Category: Banks & Interest Rates

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Bipolar Disorder

Key Points

  • The University of Michigan Consumer Sentiment Index fell to a new record low since the series started in 1960.
  • The Dow Jones Industrial Average broke through resistance at 50,000, confirming a fresh bull market advance.

The University of Michigan Consumer Sentiment Index fell to a new low of 44.8.

University of Michigan: Consumer Sentiment

A plot of the 3-month moving average since 1960, when the Consumer Sentiment series started, shows that consumer sentiment is at a record low.

University of Michigan: Consumer Sentiment

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Bond Market Deja Vu from 2022

Key Points

  • Investors are dumping long-term government bonds, with the yield on 30-year Treasuries rising to 5.13%.
  • Sovereign bonds across the UK, the EU, and Japan are all affected by the sell-off.
  • The S&P 500 and the Dow retreated on Friday by 1.2% and 1.1%, respectively.
  • Gold and silver fell steeply.
  • Copper, Lithium, Critical Materials, and Uranium are also experiencing a sell-off.
  • President Trump hinted at another major strike on Iran, with his Sunday “The Clock is Ticking” post on Truth Social.
  • Brent futures jumped to above $111 per barrel early Monday.

Investors are dumping long-term government bonds. The 30-year Treasury yield broke resistance at 5.0%, rising to 5.13% on Friday before easing slightly to 5.12% early Monday.

30-Year Treasury Yield

High bond yields, above the rate of inflation, increase the risk of a solvency crisis where the borrower can’t meet its interest payments. Issuing new debt to cover interest payments accelerates debt growth, causing debt-to-GDP to spiral out of control.

UK Gilts 30-year yield jumped to 5.85%.

30-Year UK Gilts Yield

The French 30-year climbed to 4.67%.

30-Year UK Gilts Yield

Italian 30-year yields are at 4.75%.

30-Year UK Gilts Yield

France and Italy have higher debt-to-GDP ratios than the UK. The primary reason they enjoy lower yields is that their long-term yields are suppressed. The Bank of England, on the other hand, is shrinking its balance sheet to restore fiscal stability.

The yield on the 30-year German Bund is even lower because of Germany’s strong fiscal position, with much lower debt levels.

30-Year German Bund Yield

The Japanese 30-year yield is shooting upwards. JGB yields should be much higher because of Japan’s precarious debt-to-GDP ratio. However, the Bank of Japan buys government bonds (JGBs) to suppress the yield and avoid a solvency crisis.

Adding to the selloff on Monday was news that Japan’s government will likely issue fresh debt as part of funding for a planned extra budget to cushion the economic blow from the war, worsening already strained government finances. Yields on ​the 30-year Japanese government bond (JGB) jumped more than 10 bps to their highest on record at 4.200% while the 10-year yield touched its highest since October 1996 ​at 2.800%. (Reuters)

The yield on the 30-year JGB has since weakened slightly to 4.10%.

30-Year JGB Yield

The chart below, by Robin Brooks, compares long-term government bond yields (on the left axis) to countries’ debt-to-GDP ratios (on the bottom axis). Yields in Japan (JP), Greece (GR), and Italy (IT) are being suppressed, while yields in Australia (AU), New Zealand (NZ), and the UK (GB) are higher due to more conservative central bank policies.

JGB Yield & Debt-to-GDP Ratio

Why are Long-term Yields Rising?

There are several overlapping reasons why long-term yields are rising:

Increased defense spending expands government deficits and raises debt-to-GDP ratios, increasing the risk of fiscal dominance.

Fiscal dominance is where the central bank prioritizes bond market stability over currency stability, lowering interest rates while tolerating higher inflation, to prevent a solvency crisis in the bond market.

The US-Iran conflict has caused oil shortages, driving crude oil prices higher. High oil prices are fueling a steep rise in inflation, increasing the risk of capital erosion for bond investors.

The US Fed has entered into a $100 billion currency swap agreement with the United Arab Emirates. The facility will help the UAE to survive the loss of oil revenues while the Strait of Hormuz is closed. Further currency swaps with other Gulf States will likely follow. The currency swaps are effectively a medium-term loan from the Fed, but risk becoming a standing facility if the conflict in the Gulf is not quickly resolved. Their primary purpose is to avoid the Gulf States selling reserves to make up for lost oil revenue. The sell-off of hundreds of billions of US Treasuries would flood the market and drive up yields.

The AI boom has driven a massive surge in capital spending by mega-cap technology companies as they vie for market share in a rapidly expanding market. Much of the capital spending is funded through long-term debt issuance, leading to a steep increase in the supply of high-quality long-term debt.

US-Iran Conflict

President Donald Trump on Sunday again threatened Iran:

“For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them,” Trump said in a Truth Social post. “TIME IS OF THE ESSENCE!” (CNBC)

Trump’s post caused a sharp jump in Brent crude futures prices when the market opened on Monday.
Brent Crude Futures (ICE July'26)

Stocks & Financial Markets

The S&P 500 retreated below 7500, falling 1.2% on Friday.

S&P 500

The Dow similarly retreated below 50,000, falling 1.1%. A decline below support at 49,000 would signal a correction.

Dow Jones Industrial Average

Bitcoin1 retreated below support at 80,000, warning of further market risk aversion.

Bitcoin (BTC)

10-year Treasury yields jumped to 4.6%. The breakout above 4.5% offers a short-term target of 4.75%. Rising Trend Index troughs indicate strong upward pressure on long-term yields.

10-Year Treasury Yield

Dollar & Gold

A Dollar shortage is driving up the US Dollar Index as global markets struggle with crude oil shortages and rising prices, a fiscal crisis among Gulf States that have lost their primary source of revenue, and lower US trade deficits.

Dollar Index

The Dollar enjoyed similar strong demand after Russia invaded Ukraine in February 2022, followed by a steep fall in November, when energy markets had stabilized.

Dollar Index

Gold is testing support at 4500. A breach of 4400 would signal a test of 4000, but respect of support remains more likely.

Spot Gold

In 2022, Gold initially shot up after Russia’s 24 February invasion of Ukraine, but then declined for 6 months until energy markets stabilized and the Dollar weakened.

Spot Gold

Silver fell steeply last week and is headed for a test of support at 71.

Spot Silver

Energy

Brent crude continues its uptrend, and another test of resistance at $120 per barrel is likely.

Brent Crude

The Dow Jones Global Oil & Gas Index respected support at 580, headed for a test of resistance at 620. Trend Index troughs above zero signal buying pressure.

Dow Jones Global Oil & Gas Index

Uranium

Uranium is taking a beating, with the Sprott Uranium Miners ETF2 (URNM) breaking secondary support at 64. A breach of support at 58 would signal a primary downtrend.

Sprott Uranium Miners ETF (URNM)

Lithium

All strategic materials are under pressure, even Lithium, which has enjoyed strong demand from booming EV sales. Sprott Lithium Miners ETF2 (LITP) broke its new support level at 16.50. Follow through below 15 would signal a correction.

Sprott Lithium Miners ETF (LITP)

Critical Minerals

Critical materials show similar selling pressure, with Sprott Critical Materials ETF2 (SETM) testing support at 35.50, while a lower Trend Index peak warns of selling pressure.

Sprott Critical Materials ETF (SETM)

Copper

Copper retreated below 14,000 after a strong run-up.

Copper

Sprott Copper Miners ETF2 (COPP) reflects similar selling pressure, breaking initial support at 42, while a lower Trend Index peak signals selling pressure.

Sprott Copper Miners ETF (COPP)

Conclusion

We expect a similar playbook to 2022, after Russia’s full-scale invasion of Ukraine: rising energy prices, followed by rising long-term bond prices, and a stronger Dollar.

S&P 500

The S&P 500 suffered a 26% drawdown in 2022, and stock prices will likely weaken, though partly cushioned by the AI boom. We also expect weakness in Gold, Silver, and strategic materials like Uranium, Lithium, Critical Minerals, and Copper — until energy markets stabilize.

Acknowledgments

Notes

  1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
  2. We analyze exchange-traded funds (ETFs) to determine market sentiment towards a specific sector, industry, or commodity. The analysis is not a recommendation to buy or sell, nor is it a commentary on the merits of the particular ETF.
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S&P 500 Rallies on Job Gains, But Peace Deal Hopes Crash

Key Points

  • President Trump rejects Iran’s peace proposal.
  • Iran continued attacks on its Gulf neighbors.
  • Brent crude July futures jump to $104.50 per barrel.
  • Confidential intelligence sources say that Iran can survive a US blockade for at least 3-4 months.
  • The US labor market added 115,000 jobs in April 2026, while unemployment held steady at 4.3%.
  • The S&P 500 reached a new high, while the Dow Jones Industrial Average threatens a breakout.

DUBAI/WASHINGTON, May 10 (Reuters) – President Donald Trump on Sunday rejected Iran’s response to a US proposal for peace talks, dashing hopes for an imminent end to the 10-week-old conflict….

“I don’t like it — TOTALLY UNACCEPTABLE,” Trump wrote on Truth Social, without giving further detail. Oil prices rose $3 a barrel after the United States and Iran failed to reach agreement.

Iran’s proposal includes a demand for compensation for war damages and an ​emphasis on Iranian sovereignty over the strait, state media said. It also calls on the US to end its naval blockade, guarantee no further attacks, lift sanctions and end a US ban on Iranian oil ​sales, the semi-official Tasnim news agency said.

Brent Crude July’26 (Nymex) futures jumped to $104.50 per barrel while December’26 futures (orange) rallied to $89.25 per barrel. December prices reflect the oil market’s longer-term assessment of crude shortages. Damage to existing production and shipping facilities will take time to repair, even if the Strait of Hormuz is reopened.

Brent Crude Nymex Futures (July'26 & Dec'26)

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Trump Talks “Peace Deal” But Nothing Stops This Train

Key Points

  • President Trump again baits financial markets with the prospect of a peace agreement.
  • Brent Crude (July’26 futures) is testing support at $100 per barrel.
  • However, the crude market faces critical shortages even if a peace deal is signed.
  • The S&P 500 rallied to a new high at 7365, while the Dow threatens a breakout above 50,000.
  • The ISM Services PMI warns that growth is slowing, while soaring prices signal inflationary pressures.
  • Lithium is in a strong uptrend, while Copper, Critical Materials, and Uranium show signs of a recovery.
  • The RBA hiked rates this week and would like to hold for a while, but rising prices may force further hikes.

ISLAMABAD/WASHINGTON/TEL AVIV, May 7 (Reuters) – U.S. President Donald Trump predicted a swift end to the ​war with Iran as Tehran considered a U.S. peace proposal that sources said would formally end the conflict while leaving unresolved key U.S. demands that Iran suspend ‌its nuclear program and reopen the Strait of Hormuz.

An Iranian foreign ministry spokesperson cited by Iran’s ISNA news agency said Tehran would convey its response, while Iranian lawmaker Ebrahim Rezaei, a spokesperson for parliament’s powerful foreign policy and national security committee, described the proposal as “more of an American wish-list than a reality.”

“They want to make a deal. We’ve had very good talks over the last 24 hours, and it’s very possible that we’ll make ​a deal,” Trump told reporters in the Oval Office on Wednesday, saying later “it’ll be over quickly.”

Trump has repeatedly played up the prospect of an agreement to end the war ​that started on February 28, so far without success. The two sides remain at odds over a variety of difficult issues, such as Iran’s nuclear ⁠ambitions and its control of the Strait of Hormuz, which before the war handled one-fifth of the world’s oil and gas supply.

A Pakistani source and another source briefed on the mediation ​said an agreement was close on a one-page memorandum that would formally end the conflict. That would kick off discussions to unblock shipping through the strait, lift U.S. sanctions on Iran and set ​curbs on Iran’s nuclear program, the sources said.

A separate senior Pakistani official involved in the talks told Reuters on Thursday that negotiators were hopeful of reaching a deal but noted gaps between the sides remained.

Brent Crude (July futures), buoyed by optimism over a prospective peace deal, is retracing to test support at $100 per barrel.

Brent Crude Futures (ICE July'26)

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S&P 500 Uptrend Against Gold

Key Points

  • The S&P 500 index made a new high at 7230, reversing its long-term downtrend against Gold.
  • However, the Dow is struggling to break resistance at 50,000.
  • The ISM Manufacturing PMI indicates the sector is expanding, but producer prices are soaring.
  • Lithium is in a strong uptrend, while Copper remains rangebound.
  • Japanese intervention to support the Yen underlines the long-term reason for buying Gold.
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Crude Up, Gold Down

Key Points

  • President Trump rejects Iran’s proposal to reopen the Strait and discusses an extended US naval blockade.
  • Brent crude futures (June’26) jump to more than $120 per barrel.
  • The Fed kept interest rates on hold in Jerome Powell’s last FOMC meeting as Fed Chair.
  • Powell says he will stay on as governor for “an undetermined period of time.”

During a Tuesday meeting with oil executives, President Trump rejected Iran’s proposal to reopen the Strait and discussed extending the US naval blockade. (GroundNews)

WASHINGTON, April 29 (Reuters) – U.S. President Donald Trump met with top officials from Chevron (CVX.N) and other energy companies on Tuesday to talk about possible steps to calm oil markets if the blockade of Iranian ports continues for months, a White House official said on Wednesday.

The talks focused on U.S. oil production, oil futures, ​shipping and natural gas, the official said.

“They discussed the steps President Trump has taken to alleviate global oil markets ​and steps we could take to continue the current blockade for months if needed and minimize ⁠impact on American consumers,” the White House official said.

Talk of an extended blockade and a sharp fall in US inventories drove June’26 Brent crude futures to above $120 per barrel.

Brent Crude Futures (ICE June'26)

The EIA report for the week ended April 26 showed an accelerating decline in crude inventories, including the Strategic Petroleum Reserve (SPR).

EIA Crude Inventory (incl. SPR)

The inventory chart above includes the SPR, shown separately below.

EIA Crude Inventory (incl. SPR)

No Change at the Fed

The Fed left its target range for the funds rate unchanged at 3.5%-3.75% for the third consecutive meeting. There were four dissenting votes on the FOMC, with three opposing language that signaled possible future rate cuts, while Trump appointee Stephen Miran called for an immediate reduction. (AP/EuroNews)

Jerome Powell’s term as Chair ends on May 15, with his nominated successor, Kevin Warsh, likely to be sworn in before the next meeting, following approval by the Senate Banking Committee.

Powell indicated that he intends to remain on the Federal Reserve’s governing board for “an undetermined period of time”, citing concerns about what he described as “unprecedented” legal attacks by the Trump administration on the central bank.

Mr Powell said he would wait for the conclusion of an investigation into the Fed’s building renovations before stepping down fully.

“I’m waiting for the investigation to be well and truly over, with finality and transparency,” he said. “I will leave when I think it appropriate to do so.” His term as governor expires in January 2028.

Powell’s decision to stay on forces the resignation of Stephen Miran, a temporary Trump appointee, to make way for the appointment of Warsh as governor. The move denies President Trump the opportunity to nominate a replacement, which would give him greater influence over Fed monetary policy.

Long-term Treasury yields are rising in response to higher oil prices and the improved prospect of an independent Fed. 10-Year yields are expected to test resistance at 4.5%.

10-Year Treasury Yield

We expect the S&P 500 to retrace to test new support at 7000 as a looming global oil shortage overshadows robust quarterly earnings.

S&P 500

The Dow Jones Industrial Average retreated below short-term support at 49K, suggesting another correction.

Dow Jones Industrial Average

Gold found support at $4,500 per ounce, but the rally may be short-lived if oil prices keep rising.

Spot Gold

Conclusion

An early reopening of the Strait of Hormuz is unlikely. We expect a prolonged closure, with shortages driving crude oil prices to between $140 and $150 per barrel by the end of May.

Higher crude prices increase upward pressure on long-term Treasury yields, which would be bearish for stocks.

We also expect Gold to test support at $4,000 per ounce as Gulf states and major oil importers draw on their reserves.

Acknowledgments

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Rising Crude is Bearish for Gold

Key Points

  • Brent crude futures (June’26) rose to $103.68 per barrel.
  • The S&P 500 reached a new high. However, the bull signal has not been confirmed by the Dow and the S&P 1500 Transportation Index.
  • The Fed has injected $170 billion of liquidity into financial markets since December 2025.
  • 10-year Treasury yields found support at 4.25%, while gold is headed for another test of support at $4,500 per ounce.

Brent crude futures (June’26) broke resistance at $100 per barrel and are now testing $104.

Brent Crude Futures (ICE June'26)
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Jobs Rise but Prices Soar, Growth Slows and Liquidity Tightens

Key Points

  • Non-farm employment jumped by 178,000 in March, well above the expected 60,000.
  • The unemployment rate declined to 4.3%.
  • Growth in aggregate hours worked, however, slowed to 0.4% over the past year.
  • The ISM Manufacturing Prices index jumped to 78.3%, warning of a price shock.
  • Aluminium prices soared to nearly $3,600/tonne due to supply shortages caused by the war in the Persian Gulf.
  • Brent crude closed the week at $109 per barrel, with no end to the Iran war in sight.

The BLS reported a 178,000 increase in non-farm payroll in March, well above the 60,000 forecast. Employment growth has been erratic, averaging less than 15,000 over the past 6 months.

Employment Growth

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Crude Oil Spikes But Gold Falls

Key Points

  • Iranian missiles damaged Qatar’s Ras Laffan Industrial City, the world’s largest LNG export facility.
  • Brent crude futures spiked to $115 per barrel.
  • The Fed kept the fed funds target rate unchanged at 3.50%-3.75%.
  • Gold is testing support at $4,800 per barrel.

From CNBC:

Qatar said Wednesday that Iranian missiles caused “extensive damage” at Ras Laffan Industrial City, home to the largest liquefied natural gas, or LNG, export facility in the world….

Qatar halted LNG production on March 2 due to Iranian drone strikes at Ras Laffan and Mesaieed Industrial City. The Gulf state is the second-largest LNG exporter in the world, after the US Qatar accounts for nearly 20% of global LNG exports, according to data from energy consulting firm Kpler.

Iran is also attacking oil export facilities outside the Persian Gulf to further restrict global energy supply. From Reuters yesterday:

Omani ​crude – exported from a terminal outside the Strait of Hormuz – is trading at a record premium of $51 a barrel to Brent, compared with an average of just 75 cents in February, pushing the outright price to around $150 a barrel for May ​loading.

A similar pattern is playing out elsewhere. Cash premiums for Dubai crude jumped to $56 a barrel on Monday from an average of 90 cents in February, according to data from S&P Global Platts and Reuters.

The surge reflects the enormous uncertainty over the actual amount of supply available amid repeated Iranian strikes on oil terminals in Oman and at Fujairah, the United Arab Emirates’ main oil-exporting terminal outside Hormuz.

Brent crude futures (ICE May’26) climbed to $115 per barrel.

Brent Crude Futures

Fed Monetary Policy

Meet the new head of monetary policy at the Fed.

Iran's Supreme Leader: Mojtaba Khamenei

Spoiler alert: it’s not Kevin Warsh. Iranian cleric, Mojtaba Khamenei, recently appointed supreme leader of the Islamic state, now dictates global monetary policy.

Iran’s chokehold over Gulf states crude oil and LNG production will dominate global employment, inflation, and liquidity for the foreseeable future.

The Fed was on track for further rate cuts, with financial markets expecting three cuts by year-end as the economy slowed and the labor market shed 92,000 jobs in February.

Employment Growth

However, the attack on Iran has flipped the script. Rising crude oil prices are expected to increase inflationary pressure and restrict the Fed’s ability to cut rates.

Core PCE inflation, the Fed’s preferred measure of underlying inflation, had already increased to 3.1% for the 12 months to January 2026, from 2.6% in April 2025.

PCE & Core PCE

Rising energy prices (LHS) will likely cause a spike in CPI (RHS) similar to the increase in 2021 and ’22.

CPI & CPI Energy

Moody’s Baa corporate bond spread climbed to 1.85% on March 17, warning of tighter liquidity in financial markets.

Moody's Baa Corporate Bond Spread

The S&P 500 retreated to 6,625 following news of renewed Iranian attacks. We expect a test of primary support at 6550.

S&P 500

Copper broke support at $12,500 per tonne, anticipating a contraction in demand as the global economy slows.

Copper

Gold broke support at $5,000 per ounce, finding short-term support at $4,800. Axel Merk attributes the recent sell-off to “deleveraging among speculators, global growth headwinds, and an oversold condition in some markets after a very strong January run-up.”

Spot Gold

However, there was a similar sell-off in March 2020 (below), shortly after the outbreak of the COVID-19 pandemic. A liquidity contraction and the rebalancing of risk-parity funds caused a sell-off across all major asset classes, including stocks, bonds, and precious metals. Gold recovered in April, rallying to $2,050 per ounce by August 2020.

Spot Gold

Gulf states could also be liquidating reserves to support their economies while oil exports are restricted.

The monthly chart below shows the long-term uptrend since March 2024, when gold broke out above resistance at $2,000. We are now witnessing a pull-back to test primary support at $4,500. Respect of support will likely signal another strong advance.

Spot Gold

Conclusion

The Fed is powerless to fight inflation caused by the Iranian chokehold over global energy supplies. They are also constrained in their ability to use monetary policy to support a weak labor market because of the looming threat of inflation.

Our bullish thesis for gold remains. Precarious sovereign debt levels limit governments’ ability to support their economies without fueling inflation. Political leaders are also reluctant to adopt more restrictive fiscal policy because of the impact on their economies. The outcome will likely be prolonged currency debasement through inflation, with gold bullion eventually replacing US Treasuries as the global reserve asset.

Acknowledgments

Posted on

Supreme Court Setback for Trump

Key Points

  • In a 6-3 decision, the Supreme Court ruled that the International Emergency Economic Powers Act of 1977 doesn’t authorize President Donald Trump to impose tariffs.
  • The Yale Budget Lab estimated that households’ average cost burden would fall by about half in 2026, to between $600 and $800, if the Supreme Court ruled against the tariffs.
  • However, Trump administration officials previously said they would use different legal pathways to achieve an outcome similar to the IEEPA tariffs.
  • President Trump signed a proclamation Friday night that will impose a 10% duty on most imports for up to 150 days, as permitted under Section 122 of the Trade Act of 1974.
  • Businesses may be able to claim refunds for IEEPA tariffs paid, but are unlikely to pass these on to consumers.

Last year, President Trump used the International Emergency Economic Powers Act of 1977 (IEEPA) to impose tariffs on US trading partners.

He declared a national emergency, saying an influx of illegal drugs from Canada, Mexico, and China had created a public health crisis, and that large and persistent trade deficits had undermined US manufacturing. His administration used IEEPA to levy tariffs on imports to manage the perceived crises: a 10% baseline tariff on all US trading partners and higher duties on Canada, Mexico, and China.

Chief Justice John Roberts

Chief Justice John Roberts

In a 6-3 decision, the Supreme Court ruled on Friday that the IEEPA doesn’t authorize the president to impose tariffs.

“The Government reads IEEPA to give the President power to unilaterally impose unbounded tariffs and change them at will,” according to the court.

“That view would represent a transformative expansion of the President’s authority over tariff policy,” their opinion argued. “It is also telling that in IEEPA’s half-century of existence, no President has invoked the statute to impose any tariffs, let alone tariffs of this magnitude and scope.”

The Yale Budget Lab estimated that households’ average cost burden would fall by about half in 2026, to between $600 and $800, if the IEEPA tariffs were overturned.

Before the ruling, Trump administration officials had said they would use different legal pathways, if overruled, to achieve roughly the same outcome as the tariffs. (CNBC)

President Trump signed a proclamation Friday night that will impose 10% tariffs on most imports to the United States, to replace the 10% IEEPA baseline tariff rate overturned by the earlier Supreme Court ruling.

The new tariffs take effect Monday and are levied under Section 122 of the Trade Act of 1974, which allows the president to impose duties of up to 15% for 150 days to address “large and serious” balance-of-payments issues. (CBS News)

Businesses will likely claim refunds for the estimated $175 billion in IEEPA tariffs paid to date, but consumers will not receive any direct benefit. (Reuters)

Treasury Markets

10-year Treasury yields increased on news of the Supreme Court ruling, but remain close to primary support at 4.0%.

10-Year Treasury Yield

Stocks

The S&P 500 rallied on the prospect of reduced tariffs, but will likely reverse on news of Trump’s Friday night proclamation.

S&P 500

Financial Markets

The Chicago Fed National Financial Conditions Index reached -0.568 on February 13, signaling loose monetary conditions.

Chicago Fed National Financial Conditions Index

However, Bitcoin1 (BTC) remains below 70,000, indicating that financial markets are shedding risk assets.

Bitcoin (BTC)

Inflation

The Fed’s favored measure of underlying inflation, the core PCE index, jumped by 0.355% in December 2025, warning of an upsurge in price pressures.

Core PCE Inflation - Monthly

Annual growth in the core PCE inflation index lifted to 3.0%, and the headline PCE index increased to 2.9%.

PCE & Core PCE

The University of Michigan (UOM) survey of consumers reported a median expected price increase of 3.4% over the next year, with the 3-month average declining to 3.9%.

University of Michigan: 1-Year Inflation Expectations

Consumers

Consumer sentiment from the February UOM survey remains near record lows since the survey commenced in 1960.

University of Michigan: Consumer Sentiment

Participants’ assessment of current economic conditions is also near the lowest ebb in more than 60 years.

University of Michigan: Current Economic Conditions

Economy

Real GDP growth slowed to 0.35% in the fourth quarter, or 1.4% annualized, according to the US Bureau of Economic Analysis. Aggregate weekly hours worked grew at a slower 1.0% over the 12 months to January 2026, suggesting that GDP growth will likely slow further.

Real GDP & Growth in Total Hours Worked

Dollar & Gold

The US Dollar Index met resistance at 98 after news of the Supreme Court ruling, and we expect the downtrend to continue.

Dollar Index

Gold rallied to above $5,100 per ounce, signaling another test of resistance at $5,500.

Spot Gold

Conclusion

The Supreme Court ruling against President Trump’s tariffs checks his expansive use of emergency powers in pursuit of his economic agenda. The ruling also increases the economic uncertainty that has bedeviled Trump’s economic policy, making it difficult for corporations to make long-term investment decisions.

Declining real GDP growth in the fourth quarter highlights that the US economy is heavily reliant on massive capital investment in AI data centers to keep the country out of a recession, while the broader economy shudders from one mishap to the next.

Consumer sentiment and perceptions of current economic conditions are near sixty-year lows, again reflecting the narrow economic recovery, which has failed to benefit most Americans despite low unemployment. Republicans are going to find it difficult to hold a majority in Congress after the November midterm elections, delivering a further setback to Trump’s economic agenda.

The Supreme Court decision, led by conservative Chief Justice John Roberts, is a sign that conservatives will increasingly resist Trump’s disregard for the checks and balances built into the Constitution. We have likely passed “peak Trump” on the economic front, though he will likely try to stay in the spotlight with his geopolitical agenda.

We maintain our overweight position in gold and defensive stocks with stable cash flows, while avoiding high-multiple technology stocks and long-term financial instruments.

Acknowledgments

Notes

  1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
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