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

Dumfound

Posted on April 23, 2026 by fxpoet

The clock has been wound and rewound
And meantime stock buyers dumfound
The good and the great
Who mostly, Trump, hate
And fear that their power’s southbound

But still the blockade is in force
And info depends on your source
Will Trump send marines
To take Iran’s means
And break them as matter of course?

Another day and nothing has changed in the Persian Gulf or the Strait of Hormuz. The US’s naval blockade is still in force with several Iranian tankers being stopped on outbound routes. As well, Iranian small gunboats have attacked several freighters seeking to exit the Gulf. No negotiations are on the calendar, although Pakistan, Egypt and Turkey are ostensibly working to get the two sides together. This has become a waiting game, it seems, to see if Iran can suffer the loss of 90% of its revenue for longer than President Trump can suffer the political damage that higher oil prices are inflicting on the economy.

The funny thing is the economy doesn’t seem to be that bad overall. Clearly, nobody is happy to pay more for a tank of gas, but the data has yet to show a major disruption in the US economy. And in fact, this morning’s Flash PMI data from around the world has shown a pickup in manufacturing activity as per the below table (data from tradingeconomics.com):

Country	Actual	Previous
Australia	51.0	49.8
Japan	54.9	51.6
India	55.9	53.9
France	52.8	50.0
Germany	51.2	52.2
Eurozone	52.2	51.6
UK	53.6	51.0
US	52.5 expected	52.3

The narrative on this improvement centers on the idea that people/companies are trying to get ahead of the future where price hikes and shortages of goods become extant, similar to the front-running of the tariffs in Q1 last year and that is certainly part of the story. But it also appears that, in the US at least, there is real manufacturing growth occurring.

Freightwaves is a company that tracks trucking and freight movement around the US, and its latest data show solid increases in activity along with a tighter market (rising costs) as demand rises. Too, this activity is emanating from the center of the country not the West coast, indicating this is domestic production and not imports. Anecdotally, I have a friend in the trucking business, and I asked him about this situation yesterday. He confirmed that the trucking business is booming.

Remember, too, that in the last NFP report, Manufacturing employment rose 15K, far surpassing expectations. I make these points to highlight that the US economy continues to perform pretty well despite the angst over the war and rising gasoline and diesel prices. One last tidbit is Retail Sales, which rose a greater than expected 1.7% last month, and 0.7% in the control group which excluded gasoline. Those numbers do not confirm economic weakness.

And you know what helps confirm that the US economy is ticking over nicely? The continued equity market rally. Since the war began, after the initial fears that rising oil prices were going to collapse the global economy, the market has completely reversed course as you can see in the below. Chart.

Source: tradingeconomics.com

From the nadir on March 30^th, the S&P 500 has rebounded 12.5% to new all-time highs. Earnings data that has been released for Q1 thus far has shown significant growth, upwards of 18% profit growth, again not a sign of a struggling economy. And perhaps the key feature of my argument is the following cover of The Economist magazine, which seems to have an almost perfect track record in terms of its cover articles, it is wrong nearly 100% of the time.

There continues to be a great deal of doom porn available if you like that type of stuff, but I am having a hard time seeing the depth of the damage that many claim. Certainly, things can get worse if Iran lashes out in final death throes of the regime and seeks to destroy as much GCC infrastructure as possible, but right now, I don’t see that outcome. My belief is the marines go for Kharg island shortly and are better than even odds to be successful. If that is the case, then we will be in the final stages of this conflict and people will move on. After all, who remembers Venezuela as a major crisis today? Most people have very short attention spans.

Ok, let’s see how things stacked up overnight after yesterday’s continued US equity rally. This morning, feelings are not as buoyant although it is not clear why. Equity markets in both Asia and Europe were broadly lower although that could simply be a bit of profit taking after some strong runs all around. Tokyo (-0.75%), HK (-1.0%) and China (-0.3%) all slipped as did Australia (-0.6%), India (-1.1%) and Taiwan (-0.4%). But Korea (+0.9%) bucked the trend along with Malaysia (+0.6%) while the rest of the region was weak. The Korean economy showed surprising strength in Q1 with GDP last night released at 3.6% annualized in Q1 supporting the market there.

As to Europe, despite the solid Manufacturing PMI data, Services data has been under more pressure and equity markets seem to be following that with Spain (-1.3%), the UK (-0.9%) and Germany (-0.5%) all slipping although France is unchanged this morning. As to US futures, they are softer as well at this hour (6:55), down by -0.5% or so across the board.

In the bond markets, Treasury yields have backed up 2bps this morning with European sovereign yields higher by between 1bp and 3bps. The outlier here is UK gilts (+5bps), which seems to be responding to general financing concerns in the UK as the budget deficit there continues to grow faster than forecast. JGB yields also backed up 2bps.

Oil (+1.2%) is beginning to get concerned again about the Iran situation as we are currently in the midst of a 3-day rally. While the WTI price, at around $94/bbl, is sitting in the middle of its range since the inception of the war, clearly there is some concern.

Source: tradingeconomics.com

The EIA inventory data showed a build in crude inventories but a pretty large draw of gasoline and distillates. Perhaps it was the latter that is the driver. As to the metals markets, the negative correlation between oil and gold is back with the barbarous relic (-0.8%) slipping while silver (-3.8%) is really having a rough session. It is key to remember, though, that silver is an inherently more volatile commodity than gold given the market’s much smaller size. In truth, looking at the chart over the past six months, it is hard to get the sense that it is doing too much at all right now.

Source: tradingeconomics.com

Finally, the dollar is rebounding a bit this morning, with the DXY (+0.2%) continuing to trade in its broad range from the past year as per the below chart.

Source: tradingeconomics.com

While the death of the dollar and de-dollarization narratives remain popular amongst a broad set of analysts, data outovernight from SWIFT shows that the dollar’s portion of international transactions rose to a record 51.1% in March, its highest level since SWIFT revised its procedures.

Source: Bloomberg.com

I regularly read analysts who are very smart explaining all the reasons why the dollar is destined to collapse amid concerns over the unsustainable debt and the use of the dollar as a political tool, and those things are true as far as they go, but for the foreseeable future, TINA is the rule. No other fiat currency is going to be an effective substitute because no other nation has the heft and strength of capital markets to do so.

The dollar’s strength today is pretty universal with nothing terribly noteworthy regarding specific moves. Perhaps the one surprise is NOK (-0.3%) which is not following oil higher.

On the data front, this morning brings the weekly Initial (exp 212K) and Continuing (1820K) Claims data as well as the above-mentioned Flash PMI data. Again, despite all the teeth gnashing, the labor market seems to be holding in quite well overall. Perhaps my glasses are tinted rose and I don’t see that, but the data releases that we continue to see do not point to an imminent collapse in the US economy. Rather, continued strength seems the most likely result. With that in mind, I do not see the dollar falling sharply under any scenario and suspect that a test of 100 on the DXY and 1.15 in the euro may be on the horizon.

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.

A Slippery Slope

Posted on April 9, 2026 by fxpoet

For one day, at least, there was hope
The war might be shrinking in scope
But as of this morning
The markets are warning
That there’s still a slippery slope

The Strait is still under duress
Though some ships have found an egress
The truce is still frail
And much can still fail
Beware, we’re not past all the stress

The most interesting story, to me, about the cease fire is that Pakistan gave each side different terms so they both agreed to something different. This might explain the confusion over whether the Israeli attacks in Lebanon were part of the deal, and the question about Iran’s collection of tolls for passing through the Strait of Hormuz. On the one hand, that very duplicity calls into question the help that Pakistan actually offered in this process. Of course, the other side is, if that subterfuge is what got the two sides talking directly, and apparently VP Vance is on his way to do that, then it was very worthwhile. It is still far too early to determine if the fighting is going to stop and if the Strait is going to fully reopen soon, but talks are better than no talks, at least in my view.

As to who ‘won’ the war, that question will take a long time to answer. After all, whatever the short-term impacts, if Iran is dramatically weakened and its sponsorship of terrorism is eliminated, the world will have won the war, certainly the Middle East as a whole, as it will make for a much safer place. However, if the radical wing of the regime there remains in charge and continues to press its global ambitions, then nobody will have won the war, not the rest of the Gulf nations and not the Iranian people themselves.

In the meantime, since I am not going to bring about world peace, let’s see how markets are behaving. After all, they really do offer some insight into global affairs as price information is some of the best information available.

After yesterday’s sharp decline in oil prices, we have seen a bounce this morning (+5.0%) although as I type at 6:50, it remains just below $100/bbl. You can see from the chart below of the past month that we’re kind of in the middle of the range. Alyosha (read Market Vibes on Substack) explains the Point of Control as the place where a market trades most frequently during a given period of time. His records show that $94/bbl is that number in WTI, a level we touched and have since bounced from. Headlines continue to be the driver, and I suppose that the next key headlines will be comments regarding the peace talks.

Source: tradingeconomics.com

NatGas prices (+0.3% in US, +2.0% in Europe) are also rebounding, but not nearly as dramatically. In a way that is surprising as the Iranian attack on Ras Laffan, Qatar’s main LNG facility has inflicted significant damage, sufficient to cause multiple years of reduced production, yet gas has not been nearly as impacted despite its critical importance to the global economy.

As to metals markets, gold (+0.4%) continues to find support, but is still far below the highs seen in January, and silver (0.0%) is at a loss for its next move. On the one hand, silver, especially given its multiple industrial uses, seems likely to have significant long-term support, but right now, along with gold, it feels like owners are still liquidating as they need cash, and speculators aren’t interested yet. I still like both in the long run.

Turning to equities, yesterday’s huge rallies culminated with every major US market gaining 2.5% or more. But that seemed to be the peak, for now at least. Overnight, Tokyo (-0.7%), China (-0.6%) and HK (-0.5%) all slipped a bit and that was emblematic of most of Asia with Korea (-1.6%), India (-1.2%) and most other markets slipping. The few gainers (Australia, Taiwan, Indonesia) all managed gains on the order of just 0.2% or so, hardly inspiring.

In Europe, the Bloomberg screenshot explains things well, as yesterday’s euphoria gives way to more circumspection this morning, at least for now. However, as you can see, equities remain far closer to their highs, than lows based on the gains over the past year.

There was some data this morning showing German IP far weaker than expected at -0.3% after a revised 0.0% print in January. With this in mind, it is understandable that the DAX is lagging, and it seems ever more likely that Germany is going to have yet another quarter with no economic growth. Looking at US futures, at this hour (7:10) they are all sitting lower by -0.3% or so.

In the bond market, Treasuries (-1bp) are the outlier this morning as all European sovereign yield are higher between 4bps and 6bps. Yesterday’s euphoria over the potential end of the fighting and the decline in energy prices is being rethought as, undoubtedly, even if a peace treaty is agreed and signed over the next two weeks, there are going to be major impediments to the resumption of the pre-war status quo, if it ever returns. I also suspect that investors here are growing concerned that after the European response to this military action, fears the US is going to exit NATO (NATO General Secretary Mark Rutte spent 3 hours behind closed doors in the White House yesterday with no comments afterwards) means that Europe is going to have to borrow and spend even more on their own defense. This will, of course, strain the budgets as the turn from butter to guns may be a difficult one politically.

Finally, the dollar this morning is mixed. It should be no surprise that NOK (+0.6%) is leading the way as oil rebounds, although three other major oil producers, CAD, MXN and BRL are essentially unchanged in the session. The euro (+0.15%) has continued a touch higher from yesterday while the yen (-0.25%) is slipping a bit. As I said, it is a mixed session overall with no direction of which to speak.

Turning to the data, this morning we get the regular Initial (exp 210K) and Continuing (1840K) Claims as well as the final look at Q4 GDP (0.7%). But in addition, we get the February PCE data suite, which typically comes at the end of the following month, but given the ongoing issues from the shutdown, seem to be behind. Expectations are for Personal Income (+0.3%), Personal Spending (+0.5%), PCE (0.4%, 2.8% Y/Y) and core PCE (0.4%, 3.0% Y/Y). And those numbers are from before the war. Arguably, of much more importance is tomorrow’s March CPI data, which we can discuss tomorrow.

Yesterday saw yet another build in oil inventories in the US, something which will eventually lead to lower prices, and the FOMC Minutes explaining that they were concerned about both inflation and employment. In the meantime, a look at the Fed funds futures market shows that the market is pricing even less chance of a rate cut in 2026 with the first one now not assumed until June 2027.

The thing about futures pricing, though, is that while it does give a good sense of sentiment, it is subject to change quickly on new news. There is much to be said about watching the 2yr Treasury note as the best predictor of Fed funds going forward and you can see how tight that relationship is in the chart below.

Source: tradingeconomics.com

My view on inflation is not that sanguine, and I fear it is going to remain far higher than the Fed’s 2.0% target for Core PCE for a long time to come. Ultimately, that plays into my views on owning things that hurt when they fall on your foot, or shares in companies that generate profits. (This is where I also mention USDi, for those of you inclined in the crypto space, as the only inflation-tracking currency around. Learn more at http://www.usdicoin.com)

As to today, this is the rebound and since nobody knows what will play out in the talks, I would look for a choppy, but inconclusive session in pretty much everything.

Good luck

Adf

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

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fxpoetry

Explaining the rhyme and rhythm of the FX markets each day

Tag Archives: #riskoff

A Bad Bet

Dumfound

Blow-By-Blow

A Slippery Slope

Feeling the Blues

No Longer Benign

The Beating War Drum

Dire Straits

Not Be Sublime

How Long Can This Stand?