A Bad Dream

Posted on March 10, 2026 by fxpoet

While yesterday’s moves were extreme
It seems like t’was all a bad dream
This morning there’s calm
And nary a qualm
Though things may not be what they seem

For now, oil’s price has retreated
And stocks, a round trip, have completed
As Trump has implied
Though not verified
Iran soon will have been defeated

One must be impressed with the price action yesterday, if nothing else. It is a very rare occasion when the price of anything in a public market behaves like we saw oil behave yesterday. From Friday’s closing price in the futures market of $90.71/bbl, we saw a $28.70 (31.6%) rally and a subsequent $34.35 (37.9%) decline in the first 24 hours of trading.

Source: tradingeconomics.com

With oil back to Friday morning’s, still elevated, prices, it’s almost as if nothing happened yesterday. The two stories that appear to have driven the remarkable reversal early Monday morning were first, the discussion about the G7 potentially coordinating a release of strategic reserves, with that meeting slated for this morning. The other catalyst apparently was a comment from President Trump that, having made significant progress on their objectives, the war could be over “very soon”. Obviously, that would be a great outcome for all involved, although it remains to be seen if that will be the case.

The upshot is that while oil saw the most dramatic price movement across markets, prices everywhere synchronized such that those that had declined (stocks, bonds and metals) rebounded, while the dollar, which rose, retreated. And that’s where we are this morning.

As I read across news sources, there remains no agreement on any aspect of the ongoing war with each side of the argument maintaining their views. There is a contingent that insists Iran is about to start a major retaliatory campaign that will devastate Israel and Gulf neighbors and a side that insists Iran’s military infrastructure has been so compromised they have nothing left but drones to fire. As I’m not on the ground (thankfully) nor in any situation room on any side, I am completely in the dark like essentially all of us. In fact, arguably, market price action is one of the best indicators we have, because institutions don’t invest on hope, but on the best information they have. This tells me that the worst-case scenario has been priced out for now, meaning a prolonged conflict, but frankly, neither I nor anyone else really knows.

So, let us embrace our ignorance on the issue and simply observe market behavior to see what we can glean. Starting with equity markets, the below chart shows the S&P 500 futures from Sunday night’s opening through this morning. While the opening is obvious on the left, the huge green bar on the right at 3:15pm is the other major feature.

Source: tradingeconomics.com

The interesting thing to me is that Trump’s comment about the war ending soon were not made until 5:45pm. This tells me that there was a major buy order that went through the market shortly before the close, a feature that we have seen more frequently of late. My point is there is still much more to the markets than just the Iran conflict. In fact, the cynical view is that the algorithms continue to control things completely and that there is a major effort to prevent a significant decline in equity markets overall, at least US equity markets. That’s a little conspiratorial, but one cannot ignore the evidence.

At any rate, after positive closes in the US yesterday on the order of +1.0%, we saw gains across the board in both Asia (Japan +2.9%, HK +2.2%, China +1.3%, Korea +5.4%, Taiwan +2.1%, India +0.8%, Australia +1.1%) as only New Zealand lagged, essentially unchanged on the day, amid concerns of rising inflation and a tighter RBNZ going forward. Europe, too, is enjoying the session with strong gains across the board reversing yesterday’s declines as Spain (+2.9%) leads the way, but there is strength everywhere (Germany +2.4%, France +1.9%, UK +1.6%). At this hour (7:10), US futures are also pointing higher, but just by 0.2% or so across the board.

Bonds also reversed yesterday, albeit not quite as dramatically. So, in a picture remarkably similar to both oil and stocks, the yield on the 10-year gapped higher Sunday night and fell sharply enough to close lower yesterday as per the below chart.

Source: tradingeconomics.com

Much of that retracement came after Europe closed, though, and so while this morning, 10-year Treasury yields have edged back up by 2bps, European sovereign yields are lower across the board with Italian BTPs (-6bps) leading the continent although UK Gilts (-7bps) have rallied further. Other nations have seen a mix between -4bps and -5bps although Germany (unchanged) seems to be suffering on a relative basis after its Trade Surplus grew to €21.2B on the back of a substantial decline in imports. Throughout all this, JGB yields (-1bp) have been the least impacted and show no signs of running away at this point despite much doomsaying for the nation.

Metals markets have reversed their decline from yesterday and are higher across the board (Au +0.9%, Ag +1.6%, Cu +1.0%, Pt +1.9%). This is all part of the same story with price action virtually identical, although again, not quite as dramatic, as that of oil.

Finally, the dollar, which had significant support yesterday is giving back some of those gains as well. But let’s face it, if we take a look at the dollar over the past year vs. the euro, it has largely traded withing a 1.1500 / 1.1900 range and doesn’t appear to be making a break in either direction.

Source: tradingeconomics.com

The very messy chart below shows four key EMG currencies to demonstrate that there is no trend there either. While CNY and MXN have both strengthened during the year, INR and KRW have both fallen. All I’m saying is that the idea that the dollar is either collapsing or exploding higher is simply not true. Different currencies have different drivers, and while sometimes there is a key dollar issue that impacts virtually everything, many times, you need to watch the currency in question.

Source: tradingeconomics.com

Turning to the data, this morning we just saw NFIB Business Optimism print a bit soft at 98.8, exp 99.7, and we are awaiting Existing Home Sales (exp 3.89M). Tomorrow’s CPI will garner more attention, I think. Too, the Fed is in their quiet period as they meet next Wednesday, so even though they have been drowned out by events lately, the FOMC meeting will still get a lot of attention.

But that is where we stand. As has been the case since President Trump’s election, White House bingo remains the biggest risk to markets since one never knows what may come out. The backdrop of the war continues to be front of mind for all market participants, so new stories will have market impacts. With that in mind, short term forecasts are even more of a waste of time than they usually are. The questions I am pondering are about the long-term implications when the military activity ends. Certainly, any result where Iran gives up its terrorist interests would not only be welcome on the global stage but would open the door for much more oil flow around the world and lower prices across the board. Of course, a more entrenched Iranian regime would likely see even stricter sanctions there with the need for other sources to help satisfy global demand. I guess we shall see.

Good luck

Adf

Impacts of War

Posted on March 4, 2026 by fxpoet

The financial impacts of war
Are many, and so here are four
Inflation will rise
And what this implies
Investors, most bonds, will abhor

The dollar is like to remain
Demanded and that will cause pain
For stocks everywhere
But one thing will fare
Just fine, look for gold, more, to gain

Obviously, the war in Iran remains the top story and is likely to remain so for a few more weeks at least. Arguably, the only way this will change is either a regime change takes place and talks for peace begin, or Iran is able to retaliate in a heretofore unknown fashion sufficient to force the US and Israel to withdraw. President Trump has indicated he believes this campaign will last 4-5 weeks with that regime change the result. But remember, the Russia/Ukraine war slipped from the headlines after 6-8 weeks, and it is still ongoing. In fact, I challenge you to find a story about that war anywhere these days.

My point is, despite the ongoing hostilities, the rest of the world continues on its way, albeit with some new bumps in the road. Clearly, the biggest bump remains the price of oil and, for much of Europe and Asia, its continued availability. While the price of oil (+0.1% today) has risen about 18% in the past month, a look at the long-term chart below offers a bit more perspective as to just how limited this movement has been so far.

Source: tradingeconomics.com

I have highlighted the week of the Russian invasion from February 2022, which saw oil rise more than 20% at the time and remain elevated for about 5 months before it retraced to prewar levels. The reaction this time has not been nearly as dramatic even though the effective closure of the Strait of Hormuz has removed about 20% of global oil supply from the market right now, as well as a similar proportion of LNG. This is why we have seen the massive spike in European and Asian LNG prices as that was the destination of those cargoes. Ironically, one of the most negatively impacted nations is China, which was Iran’s biggest oil customer, but now has seen a dramatic decline in the availability of oil. Of course, they have built a significant stockpile, their own SPR, which holds between 1.2 -1.5 billion barrels, enough to supply the nation for upwards of 4 months. While not an immediate concern, it will start to hurt after a while if this continues.

It appears to me that unless Iran starts targeting and destroying oil production facilities throughout the Middle East, which is certainly possible, the upside for prices from here is limited under current circumstances. My guess, and it is just that, is another 10%. Of course, the risk for Iran there is that it draws the Saudis, Emiratis and the rest of the Gulf into the war against Iran, probably not a desired outcome either.

As an aside, I wonder if prices rise far enough in a worst-case scenario, if the UK removes its drilling restrictions, although thus far, PM Starmer has not indicated anything of the sort. It depends on just how painful things become I suppose.

Moving on to the equity markets, while US markets have declined somewhat since the war began, the S&P 500 remains just 2.5% below its all-time high set February 28, and as you can see from the chart below, does not appear to be altering the recent trajectory in any meaningful fashion.

Source: tradingeconomics.com

However, the same cannot be said for several other markets, notably those in Asia. The Kospi (-12.1%) is the worst offender as seen below. But weakness in the region was widespread with the Nikkei (-3.6%), Hang Seng (-2.0%), Taiex (-4.3%) and Thailand’s SET 50 (-5.4%) leading the way lower with most other bourses falling on the order of -1.0% to -2.0%. This makes sense as virtually all these nations rely on energy from the Middle East, and with both higher prices and reduced supply, trouble is afoot.

Source: finance.yahoo.com

Of course, as you can also see in the KOSPI chart above, with similar price action elsewhere in the region, these stock markets have been on a tear given their tech focus (Korea’s two largest companies are Samsung and SK Hynix, both semiconductor manufacturers) so there was some room for a reversal. In fact, remarkably, despite the KOSPI having fallen almost 20% this week, it remains above its trend line. My take is this is a major correction and something we will see until things in the Middle East settle down.

Working in favor of my correction explanation is the fact that European bourses, which all fell sharply yesterday, are all higher this morning as per the below Bloomberg table.

As to US futures, at this hour (7:30) they are little changed.

Turning to the bond market, after some initial fears over the inflation implications of the war, as well as the selling that accompanies margin calls, yields have settled down a bit. This morning Treasury yields (+2bps) are a touch higher but, at 4.08%, hardly running away. As to European sovereign yields, they are essentially unchanged this morning, and even JGB yields (-2bps) slipped a bit last night. As I discussed above, markets have digested much of the news and seem to have found a new equilibrium

I didn’t mention metals markets above, but this morning, in sync with other markets that are rebounding, we see the entire space higher; Au +1.7%, Ag +4.3%, Cu +1.1%, Pt +3.8%. This story of insufficient supply to meet ongoing industrial demand has not changed, nor has the demand by both central banks and individuals, especially in Asia, to hold gold as a store of value.

Finally, the dollar is backing off slightly this morning, which given the price action elsewhere, makes perfect sense. In the G10 space, the movement has been on the order of 0.1% to 0.2% for the majors (EUR +0.2%, GBP +0.1%, AUD +0.1%, CHF +0.2%) with only JPY (+0.35%) and SEK (+0.8%) showing real gains. However, it is important to remember that SEK was one of the worst performers recently, so had more ground to regain. As to the EMG bloc, movement there has been more substantial, but again, this is after much larger declines. For instance, BRL (+0.6%) and KRW (+0.9%) have both seen sharp declines in the past week before reversing overnight as per the below chart.

Source: tradingeconomics.com

However, if we look at the DXY as our proxy, it remains in the middle of its trading range of the past 9+ months.

Source: tradingeconomics.com

In sum, we are three trading days into an entirely new geopolitical situation, and markets have digested the news and are seemingly trying to return to some sense of normalcy. Now, there is still significant headline risk as nobody knows how things will evolve here. What I will say is that if the Iranian regime falls or capitulates, I would look for risk to be quickly scooped up while oil prices slide. Conversely, if things drag on much longer than another month, I think we could well see investor concern over how this will impact the global economy, especially if oil prices remain in the $75 – $80/bbl range, which likely means equity markets will suffer.

To the extent that anyone is still looking at data, this morning brings the ISM Services (exp 53.5) and then we see Crude Oil inventories later this morning. The Services PMI data throughout Europe and Asia was in line with expectations showing slow growth remains the story. Chinese data was marginally softer for large companies and marginally stronger for small companies. As well, the Fed’s Beige Book is released at 2:00 this afternoon.

However, I don’t see data as a driver yet, so headline risk remains the biggest one out there, but the indications are markets are starting to absorb the war and move on.

Good luck

Adf

To Excess

Posted on February 25, 2026 by fxpoet

The State of the Union Address
Was, as is Trump’s wont, to excess
He touted his claims
And handed out blames
While focusing on his success

The market responded, it seems
Like Trump answered all of its dreams
Stocks round the world rose
Which shows, I suppose
The world does approve of his schemes

As I look at my screen this morning, literally every major equity market is higher, as per the below screenshot, as are US futures.

Source: tradingeconomics.com

In fact, if you ignore Russia, which hasn’t really been relevant since the Ukraine invasion-imposed sanctions, every market is higher over the last year, and US markets are the true laggards as seen by their monthly performance. But you cannot look at this picture and determine that anything President Trump said last night was negative for the global economy. I guess it’s full speed ahead now.

In true Trumpian fashion, the president remains incredibly optimistic about the future for the US and the Western world and perhaps that is what is reflected here this morning. However, there were precious few new initiatives announced so it is unclear to me that this is going to be a topic of discussion in the financial markets going forward, although you can be sure that the political narrative is going to be very active.

So, let’s move on to things that matter for markets.

Is she hawk or dove?
Takaichi hates China,
Not easy money

As you can see in the above table, Japan’s Nikkei 225 rose sharply, nearly 4%, but that had nothing to do with the SOTU. Rather, her administration named two new BOJ governors (it was simply time to rotate some) and both were seen as quite dovish. In fact, one, Toichiro Asada, is known for his belief in the benefits of MMT (you remember the magical money tree idea that governments that print their own currency don’t need to worry about overborrowing). The upshot is that while Japanese stocks raced to yet more new highs, as per the below chart, JGB yields reversed their recent declines and rose (10yr +5bps, 30yr +10bps) and the yen (-0.6%) continued its recent slide, although remains well above (dollar below) the 160.00 level, which many see as the BOJ’s line in the sand regarding intervention.

Source: tradingeconomics.com

But other than this story, it is much harder to find things that have been market drivers. To my eye, we continue to see market participants laying back in most places as they are still recuperating from the raucous first six weeks of the year.

So, let’s go to the tape. We’ve already seen the equity performance around the world, with the narratives forming that the US tariff situation is now a reduced stress on global trade as they have been reduced to 10% globally. As well, there have been an increasing number of rebuttals to the AI piece I mentioned on Monday, with this one, I think, the most succinct takedown of the idea that AI is going to eat the world and drive us into a recession with no jobs left for people. As such, Monday’s narrative of all stocks being worthless has changed. Elsewhere, the tariff story and tech rally have been the key discussion points across markets.

In the bond market, yields are a touch higher with Treasuries (+2bps) edging up on what seems like ordinary trading. The short-term trend here is lower yields, as per the chart below, but we know that nothing moves in a straight line.

Source: tradingeconomics.com

As to European sovereign yields, they, too, are mostly a few ticks higher this morning although, this also appears to be simple trading activity rather than a new narrative. It is interesting that there are more stories today about ECB President Lagarde stepping down early, which is diametrically opposed to what she said when asked the question recently. As I said before, I think she steps down and is going to run for President of France.

The commodity markets continue to be the place with the most price action and this morning is a continuation of that recent trend. Gold (+0.9%), silver (+3.7%) and platinum (+5.5%) are all continuing their rebound from the extreme declines seen back on January 29^th.

Source: tradingeconomics.com

I do not have any inside track as to the driver of those moves, but I continue to read and hear about significant intervention designed to burst those bubbles (and they were clearly bubbles) and allow key institutions to cover short positions at better prices. The problem with these stories is that we have heard for years about the manipulation of the prices of both gold and silver by large banks, and the purveyors of those stories have neither great reputations nor track records, so it is always a tough sell in my mind. There is no question that when markets go parabolic, as the precious metals did through January, the reversals have always been dramatic. However, I cannot speculate on the driver as often times, there doesn’t need to be one. This cartoon from Kaltoons demonstrates it perfectly.

Turning to oil (+0.8%), Iran remains a key narrative and continues to support the front month pricing. However, it appears that several futures spreads are falling sharply, indicating a potential glut in physical supplies has developed, at least for now. As I look at the front contracts in the futures curve, we are still in backwardation, which implies a shortage, although I suppose that is the Iran effect.

Source: barchart.com

I understand the short-term concerns here regarding potential military escalation there, but nothing has changed my view that the long-term energy situation is one of abundance and maintaining much higher oil prices will be very difficult for the long-term. After all, look at Venezuela, which has already increased production back above 1mm barrels per day with contracts being signed for more activity. Too, Argentina’s Vaca Muerta shale production is at new record levels, also ~1 mmm bpd and we continue to see growth offshore Brazil and Guyana. Longer term, there is plenty around, I think.

Finally, the dollar is mixed this morning as the yen’s weakness is being offset by modest strength in the euro (+0.1%) and pound (+0.2%). However, the big movers today are KRW (+0.9%) which has benefitted from inward equity flows and hopes for tariff relief, as well as ZAR (+0.5%) on the back of the precious metals rally and CLP (+0.4%) on copper’s strength. Remember, the US is not overly concerned about USD weakness in the FX markets as it suits the administration’s goals of reducing the trade deficit and encouraging onshoring of production. But even with that, looking at the DXY, it is just below 98.00 and remains right in the middle of its trading range for the past 9 months.

Source: tradingeconomics.com

There is no major data out this morning with only the EIA oil inventories where a very modest build is anticipated.

Big picture, I don’t think anything has changed. Fiat currencies continue to lose value relative to ‘stuff’. Equity markets continue to benefit from the global ‘run it hot’ policy and there is no clarity regarding the outbreak of a war in Iran. With this in mind, it is hard to see a large move in the dollar in the near future.

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

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Commodities Blazing

Posted on January 29, 2026 by fxpoet

According to Jay and the Fed
The ‘conomy’s moving ahead
So, rates are on hold
With rallies in gold
And stocks and the dollar instead

But really, the thing that’s amazing
Is nobody cares about phrasing
Or Dot plots or pressers
‘Cause now all the stressors
Are Trump and commodities blazing

Once upon a time, the FOMC meeting was THE story for markets during the week leading up to the meeting and through the Chair’s press conference explaining the many virtues of what they did and why they did it. Of course, this has not always been the case. If we head back to the pre-Alan Greenspan days, the FOMC was peopled by 18 anonymous members and the Fed Chair, at that time Paul Volcker, and nobody ever spoke to the press and only grudgingly to Congress, they simply managed the money supply to the best of their ability to achieve their mandates. The biggest data point of every week was the Thursday afternoon M2 release, and there was an entire subculture of ‘Fed watchers’, similar to ‘Kremlin watchers’ whose job was to read the tea leaves based on market behavior and data in trying to determine how the Fed would behave going forward.

Almost the only time Chairman Volcker spoke in public was at the semiannual Humphrey-Hawkins testimony to Congress, but he basically never answered any questions and clearly didn’t care what either Senators or Congressmen asked.

But then we got the “Maestro”, Alan Greenspan, who after Black Monday in October 1987, created the first Fed put. At that time, the rest of the FOMC was still largely anonymous, but Greenspan craved the limelight, if only to try to show how much smarter he was than everybody else. Famously, he explained in Congressional testimony in 1996, “If you understood what I said I must have misspoken.” Greenspan was more available to the press than Volcker, but the rest of the committee remained in the background.

However, that simply set the table for the ensuing Fed chairs, Bernanke, Yellen and now Powell, all of whom give press conferences and clearly encouraged their minions to get out there and deliver the message. As so many struggling leaders explain, it’s not the substance, it’s the messaging that’s the problem. This is what we have all been dealing with since Bernanke sat down in 2006, mandated press conferences and pushed the narrative as a critical part of policy.

Then, along came President Trump’s second term, and times, they are a-changing. While Trump rails on Powell to cut rates and lambastes him regularly, it turns out, the combination of new fiscal and economic policy is driving monetary policy into the background, at least from the perspective of market participants. The result is that while FOMC members still get out there and give interviews regularly, they are never newsworthy. In fact, my suspicion is that the reason Chairman Powell made his little video announcing the Fed received subpoenas was as an effort to get back on the front page, a place he and his committee members have clearly grown to enjoy, and from which they are increasingly absent.

Which brings us to the meeting yesterday where…nothing happened. Policy rates remain unchanged, as universally expected, two voters wanted 25bp cuts (Miran and Waller), and they admitted that economic activity moved up from “moderate” to “solid”. In the most stinging rebuke, the market virtually ignored the entire process. In fact, the discussion about the next Fed chair is ebbing into the background. My take is this is a better situation for all involved. I only hope it stays this way.

So, what did happen? Stocks were flat, bonds were flat, the dollar rebounded a bit, and commodities continue to rocket higher. Let’s take a turn around markets overnight and start with commodities as that is where all the action is.

Copper (+6.1%) is the overnight star, soaring in Asia to record highs. As with virtually all commodities right now, blame is laid at the feet of the weakening dollar (it didn’t move overnight) and with uncertainties about President Trump’s next actions and the potential risks attendant to those actions when they occur. As we have seen with both gold (+1.9%, +27.1% in the past month) and silver (+1.3%, +54.6% in the past month), there is no doubt that fiat currencies are losing their status as a store of value, regardless of the interest rates they pay. While copper’s movement has not been as extraordinary as that of either gold or silver, the trend, as you can see in the chart below, remains clearly higher.

Source: tradingeconomics.com

The underlying reality for all these metals is that the financialization of economies all around the world has resulted in far more market activity than was necessarily warranted by the physical markets. And physical markets need ounces and pounds of stuff, which have very long lead times to get out of the ground. As a trader, I look at these moves in precious metals and am very concerned they are overdone but as somebody with a basic understanding of physics, I see no reason to believe that the demand for these metals is going to slow down anytime soon. The below chart shows just how extraordinary the silver move has been, and the table below it really tells the tale.

Source: tradingeconomics.com

As to oil (+2.6%), it is heading higher this morning on increasing fears that the President is going to initiate a military action to depose the Ayatollah in Iran. Concerns are rising about Iran closing the Strait of Hormuz as well as its ability to respond via missile attacks. Remember, though, a market that moves on a political issue will revert once that issue has either occurred, or clearly won’t occur, so do not mistake this move for the beginning of a new trend. Consider what happened to oil after Russia invade Ukraine and after they invaded Crimea in 2014.

Source: finance.yahoo.com

Turning to the equity markets, yesterday’s US blahs were followed with a bit more price action in Asia as though Japan (-0.7%) slipped a bit, China (+0.8%), HK (+0.5%), Korea (+1.0%) and Taiwan (-0.8%) all so more significant movement, albeit not offering a larger theme given the relative gains and losses. Elsewhere in the region, the smaller exchanges showed more red than green. In Europe, Germany (-1.15%) is the dog, falling on idiosyncratic weakness in SAP and Deutsche Bank following weak earnings and forecasts, but the rest of the space is performing well (UK +0.4%, France +0.65%, Spain +0.4%) as earnings there have been relatively solid. And, at this hour (7:10), US futures are pointing higher by about 0.25% or so as earnings numbers have been strong so far this week, highlighted by Meta last night.

In the bond market, activity is less frenetic with Treasury yields unchanged this morning, European sovereigns catching a bit of a bid as yields slip -2bps across the board and JGB yields (+2bps) rising after the latest poll showing PM Takaichi increasing her odds of getting an LDP majority in the Diet next week. Something to watch closely going forward is the shape of the yield curve as there is growing concern that long-end rates may rise regardless of the Fed (yet another sign the Fed is losing its sway). In fact, I suspect if that is the case, that we will see yet another bout of QE, although they will find an alternate name.

Finally, in the FX markets, despite all the pearl clutching about the end of the dollar, there is no movement of note in any currency today, with the entire screen showing gains or losses of 0.3% or less with one exception, CLP (+0.5%) following the remarkable jump in copper’s price. The linked article is quite funny as they explain all the negatives of a weak dollar and then also explain that ECB members are concerned about a too strong euro. I am frequently confused by whether a strong currency is good or bad for a nation, but I guess it depends on the narrative you are trying to push.

On the data front, weekly Initial (exp 205K) and Continuing (1860K) Claims come at 8:30 as does the Trade Balance (-$40.5B). We also see final Nonfarm Productivity (4.9%) and Unit Labor Costs (-1.9%) which if those numbers are met indicate quite positive economic activity. Then, at 10:00 we see Factory Orders from November (1.6%), but that is such old data I don’t think it matters.

Remember, it is Trump’s world (and Bessent) and we’re just living in it. The White House is the source of all the news so let’s all be happy that the Fed is fading into the background. With that in mind, based on President Trump’s goals, a weaker dollar is clearly his desire, at least in the short run, although I continue to see scope for longer term strength.

Good luck

Adf

What We’ve Learned

Posted on January 22, 2026 by fxpoet

It wasn’t but three weeks ago
That pundits who felt in the know
Were sure the attack
On Vene would crack
The world, and more chaos bestow

But that news, so quickly, has faded
While Greenland fears have been upgraded
The pundits were sure
That war was the cure
And Europe would soon be invaded

Now as it turns out, what we’ve learned
Is NATO, which had been concerned
Has ‘greed to a deal
Which stopped Denmark’s squeal
As Trump, to the US, returned

It is certainly difficult to keep up with current events these days, especially for the punditry who feel it is critical they demonstrate expertise on every issue, given the speed with which the issues change. All that effort to understand the geopolitics behind ousting Nicholas Maduro has been forgotten in less than 2 weeks as they needed to pontificate on Greenland and its importance. If, as the president’s TruthSocial post below is the current lay of the land, by Monday, Greenland will return to its historic obscurity as President Trump will move on to the next issue of his choosing. In fact, this morning, the WSJ is claiming Cuba is next on the list, which, while it wouldn’t be that surprising, has to date only been mentioned in passing by Mr Trump.

Here’s the thing about all the pontification regarding President Trump, nearly, if not all of it, is simply that, pontification by outsiders who have no idea about what is really happening. These folks are not sitting in the Oval Office when the President is meeting with his advisors discussing strategy and are generally wishcasting their views and creating a narrative around that. As I am also an outsider, all I can do is observe and try to ascertain how things might impact markets, but if you are not hearing it from the president or Secretary Rubio or someone like that, it is all speculation. However, one must admit, it is entertaining!

As I don’t know what the next ‘global crisis’ is going to be ahead of time, let’s turn our attention to markets and how they responded to the president’s speech in Davos as well as the news of the deal framework.

Equities were quite happy. After the sharp decline seen Sunday night, when the tariff threats were made, the S&P 500 has recouped nearly all of the losses as per the below chart. Yesterday saw US market gains of 1.2% across the board and futures, this morning, continue to rally, up about 0.5% across the board.

Source: tradingeconomics.com

It should be no surprise that things were bright in Asia as well, with Tokyo (+1.75%) leading the way as almost every exchange in the region was higher by a decent amount (Korea +0.9%, India +0.5%, Taiwan +1.6%, Australia +0.75%) but interestingly, China (0.0%) and HK (+0.2%) were the laggards. Perhaps good news for the West is not seen that positively there, although the story of regulators in China cracking down on possible stock manipulation by social media influencers has raised some concerns. After all, one of the biggest issues with investing in China by outsiders is the capriciousness of President Xi and the CCP as they decide what they don’t like that particular day.

As to Europe, it should be no surprise that there has been a collective sigh of relief from investors there given the removal of the threat of more tariffs and the promises of more defense spending by European nations. So, gains across the board with the DAX (+1.2%) leading the way although the CAC (+1.1%) is right there as well with most of the rest of the nations seeing gains on the order of 0.5% to 0.75%.

In the bond markets, apparently the end of the world has also been postponed. Yields declined yesterday and this morning, Treasury yields are unchanged at 4.24%. In Europe, yields have slipped -2bps to -4bps on the continent although UK gilts (+2bps) are bucking the trend, which appears to be an ongoing impact from yesterday’s higher than expected inflation data which continues to point toward stagflation in the UK. Interestingly, JGB yields (-4bps) have also fallen again, although they certainly remain near recent highs. PM Takaichi is going to formally dissolve the Diet tonight and the election is slated for February 8^th (wouldn’t it be wonderful if US election campaigns were just 2 weeks long!). While nothing has changed in her fiscal planning, it seems that investors are awaiting the BOJ announcement tonight (no change expected) and have been modestly appeased by a substantial increase in exports although the trade surplus declined slightly.

I think it is worth looking at the trade balance relative to the yen (-0.2%) as per the below chart. Recall, historically, Japan ran major trade surpluses, which was always one of the tensions between the US and Japan dating back to President Reagan. But as you can see below, the blue bars are the monthly trade numbers and since Covid, that situation changed dramatically.

Source: tradingeconomics.com

However, once the yen started to weaken substantially, the lagged effect showed up in trade data as can readily be seen above. In fact, this is the real tension in Japan, I believe, that the weak yen helps exports significantly, but has become an inflation problem and the government is caught between the two issues. This is why I believe we will see a weaker yen over time, especially if Takaichi-san comes out of the election with a solid majority.

As I’m on currencies, if we look elsewhere, the dollar, although we have been constantly assured it was collapsing, remains in its trading range. This morning, the DXY (-0.1%) has edged lower after yesterday’s rebound. As it happens, yen weakness has been offset by modest euro strength, but the real strength is in the commodity space with NOK (+0.8%), SEK (+0.36%), AUD (+0.6%) and NZD (+0.6%) all having solid sessions. Now, my take is that the first two are more likely responses to the Greenland issue’s apparent resolution as NOK is rallying despite oil’s (-1.7%) sharp decline. Remember, both those nations were in the crosshairs of Trump’s mooted tariffs. On the other hand, last night, the employment situation in Australia perked up nicely which has helped raise market pricing for a rate hike by the RBA and given the strength in commodity prices and the apparent end of another global crisis, has helped support the currency. Ironically, as I scan the EMG space, movements there have been much smaller overall.

Finally, turning to the rest of the commodity space, for the first time in a week, gold is not higher this morning, but rather essentially unchanged. Silver (+0.25%) has bounced a tiny bit after selling off somewhat yesterday in NY. I have maintained that trees don’t grow to the sky, and frankly, the price action here appears tired regarding ever larger gains. I believe the fundamental story remains in place, but that doesn’t mean silver won’t chop around for a few weeks or months before starting higher again. Copper (-0.6%) is also under modest pressure this morning and has retreated much further, about -6.3%, from its recent highs at $6.10/lb than the precious metals. However, the red metal remains much in demand given the underlying electrification story.

And lastly, a quick look at NatGas (+12%) shows what happens to commodity markets when there is the perception of insufficient supply for the current demand. This is higher by 75% this week! And while today in NJ, the temperature is a relatively balmy 34°, the forecast for the coming weekend is much colder and a huge snowfall. It’s not often you see a movement of this magnitude so here is the chart for the past month.

Source: tradingeconomics.com

On the data front, today brings the final look at Q3 GDP (exp 4.3%) as well as Initial (212K) and Continuing (1880K) Claims. Too, we get Personal Income (0.4%) and Spending (0.5%) for November and PCE (0.2%, 2.8% Y/Y) for both headline and core. The EIA releases its weekly oil inventory data today, a day later than usual because of the holiday Monday, with a modest build expected.

Market participants in all markets appear to have found a comfort zone and are taking risk positions again, at least for now. All the apocalyptic stories about the world rejecting the dollar and the rise of the BRICS will have to wait for another day. While I don’t know what the next situation is going to be, I am highly confident we are going to have another geopolitical scenario that is going to result in more screaming, teeth gnashing and pearl clutching by those who continue to believe the rules-based order is the way things should be. Alas for them, economic power and statecraft is the new world order, and my take is ultimately, the dollar benefits from this pivot.

Good luck

Adf

Clearly Explained

Posted on January 21, 2026 by fxpoet

The warmups in Davos for Trump
With Howard and Scott on the stump
Quite clearly explained,
While WEFers complained,
The US was, no more, the chump

The globalist world that existed
Is no longer to be assisted
Instead, US goals
Align with Trump’s polls
No matter the words WEF has twisted

As we await President Trump’s address in Davos this morning, it is worth recapping the highlights from yesterday’s US speakers, Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent. Starting with Lutnick, he explained the White House view as follows; “The Trump Administration and I are here to make a very clear point—globalization has failed the West and the United States of America. It’s a failed policy… and it has left America behind.” The video is linked above in his name. It is hard to misunderstand what he is saying, and that is very clearly US policy.

Turning to Secretary Bessent, he explained that the US has spent $22 trillion more than the rest of NATO since 1980 on defense while Europe and Canada created their welfare states. “The Europeans have been spending the money on social welfare, on roads, on education, and it’s time for them to pay more, which they’ve agreed to do.” The video clip is linked to his name in the first stanza. The below graph is telling:

At the same time, Europe continues to buy Russian oil, funding Russia’s war against Europe.

Needless to say, Europeans were unhappy with the commentary as they appeared to be coming under attack from the US. The market narrative quickly framed around President Trump going too far and how it was going to destroy the US as nobody will want to invest in the US. That is the explanation for yesterday’s decline in US equities (although they fell around the world), the dollar and Treasury bonds (although bonds, too, fell everywhere, notably in Japan).

Yesterday I sought to disabuse you of the notion that Europe is going to sell all their Treasuries to hurt the US as the results would likely be either irrelevant or horrific for Europe. So, the narrative pivoted to Trump is bad and destroying the US.

And yet, remarkably, the world did not end either yesterday or last night, despite what many have explained is inevitable. This morning markets are somewhat less catastrophic. It makes sense that markets are going to remain volatile as the underlying theses for international relations adjust to the new reality of power politics and economic statecraft from the previous “Rules Based Order”. And at this stage, there is no way to know which outcomes are most likely. The only thing of which I am confident is that we have not seen the end of this play out.

I must admit, that while I don’t think President Trump cares much about France and President Macron’s comments seeking more Chinese investment in that nation, I suspect that PM Carney’s efforts to cozy up to President Xi will be less welcome based on the Donroe Doctrine of US dominance in the Western Hemisphere. But I also believe that the power structure between the US and Canada is such that it will ultimately bend to the US’s will.

So, let’s review market activity overnight as we await President Trump’s comments, which I understand have been delayed until 11:30 EST this morning. Yesterday’s sharp declines around the world have been followed by less dramatic activity last night and so far today. In Asia, Tokyo (-0.4%) slipped a bit further, but hardly dramatically, as FinMin Katayama focused on the JGB market in comments made in Davos. “Since last October, our fiscal policy has consistently been responsible and sustainable, not expansionary, and the numbers clearly demonstrate that. I’d like everyone in the market to calm down.” I’m sure she would. And it worked with JGB yields slipping -8bps and 30yr yields falling -17bps. Elsewhere in Asia, China was flat, HK (+0.4%) rallied a bit along with Korea (+0.5%) while Taiwan (-1.6%) led the way lower across numerous other regional markets.

In Europe, red is today’s color led by Germany (-0.7%) and Spain (-0.5%) although France and the UK have both only ceded -0.1% so far during the session. The discussion here continues to revolve around President Trump, the trade deal, and potential new tariffs on nations that try to prevent the US from its Greenland desires. As to US futures markets, at this hour (6:45) they are slightly firmer, +0.1%, so not yet, at least, indicating the end of the American investment thesis.

As to the rest of the bond market, away from Japan, yields are basically -1bp lower across Treasuries and European sovereigns as investors await Mr Trump’s comments. Again, the mooted collapse in the US bond market has yet to appear. However, there is a popular meme about the Danish pension fund, Akademikerpension, which has announced that it will sell all its US Treasuries by the end of the month, a total of $100 million, due to its perception of increased credit risk. This has been fodder, though, for those who continue to believe that Europe is going to ditch their Treasuries, and many are calling it a signal. While certainly a trendy decision, I see it as noise, not signal.

Turning to commodities, one cannot be but impressed with gold’s consistency of late. It has risen another 2.1% this morning and is now nearing $4900/oz. I guess $5000/oz is right around the corner. Looking at the long-term chart below, we have seen a monster rally for the past two years.

Source: tradingeconomics.com

FWIW, which may not be much, I continue to see this as a commentary on all fiat currencies, not the dollar per se as evidenced by the table I created from data on goldbroker.com. While you can see that the dollar has definitely underperformed during the past year (which we already knew given the early year 10% decline vs. the euro and pound, over time, it is hard to make the case that other currencies are any better. In fact, I find it particularly surprising that the rand has performed so poorly given its seeming benefits when gold rallies. And of course, it is no surprise that the yen which has been having a really tough time, is the worst of the lot.

	Historical Returns of Gold
Currency	1 Month	1Year	5 Year	10 Year
EUR	9.54%	54.22%	164.28%	300.85%
JPY	10.02%	76.45%	288.91%	481.02%
USD	9.62%	73.45%	154.49%	331.44%
GBP	9.13%	59.31%	160.26%	357.37%
MXN	7.04%	47.93%	127.14%	305.03%
ZAR	7.35%	53.89%	179.88%	327.69%

As to the other metals, silver (0.0%) seems to be getting tired after its move and has done little over the past several sessions. Platinum (+1.0%) seems to still have life as does copper (+0.75%). Turning to energy markets, oil (+0.3%) is trying to figure out whether the geopolitics is going to blow up or fade away and remains right around $60/bbl. But given the temperature here in New Jersey is 1° this morning, we cannot be surprised that NatGas (+21.5%) has exploded (no pun intended) higher.

Finally, the dollar is a touch softer this morning, but not very much. The euro is unchanged, and the pound, after some lousy inflation data, has fallen -0.2%. But JPY (+0.2%) is offsetting that, arguably responding to FinMin Katayama’s comments, although elsewhere, KRW (+1.1%) rebounded after comments from President Lee Jae Myung sought to sooth investors and explain that the government would continue to work to boost economic growth with new policies. But once again, my recent favorite chart of the DXY shows that this is not a USD story.

Source: tradingeconomics.com

On the data front, aside from the President’s speech today, nothing but tomorrow brings the real data.

Thursday	Q3 GDP	4.3%
	Q3 Price Index	3.7%
	Initial Claims	212K
	Continuing Claims	1880K
	Personal Spending (Nov)	0.5%
	Personal Income (Nov)	0.4%
	PCE (Nov)	0.2% (2.8% Y/Y)
	Core PCE (Nov)	0.2% (2.8% Y/Y)
Friday	Flash PMI Manufacturing	52.1
	Flash PMI Services	52.8
	Michigan Sentiment	54.0

Source: tradingeconomics.com

Don’t forget that next week the FOMC meets, but on the Fed story, today Governor Cook’s case about dismissal will be heard at the Supreme Court, which is, potentially, a much bigger deal. If the Fed is not protected from Presidential authority, that will certainly change many views on the future, and likely initially, see the dollar and bond markets decline while stocks rally. But that decision won’t come for months, and remember, we are still awaiting the tariff decision.

There is much we don’t know and volatility remains the most likely outcome. Be careful out there.

Good luck

Adf

Most Enthralling

Posted on January 20, 2026 by fxpoet

Some fractures are starting to show
In markets, as Trump’s blow by blow
Attack on the Danes
And friends, really strains
The view ‘Twenty-Six will lack woe

So, equities worldwide are falling
While bond yields, much higher, are crawling
The buck’s in a rut
While oil’s a glut
Thus, gold is the thing, most enthralling

“Something is rotten in the state of Denmark.” So said Marcellus, when Shakespeare introduced him to the world in 1603(ish) in one of his most brilliant works, Hamlet, and it seems true today, 423 years later. By now, you are likely aware that President Trump has imposed 10% tariffs, to begin on February 1^st, on Denmark, Norway, Sweden, France, Germany, Finland, the Netherlands and the UK as he presses his case for US ownership of Greenland. This is not the venue to discuss the relative merits or pitfalls of the strategy, so I won’t bore you with my views on the subject.

Rather, this is a venue to discuss the market impacts and how they may evolve, in one poet’s eyes, going forward given the new starting condition. As I type this morning, investors around the world are extremely unhappy, at least holding paper claims on either assets or governments. However, holding real assets, notably gold (+1.15% and at new all-time highs), silver (+0.9% and at new all-time highs) and platinum (+1.45%, not quite at new highs yet) are feeling much better.

It is interesting to me that the WEF is meeting this week, and likely no coincidence that President Trump escalated things ahead of the meeting where he is scheduled to speak tomorrow. It seems that the protagonists in this latest drama are set to meet while in Davos as well, so all these views are subject to change at a moment’s notice. But for now, since there really is no other story that matters, let’s look at how markets have (mis)behaved since we last saw them here in the US on Friday.

As you can see from the chart below combining the Nikkei 225, the DAX and the S&P 500 futures, the move has been consistent since the close in NY on Friday, with all three main indices lower by between -1.75% (Japan) and -3.1% (Germany), with the US (-2.1%) in the middle.

Source: tradingeconomics.com

In fact, that price action has been widespread across the rest of the G10 markets and many EMG markets as well. Only China (-0.2% since Friday) has bucked the trend and remains little changed. Of course, that makes sense given this spat has nothing to do with China, on the surface. At this point, I expect that all equity markets are going to remain under pressure until there is some resolution. While Europe has threatened to invoke its Anti-Coercion Instrument on the US if those tariffs come into being, one must wonder will that do more damage to the US or Europe? FWIW, I expect some type of resolution to be achieved before the Feb 1 deadline but could easily be wrong about that. One last thing about tariffs; remember last week when expectations were high that the Supreme Court was going to rule on the legality of the ones already imposed? That has suddenly gone very quiet. My take there is the longer we don’t hear anything, the more likely they are not going to stop them.

Perhaps, though, the bond market is the more interesting place to look this morning with government bonds around the world getting sold aggressively. While all eyes have been focused on the US (+6bps and well above the top of the previous range) and Europe (Germany +5bps, UK +7bps, France +6bps) perhaps the real activity is happening in Japan (+9bps). In fact, Japanese 30yr yields have exploded higher by 40 basis points since Friday’s close, and I’m confident that has nothing to do with Greenland!

Source: tradingeconomics.com

In fact, it appears that JGB holders are getting increasingly concerned that PM Takaichi is going to really run it hot, with more unfunded fiscal stimulus and are responding accordingly. The latest Takaichi proposal for the upcoming election is that they are going to remove the GST (VAT tax) on food for 2 years to help alleviate inflation problems. I certainly like that better than capping prices, but fiscally, it’s a tough road to follow.

One other bond market story that is making the rounds is the idea that Europeans would attack the US by simultaneously unloading their US Treasury holdings. We have heard this story before with respect to China, and if you look across all of Europe, between central banks and private investors, there are likely upwards of $2 trillion held there. But the question I ask every time I hear something of this nature is…what will they do with the proceeds if they were somehow able to coordinate the sales? First, in the worst case, the Fed would buy them to prevent the market from collapsing. And second, now they would have a whole lot of dollars that need to be invested elsewhere. Which markets can absorb that amount of flow? US equities? Sure, but would that achieve their goals? I think not. If they converted them into euros, a one-way flow of $2 trillion into euros in short order would pretty much render all European manufacturing uncompetitive right away as the euro rose to 1.50 or 1.60 or higher. Gold? Think $10k/oz or higher. Ain’t gonna happen.

Let’s hit the dollar next, which is under pressure across the board. As I type (7:20), the DXY has fallen -1.0% this morning, a very large move for that index, but remains within the trading range that we have seen since October.

Source: tradingeconomics.com

The sell-off in the dollar is almost universal, although interestingly, ZAR (-0.5%), MXN (-0.3%) and CLP (-0.3%) are all bucking that trend. I understand the nervousness, but it strikes me that none of this conversation is a positive for Europe, excepting the idea they sell all their Treasuries and convert the dollars into euros and pounds, an idea I tried to squash above.

Finally, let’s look at commodities where the metals, as discussed above are soaring while oil (+0.8%) is picking back up off its end of week lows and currently sits just below $60/bbl. The Iran situation remains murky, at best, and my sense is we have not heard the last of the situation there, although from what I have seen on X, the rioting has been quelled to some extent. However, I think there is still enormous pressure on the government there and would not be surprised to see some type of US intrusion.

But I’m confident the one thing almost all of you are feeling this morning is the bitter cold that has enveloped most of the US as per the weather.com map below.

Given natural gas is the most common fuel for heating homes, we cannot be surprised that its price has skyrocketed today, jumping 24% in the session so far, although it is now simply back to where it was this time last year. however, a key issue in this market is Europe, which since they virtually shut off Russian gas, is now highly reliant on US LNG to heat their homes. It turns out that their storage has fallen to slightly less than 50% of capacity, well below their average storage level for this date of 60% – 65%. European TTF gas, on a like for like basis, currently costs ~$12.25/MMBtu compared to $3.85/MMBtu in the US, even after the massive jump. Again, Europe has some issues going forward.

On the data front, there is really nothing today or tomorrow of note although Thursday brings GDP amongst other things. I will review them tomorrow because, after all, markets right now are far more beholden to President Trump and Europe than to data.

Fear is growing more widespread and will likely continue to do so until there is some type of resolution over Greenland. But then, it will dissipate quickly as consider, two weeks ago we were all Venezuela experts and today, nobody even cares about that nation anymore!

As to the dollar, I expect that when the resolution arrives, the dollar will make up lost ground, but given we are in the midst of a White House bingo game, one needs to play things close to the vest. Hedges are crucial here.

Good luck

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Too Potent a Force

Posted on January 9, 2026 by fxpoet

The headline today’s NFP
As pundits will try to agree
On whether the Fed
When looking ahead
Will like what it is that they see

But, too, the Supreme Court is due
To rule whether tariffs imbue
Too potent a force
For Trump, to endorse
Or whether they’ll let them go through

As the session begins in NY, markets have been relatively quiet as traders and algorithms await the NFP data this morning. Recall, Wednesday’s ADP number was a touch softer than forecast, but still, at 41K, back to a positive reading. Forecasts this morning are as follows:

Nonfarm Payrolls	60K
Private Payrolls	64K
Manufacturing Payrolls	-5K
Unemployment Rate	4.5%
Average Hourly Earnings	0.3% (3.6% y/Y)
Average Weekly Hours	34.3
Participation Rate	62.6%
Housing Starts	1.33M
Building Permits	1.35M
Michigan Sentiment	53.5

Source: trading economics.com

Regarding this data point, there are two things to remember. First, last month Chairman Powell explained that he and the Fed were coming to the belief that the official data was overstating reality by upwards of 60K jobs due to concerns over the birth/death portion of the model. That is the factor the BLS includes to estimate the number of new businesses started vs. old ones closed in any given month. Historically, at economic inflection points, it tends to overstate things when the economy is starting to slow and understate when it is turning up.

The second thing is that given the changes in the population from the administration’s immigration policy, with net immigration having fallen to zero recently, the number of new jobs required to maintain solid economic growth is much lower than what we have all become used to, which in the past was seen as 150K – 200K. So, 60K, or even 40K, may be plenty of new jobs to absorb the growth in the labor market, which will come from people re-entering the market who had previously quit looking for a job.

The ancillary data, like ADP and the employment pieces of ISM were both stronger in December than November, so my take is, the estimates are probably reasonable. I have no strong insight into why it would be dramatically different at this point. The question is, how will markets respond? My take is this could well be a ‘good news is bad’ situation where a strong print will see pressure on bonds and stocks as the market reduces its probability of a Fed rate cut (currently 14% for January, 45% for March) even further. The dollar would benefit, as would oil on the demand story, but I think metals will do little as that story is not growth oriented. A weak number would see the opposite.

Of course, the other big potential news today is the Supreme Court ruling on the legality of Trump’s tariffs. The odds markets are at ~70% they will overturn them, but there is the question of whether it will require the government to repay the tariffs or simply stop them. As well, most of them will be able to be reimposed via different current laws, so net, while a blow to the administration I don’t believe it will have a major long-term impact with repayment the biggest concern. This particular issue is far too esoteric for a simple poet to prognosticate.

And those are the market stories of note, although we cannot ignore the growing protests in Iran as videos show buildings burning in Tehran and there is word that the Mullahs are at the airport, which if true tells me that the regime is on the edge. While this would be a great victory for the people of Iran, it would also have a dramatic impact on oil markets and specifically on China. While sanctions could well be lifted, thus depressing the price as more comes to market, China currently benefits from buying sanctioned oil at a massive discount, and that discount would disappear.

As we await all the news, let’s review the overnight activity. A mixed US session was followed by strength in Tokyo (+1.6%) as the Japanese government surprised one and all by reporting a stronger 30-year JGB auction than anticipated as well as an uptick in spending by households. Too, nominal GDP growth has been outpacing deficit growth driving the net debt ratio lower, exactly what the US is seeking to do. As to the rest of the region, both China (+0.45%) and HK (+0.3%) managed gains, as did Korea and Malaysia but India (-0.7%) continues to lag as it has all year. Data from China showed inflation fell less than expected, although the Y/Y number remains at just 0.8%.

In Europe, gains are also the norm with France (+0.9%) leading the way with both the UK (+0.55%) and Germany (+0.4%) having solid sessions. Retail Sales data from the Eurozone was firmer than expected at 2.3%, a rare positive outcome, but showing some support. As to the US futures market, at this hour (7:30) all three major indices are higher by about 0.15%.

In the bond market, while yields have edged higher by 2bps this morning, as you can see from the chart below, they remain within, albeit at the top, of the recent 4.0% – 4.2% trading range.

Source: tradingeconomics.com

The most interesting data point from yesterday was the dramatic decline in the Trade deficit, which fell to -$29B, its lowest level since 2009. Recall that a long-time issue has been the twin deficits, with the budget and trade deficits linked closely. I wonder, are we going to see Trump’s efforts at reducing government’s size and reach result in a smaller budget deficit? Most pundits dismiss this idea, but I’m not so sure. As to the rest of the world, European sovereigns are essentially unchanged this morning as investors everywhere await the US data and tariff ruling.

In the commodity markets, oil (+0.9%) is creeping higher but remains in its downward trend.

Source: tradingeconomics.com

Wednesday, we saw a large draw in crude inventories abut a massive build in both gasoline and distillates which feels mildly bearish. The narrative is the Iran story is getting people nervous for potential short-term disruption, but I remain overall bearish for now. As to the metals markets, gold (-0.3%) is slipping after having recovered early morning losses yesterday and finishing higher, while silver (+0.6%) is still bouncing along with copper (+1.8%) and platinum (+0.4%). Metals are in demand and supply is short. Price here have further to rise I believe.

Finally, the dollar continues to rebound off its recent lows with the DXY back to 99 again this morning. it has rallied in 11 of the past 13 sessions, not typical price action for a trading vehicle that is in decline.

Source: tradingeconomics.com

In fact, the greenback is firmer against virtually all its G10 and EMG counterparts this morning with the largest declines seen in JPY (-0.5%), KRW (-0.5%) and NZD (-0.5%) with others typically sliding between -0.1% and -0.3%. again, it is hard to watch recent price action and see impending weakness. We will need to see much weaker US data to change my view. And along those lines, the Atlanta Fed’s GDPNow number just jumped to 5.4% for Q4 after the Trade data yesterday, again, atypical of further weakness in this sector.

And that’s really all as we covered data up top. To me, the wild cards are Iran and the USSC. While I do believe the regime will fall in Iran (they just shut down the internet to try to prevent a further uprising) my take on the Supremes is they may stop further tariffs but will not force repayment. Net, that won’t change much at all and given the prediction markets are pricing a 70% probability of an end to tariffs, if it happens, it’s already in the price!

Good luck and good weekend

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fxpoetry

Explaining the rhyme and rhythm of the FX markets each day

Tag Archives: #trump

A Bad Dream

Impacts of War

To Excess

Far Too Extreme

Not All in Sync

Commodities Blazing

What We’ve Learned

Clearly Explained

Most Enthralling

Too Potent a Force