I believe that is a benefit in this context, if not every context). However, the bolded part of the comment seems a tad disingenuous to me based on the below chart which shows the history of their inflation metric, Core PCE prices.

Source: tradingeconomics.com

It has been exactly 5 years since their metric was at or below their 2% target by which they defined stable prices. The idea that they are claiming the risk of inflation running hot was a meaningful risk is perhaps the worst gaslighting comments they have made. It is very difficult to believe that the Fed, in its current incarnation, is going to ever address the inflation issue appropriately. Perhaps a Chairman Warsh, if he is successful at reconfiguring their operating procedures will be able to drive positive changes. I am hopeful but not confident. The one thing we know is that changing government institutions requires a mammoth effort. And let’s face it, he will only have two plus years of leeway for sure depending on whoever becomes president in 2028.

I continue to believe that the market is going to increasingly focus only on Warsh’s comments going forward as the direction he has expressed is very different than the current FOMC membership mindset. We shall see how this all evolves. In the meantime, I expect that Fed funds are not going anywhere before Warsh is confirmed. As to bond yields, that is a very different question and will depend on both the macroeconomic outcomes and the risk perception of investors around the world. For now, that trading range of 4.00%. – 4.20% seems likely to hold absent a major economic data miss in one direction or the other. But as long as we continue to get mixed data, this market will remain on the backburner.

The fear that is growing each day
Trump’s policy might go astray
Regarding Iran
Although not Japan
Thus, oil’s up, up and away

Texas tea (+1.5%) is following yesterday’s 4.6% rise with another strong session and as you can see in the chart below, is showing a very clear trend higher since December.

Source: tradingeconomics.com

This movement is very clearly a response to the ongoing buildup of US military assets in proximity to Iran, with two aircraft carriers, and somewhere above 200 military aircraft as well as the carrier group tenders with Tomahawk missiles in tow. While negotiations are ostensibly ongoing, the one thing that seems clear is that absent a complete capitulation by the Iranian government, something big is going to happen here. Of course, the question is, how much, and for how long, will it impact oil supplies?

Obviously, nobody knows the answer to that question, but the recent history has shown that every time there was an event in the Middle East, whether the 12-day war several months ago, the killing of Suleimani, the attacks on Saudi oil infrastructure, or others, prices retraced pretty quickly as per the below.

Even the Ukraine invasion in February 2022 saw prices retrace 50% within a few months. Other issues lasted less time than that. This recent history implies that fading the rally is the right trade, but boy, that is hard to do. And of course, in the event that the Iranian government falls, the chaos could result in a significant degradation of Iranian oil production. Given they pump about 5 mm bpd, ~5% of global supply, that would matter a lot at the margin. Certainly, the oil glut narrative would disappear in a hurry. This is a very large risk to both markets and the economy, and one which needs to be hedged, if possible. This will certainly be the focus of markets for the next few weeks, at least, so be prepared. Personally, I do own some stuff here, but I like the drillers generally, as they are going to be employed no matter what!

Ok, let’s see what else is happening. After a solid US session yesterday, Asia saw some major positive price action with Korea (+3.1%) the leader although Tokyo (+1.1%) also had a solid session, as did Taiwan, New Zealand, Singapore and Australia. The exception to this rule was India (-1.5%) which suffered after a three-day positive run as traders and investors fled worrying about oil, the Fed, and the future of India’s relationship with Russia after the seizure of more ‘dark fleet’ oil tankers trying to avoid sanctions on Russian oil. Europe, meanwhile, is uniformly lower this morning, with all the major indices slipping -0.8% or so. The narrative is pointing to the escalation in Iran as the cause du jour. US futures are also slipping at this hour (7:20), -0.25% or so across the board.

I touched on bonds briefly above, but today’s price action shows yields edging higher by 1bp in Treasury markets and between 1bp and 2bps across European sovereign markets. There has been no data of note to alter views, and the only ECB news is that Spain has thrown their hat into the ring to have the next ECB president.

In the metals markets, yesterday’s gains are being followed by a mixed picture with gold (+0.2%) and silver (+0.3%) edging higher while copper (-1.6%) and platinum (-1.8%) cede those gains. However, as I highlighted yesterday, this all still feels like consolidation. FYI, there is much talk in the markets about silver and how there is not enough physical silver in the COMEX vaults to cover open interest, and how that could result in a major squeeze, but my take is most of it will roll forward as the fundamental supply/demand equation does not appeared to have changed.

Finally, the dollar had a strong session yesterday, rising 0.6% as measured by the DXY, and making gains vs. almost all currencies. This morning, those trends are continuing with SEK (-0.4%) and GBP (-0.2%) leading the way lower in the G10 space while ZAR (-0.85%), INR (-0.4%) and KRW (-0.4%) are dragging down the EMG bloc. Again, data has been scarce, so I see this as a more traditional risk-off sentiment than some new macro story.

Data yesterday was generally stronger than forecast, notably IP and Capacity Utilization, which showed solid outcomes that were ascribed to AI infrastructure building as well utilities activity. It strikes me this is exactly what the Trump administration is trying to achieve with their reshoring goals. I guess the question is how productive this investment will be and how will it impact inflation readings. This morning, we see the weekly Initial (exp 225K) and Continuing (1860K) claims, as well as the Trade Balance (-$55.5B), Philly Fed (8.5) and Leading Indicators (0.0%). The interesting thing about the Leading Indicators number is that a flat result would be the highest in 4 years. A look at the Conference Board’s chart below shows an interesting thing about this number, and to me, anyway, calls its value into question. Leading Indicators have been declining for four years while coincident indicators (and economic growth) have been moving along just fine. I’m trying to figure out what these indicators lead.

And that’s really it for today. We do see oil inventories as well, with a slight build expected and we will hear from Minneapolis Fed president Kashkari, but I cannot remember the last time he said anything interesting. To me, the concern today, and tomorrow and next week, is that we see an escalation in rhetoric regarding Iran, at the very least, if not an actual military strike. That feels like it would be bad for stocks, good for bonds, the dollar and gold. Hopefully I am wrong there.

Good luck

Adf

Yesterday’s Trauma

Posted on February 13, 2026 by fxpoet

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

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

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

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

Source: cmegroup.com

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

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

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

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

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

Source: tradingeconomics.com

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

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

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

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

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

Source: tradingeconomics.com

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

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

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

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

Good luck and good weekend

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fxpoetry

Explaining the rhyme and rhythm of the FX markets each day

Tag Archives: #riskoff

Feeling the Blues

No Longer Benign

The Beating War Drum

Dire Straits

Not Be Sublime

How Long Can This Stand?

Far Too Extreme

Not All in Sync

Chock Full of Crises

Yesterday’s Trauma