Tag: Brent crude

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Trump Backs Off as SPR Reaches 40-Year Low

Key Points

  • President Trump says the US is backing away from a renewed military offensive and will rely on the blockade of Iran.
  • Iran says the Strait of Hormuz will remain closed.
  • Brent Crude rose to $87.70 per barrel.
  • US Strategic Petroleum Reserves fell below 300 million barrels for the first time in more than forty years.

US President Donald Trump has signaled he’s prepared to let economic pressure take its toll on Iran rather than launching further military strikes, as Tehran insists the Strait of Hormuz will only reopen if Washington agrees to several conditions.

Trump, who last week projected confidence in an imminent deal between Washington and Tehran, told Axios on Sunday that he is prepared to wait for economic distress to mount in Iran, backing away from a renewed military offensive.

“We are low-keying it,” Trump said, “We are only semi-negotiating with them. We are just watching Iran with its huge inflation and the fact they have no money.”

Brent Crude is sneaking up again, with October futures above $87 per barrel. A recovery above $90 would signal another test of $100 per barrel.

Brent Crude Futures (ICE October'26)

NEW DELHI, Aug 11 (Reuters) – Shipping traffic through the Strait of Hormuz fell to six on Monday, compared ​with a 10-day average of about 11 vessels, ‌shipping data showed, amid fading hopes of a peace deal between the US and Iran.

Four commodity vessels, including two empty ​oil product tankers, entered the waterway, according to Kpler data as of 0420 ⁠GMT on Tuesday. Two vessels — a small tanker laden with ​liquefied petroleum gas and another carrying residual fuels — exited ​the Strait, the data showed.

In pre-war days, about 130 to 140 ships typically transited the strait.

It is unclear how long the Trump administration will manage to keep a lid on crude oil prices.

Kieran Tompkins, senior climate and commodities economist at Capital Economics, said the relatively “low” level of oil prices reflects that investors have continued to factor in two opposing scenarios — a quick and imminent resumption in energy flows, and a prolonged Hormuz closure….

“If the strait remains closed and oil inventories in OECD countries continue to be depleted quickly, the oil market could reach a tipping point around the start of Q4. This would be consistent with much higher prices, possibly in the region of $120-140 per barrel based on historical form.”

….China “singlehandedly balanced the market in May with its cut-back in [oil] imports,” Amrita Sen, founder and director of research at consultancy Energy Aspects, told CNBC’s “Morning Call” on Friday. However, with Chinese crude imports recovering in July and set to rise further in August, Sen warned that “crude can’t stay down forever.” (CNBC)

Strategic petroleum reserves in the US are falling, with the SPR below 300 million barrels for the first time in more than forty years.

EIA Strategic Petroleum reserve (SPR)

Crude oil stockpiles in the U.S. Strategic Petroleum Reserve have fallen below 300 million barrels, the lowest level in more than four decades, as global inventories stay under pressure due to the Iran war.

The SPR fell by 6.1 million barrels to 298.7 million barrels last week, according to data released by the Department of Energy on Monday. The reserve, created in 1975, is at its lowest level since January 1983.

President Donald Trump ordered the release of 172 million barrels in March after Iran choked off oil exports through the Strait of Hormuz, triggering the largest disruption of crude oil supplies in history.

The drawdown in the SPR, whose authorized storage capacity is 714 million barrels, has raised questions about whether U.S. government stockpiles are on the verge of depletion. The minimum amount of oil needed to safely operate the SPR is about 70 million barrels, an Energy Department spokesperson told CNBC in July.

There is enough oil left in the SPR to do another release if needed, said David Goldwyn, who served as a State Department special envoy for international energy affairs under President Barack Obama.

“I’m not worried about the stability of the reserve or our ability to do another drawdown, if we needed to,” Goldwyn told CNBC.

The SPR may have capacity for one more draw, but no more.

The SPR’s operational capability is at risk due to aging infrastructure, according to a May report from the Government Accountability Office. More than a quarter of its inventory was “not available for drawdown due to a combination of construction outages and cavern outages” as of December 2025, GAO investigators found. (CNBC)

Conclusion

President Trump is backing away from forcing through a peace deal before the November midterms. Iran will likely endeavor to make the interim as uncomfortable as possible for the US, closing the Strait and attacking US allies and bases in the Middle East. We expect Iran to go after the UAE’s Fujairah pipeline, which bypasses the Strait of Hormuz. An attack that closes the pipeline would remove another 5 to 6 million barrels per day of crude oil from global supply.

UAE Fujairah Pipeline

US Strategic Petroleum Reserves will likely last until November, but low levels are bound to raise prices as refiners attempt to lock in supplies ahead of production runs.

Acknowledgments

Posted on

War, Inflation & Gold to the Moon

Key Points

  • The war in the Persian Gulf is hotting up, with both sides trading missile strikes and threatening to blockade shipping.
  • Brent Crude rose to $85.40 per barrel.
  • Crude and finished product inventories are declining, increasing upward pressure on gasoline and diesel prices.
  • Interest rates are rising in expectation of higher inflation.
  • The Dollar is rising in expectation of higher rates.
  • Gold and commodities face increased selling pressure as the Dollar strengthens.

DUBAI/WASHINGTON/CAIRO, July 13 (Reuters) – The U.S. military carried out a third consecutive night of strikes against Iran on Monday and two tankers came under ​fire in the Strait of Hormuz, after President Donald Trump said the United States was reinstating its blockade of Iranian shipping in the Gulf and would ensure that the strategic waterway stayed open — for a fee.

….Soon after, the United Arab Emirates Ministry of Defense said Iranian cruise missiles struck two Emirati oil tankers, the Mombasa and Al Bahiyah, while transiting the southern lane of the strait in Omani territorial waters, killing one crew member and injuring eight others.

The ​United Kingdom Maritime Trade Operations agency said a tanker had been hit by an unknown projectile while traveling 40 nautical miles northeast of Oman’s Qalhat and that all crew were safe.

“The Hormuz Strait is OPEN, and will remain OPEN, with or ⁠without Iran. We are reinstating THE IRANIAN BLOCKADE,” Trump had said earlier on Monday on Truth Social.
“The U.S.A. will be, from this point forward, known as ‘THE GUARDIAN OF THE HORMUZ STRAIT’, but as such, and as a matter of FAIRNESS, will be reimbursed, ​at the rate of 20% on all cargo shipped.”

….The UN’s shipping agency pushed back against Trump’s proposal, saying it opposes any fees for straits used in international navigation and stressing that there is no legal basis for introducing mandatory tolls on strait transits.

….Iran’s state TV cited the Iranian army as saying that it targeted a “hostile” U.S. vessel with cruise missiles and U.S. facilities and equipment in ​Kuwait with drones. Iranian media also said the Revolutionary Guards shot down a U.S. MQ-1 drone over Hormuz, while sirens sounded early on Tuesday in Bahrain – home to another U.S. military base.

Brent Crude (September futures) jumped to $85.40 per barrel.

Brent Crude Futures (ICE September'26)

The Strategic Petroleum Reserve (SPR) fell to 319.5 million barrels on July 3, a decline of 6 million barrels for the week.

EIA Strategic Petroleum reserve (SPR)

Overall crude stocks, including SPR, declined to 1.517 billion barrels, the lowest level in 23 years.

EIA Crude & Petroleum Products Inventories (incl. SPR)

Stocks of Gasoline (blue) and Diesel (brown) are close to their floor of 200 million barrels and 100 million barrels, respectively.

EIA US Gasoline & Distillate Inventory

Gasoline prices declined to a US average of $3.777 per gallon by July 6.

EIA US Gasoline Prices

Diesel prices also softened to $4.578 per gallon.

EIA US Diesel Prices

However, the 3-2-1 crack spread3 widened to $62.17 per barrel, indicating that refiners are taking advantage of low finished product inventories to widen their margins. However, there is speculation that crude futures prices are being distorted, and refiners are paying more than the quoted price per barrel to secure supplies.

Energy Channel: 3-2-1 Crack Spread

The Dow Jones Industrial Average is tentative, with three red candles over the past five days, and a fall below 52,000 would signal a correction.

Dow Jones Industrial Average

Financial Markets

2-year Treasury yields jumped to 4.29%, more than 50 basis points above the target range for the Fed funds rate. Financial markets are anticipating higher crude prices to increase inflationary pressure, forcing the Fed to raise rates.

2-Year Treasury Yield (CNBC)

The Chicago Fed National Financial Conditions Index continues its downtrend, indicating ample liquidity in financial markets.

Chicago Fed National Financial Conditions Index

However, Bitcoin1 is testing primary support at 60,000, warning that financial markets are becoming risk averse. A fall below support would warn of a sharp contraction in liquidity in financial markets.

Bitcoin (BTC)

Treasury Markets

10-year Treasury yields jumped to above 4.6% in anticipation of higher inflation and higher interest rates. A breakout above 4.7% would offer a target of 5.0% — a third rail for the economy.

10-Year Treasury Yield

Dollar & Gold

The Dollar Index rallied in expectation of higher interest rates.

Dollar Index

The stronger Dollar triggered another Gold test of primary support at $4,000 per ounce. However, rising Trend Index troughs below zero indicate buying pressure at the support level.

Spot Gold

Energy Transition

The strong Dollar is also causing a sell-off in energy transition metals.

Sprott Uranium Miners ETF2 (URNM) is testing primary support at 50. Declining Trend Index peaks below zero warn of strong selling pressure.

Sprott Uranium Miners ETF (URNM)

Sprott Copper Miners ETF2 (COPP) crossed below its 50-week moving average, indicating another test of primary support at 32.

Sprott Copper Miners ETF (COPP)

Sprott Lithium Miners ETF2 (LITP) is testing primary support at 11.

Sprott Lithium Miners ETF (LITP)

Sprott Critical Materials ETF2 (SETM) has broken primary support at 30. A follow-through below the previous week’s low would confirm a target of 20.

Sprott Critical Materials ETF (SETM)

Conclusion

We expect a steep rise in crude prices. Lower inventory levels indicate there are fewer reserves to cushion the impact of a supply shortage. Falling gasoline and diesel inventories warn of a sharp price rise ahead.

Interest rates are rising in anticipation of higher inflation, fueled by energy prices, which in turn increases support for the Dollar.

The strong Dollar increases selling pressure on precious metals and commodities such as uranium, copper, lithium, and critical minerals.

High inflation may reduce speculative demand for Gold in the short-term because of the likely increased carrying cost, but it increases investment demand for the metal as an inflation hedge. What will light the afterburners, however, is if the Fed suppresses interest rates to support the Treasury market.

Chinese demand is the largest driver of Gold prices in the long term, and low prices will likely trigger an increase in buying, both through official channels and via backdoor non-monetary Gold purchases.

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.
  3. The 3-2-1 crack spread is calculated by subtracting the price of 3 barrels of crude from the sum of 2 barrels of gasoline and 1 barrel of diesel. The result is then divided by 3 to reflect the refiner’s gross profit per barrel of crude.
Posted on

IRGC Maintains its Stranglehold on US Treasury Yields

Key Points

  • The IRGC warns shipping that alternative routes not mandated by Tehran were “unacceptable and completely dangerous.”
  • A cargo ship on an alternative route near the coast of Oman is struck by a projectile believed to be a drone.
  • US aircraft retaliated with an attack on Iran’s coastal radar and missile sites.
  • 10-year Treasury yields are falling in response to low oil prices.
  • However, Core PCE figures for May warn that inflation is spreading across the broader economy.
  • Gold rallied above primary support at $4,000 per ounce.

Iran’s Revolutionary Guards are tightening control over shipping passing through the Strait of Hormuz, forcing ships to follow their advised route or face the consequences.

From the Financial Times:

At least four tankers have been turned back by Iran while attempting to exit the Strait of Hormuz on Thursday, as Tehran appeared to challenge an evacuation route issued by the International Maritime Organization.

The IMO on Tuesday said that after “discussions with all parties” it had established a safe evacuation corridor hugging the Omani coast for ships and seafarers that had been stuck in the Gulf for more than 100 days.

But the Blue Star I, SG Pegasus, Azumasan and Omega Trader either made a U-turn or changed course from the IMO’s route on Thursday, according to ship tracking data. Analysts said the diversions were likely to have been made after instructions from Iran’s Islamic Revolutionary Guard Corps, which said routes not mandated by Tehran were “unacceptable and completely dangerous.”

That setback comes one day after 62 vessels managed to traverse the strait, according to data from Windward, the best single-day showing since hostilities commenced on Feb. 28.

Later, an IRGC drone attack was reported on a cargo ship traveling close to the coast of Oman.

LONDON/MAMANA/DUBAI, June 25 (Reuters) – The U.N. International Maritime Organization paused its operation to escort ships through the Strait of Hormuz on Thursday after a vessel reported an attack, reigniting concerns about ‌whether a preliminary deal to end the Iran war will hold.

The cargo ship said it was hit close to Oman by a projectile, British navy agency UKMTO said, hours after Tehran warned vessels against taking routes that it had not approved.

Two U.S. officials told Reuters that Iran had fired on the ship, while Iran’s Persian Gulf Strait Authority, which Tehran established to manage requests for ships to travel through the strait, said vessels outside routes it has set will ​not be guaranteed safe passage.

“Consequences arising from passage through unauthorized routes shall be the responsibility of the owner, operator, and vessel commander,” the Iranian authority said.

The US military retaliated with airstrikes on Friday:

WASHINGTON/DUBAI, June 26 (Reuters) – The U.S. military attacked Iran on Friday in response to an Iranian drone strike on a ‌cargo ship in the Strait of Hormuz, with each country accusing the other of violating terms of a ceasefire agreed on last week.

U.S. Central Command said aircraft struck missile and drone storage locations and coastal radar sites, and a U.S. official reported the operation had concluded. Iran said a projectile struck the area around a pier in Sirik in southern Iran, and that Iranian naval forces responded by striking U.S. military targets in the region.

Brent Crude futures (Aug’26) fell 2%, however, on news that Israel and Lebanon had signed an interim ceasefire agreement while terms of a broader agreement are negotiated.

Brent Crude Futures (ICE August'26)

JERUSALEM/BEIRUT/WASHINGTON, June 26 (Reuters) – Israel and Lebanon signed a framework agreement in Washington on Friday following several days of talks to secure an end to fighting between Israel and Iran-backed Hezbollah militants, though ‌both sides framed the deal as an initial step.

Lebanese Ambassador Nada Moawad and her Israeli counterpart Yechiel Leiter signed the trilateral document with the U.S. at the State Department in Washington, providing few details.

Israeli Prime Minister Benjamin Netanyahu said the agreement allows Israeli forces to continue to occupy southern Lebanon if Hezbollah does not disarm.

PCE Inflation

Headline PCE inflation jumped to 4.1% for the 12 months to May 2026, while the Core PCE index, excluding Food and Energy, rose to 3.4%. The rising Core index indicates that inflation is no longer affecting just energy-related items, but is spreading into the broader economy.

PCE & Core PCE

The monthly increase for May was even higher at annualized rates of 5.4% and 3.8% for Headline and Core PCE, respectively.

PCE & Core PCE Inflation - Monthly

PCE for Energy remained elevated at 4.03% for May, an annualized rate of 48%, but we expect it to decline in June.

PCE Energy Inflation

However, higher fuel prices are now baked into supply chain costs and will likely persist for the next 3 to 6 months before inflationary pressures ease. PCE for Services, excluding Energy and Housing, increased at an annualized rate of 6.3% in May, indicating that inflationary pressures are spreading across the broader economy.

PCE Services Inflation

The spread of inflation across the broader economy increases pressure on the Fed to raise interest rates to slow the economy and halt the spread.

Treasury & Financial Markets

10-year Treasury yields are falling sharply in response to lower oil prices, with expectations of lower inflation running ahead of the supply chain lag.

10-Year Treasury Yield

2-year Treasury yields also eased to 4.12% but remain well above the Fed funds target range of 3.5%-3.75%, with at least one 25-basis-point rate hike expected this year.

2-Year Treasury Yield (CNBC)

Bitcoin1 continues testing primary support at 60,000. A breach would signal another decline, signaling a hard shift in financial markets toward risk-off.

Bitcoin (BTC)

Stocks

The S&P 500 lost ground for the fourth week, while declining Trend index peaks indicate secondary selling pressure, warning of a correction to test 7000.

S&P 500

The Magnificent 7 mega-cap stocks are leading the sell-off, with the Roundhill Magnificent 7 ETF (MAGS) headed for a test of primary support at 55. One of the key signals of the final stage of a bull market is when former leading stocks no longer participate in the advance.

Roundhill Magnificent 7 ETF (MAGS)

Dollar & Gold

The US Dollar Index broke through resistance as the oil price fell, but is now retracing to test its new support level. Respect would signal an advance with a target of 104.

Dollar Index

Gold recovered above primary support at $4,000 per ounce, buoyed by Dollar weakness and declining Treasury yields, which reduce the opportunity cost of holding Gold and Silver.

Spot Gold

Silver has also retraced to test its former support level at $60 per ounce.

Spot Silver

The decline in the broad DJ-UBS Commodity Index since March 2026 coincides with the steep rise in 10-year US Treasury yields. Rising long-term interest rates increase the opportunity cost of holding non-yielding commodities and precious metals.

DJ-UBS Commodity Index

Conclusion

The uptrend in 10-year Treasury yields has reversed amid falling oil prices and will likely strengthen demand for commodities and precious metals, provided crude oil prices remain low.

Iran’s Revolutionary Guards are keeping tensions in the Strait of Hormuz simmering. Not enough to spark a major conflict with the US, but sufficient to keep shipping in the Strait of Hormuz under their control. The US continues to deplete its Strategic Petroleum Reserve to alleviate the supply shortage and keep prices low, but this makes it more vulnerable to further threats to restrict the flow of oil through the Strait.

President Trump would be happy for negotiations with Iran to be drawn out, provided that the Strait of Hormuz remains open to shipping in the interim. But the Iranians are aware that their leverage expires with the November midterm elections, and we can expect ongoing threats to close the Strait. The path of crude oil prices is therefore difficult to predict.

We expect a long-term secular uptrend in Gold and Commodities relative to the Dollar. This is based on CBO projections that federal debt (held by the public) relative to GDP will exceed its post-WWII high of 106% before 2030 and expand to 175% of GDP by 2056.

CBO Projections of Debt Held by the Public as a Percentage of GDP

Aside from default, the only solution to the debt spiral is to suppress interest rates and allow inflation to run hot, so that GDP expands faster than federal debt, as in the 1950s to 1970s.

However, the budget deficit is running at close to 6.0% of GDP, and will likely expand further as the US invests in critical supply chains and ramps up defense spending, so even suppressing interest rates is unlikely to be sufficient.

CBO Projected Federal Deficit as a Percentage of GDP

 

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.
Posted on

Bitcoin Flags Shift to Risk-Off

Key Points

  • Brent Crude falls below $75 per barrel as the Strait of Hormuz gradually reopens.
  • However, crude oil reserves continue to decline.
  • Bitcoin is testing primary support, and stocks are weakening.
  • The Dollar is stronger, while Gold is testing primary support at $4,000 per ounce.

Brent Crude futures (Aug’26) fell below $75 per barrel on reports of increased traffic through the Strait of Hormuz.

Brent Crude Futures (ICE August'26)

From HFI Research:

The market is pricing a clean reopening, right on schedule. I am not convinced…

A reopening is neither as close nor as clean as the market would have us believe. Tankers have to start entering the Gulf for shut-in wells to be brought back on production. Minesweeping alone takes weeks after any ceasefire, redirected tankers need 30 to 40 days to reposition, and Tehran can keep the mere threat of attack alive to throttle passage at will.

US Strategic Petroleum Reserves continue to decline at the rate of 9 million barrels a week, falling to 331 million barrels on June 19.

Strategic Petroleum Reserve (SPR)

The ceasefire remains tenuous, with hostilities between Israel and Hezbollah in Lebanon a potential flashpoint. From Reuters:

In Washington, Lebanon and Israel discussed a U.S.-backed proposal for Israel’s forces to pull out of ⁠some territory it ​invaded to be handed back to Lebanese army control. But Israeli Prime Minister Benjamin Netanyahu said Israel would not pull troops out.

…At home, the reckoning is equally stark, said former U.S. official Dennis Ross. Netanyahu is increasingly boxed in between a U.S. president intent on ending the conflict and a domestic base resistant to ​concessions, particularly in Lebanon, he said. Withdrawal risks political backlash while escalation risks confrontation with Washington.

Bitcoin1 continues to test primary support at 60,000. A breach would warn of another decline, signaling a hard swing in financial markets away from risk assets.

Bitcoin (BTC)

The S&P 500 is in its fourth week of a mild sell-off, with declining Trend Index peaks indicating secondary selling pressure. A retracement to test support at 7000 is likely.

S&P 500

10-year Treasury yields are retracing for another test of support at 4.25% as lower oil prices ease inflation fears.

10-Year Treasury Yield

Dollar & Gold

The Dollar is strengthening in expectation of higher short-term interest rates, but new Fed Chair Kevin Warsh has yet to reveal his hand.

Dollar Index

Gold is testing primary support at $4,000 per ounce as the Dollar strengthens.

Spot Gold

Copper & Lithium

Energy metals are also experiencing a sell-off, with Copper and Lithium most prominent.

Copper

Sprott Copper Miners ETF2 (COPP) is headed for a test of primary support at 32, while Trend Index peaks below zero warn of long-term selling pressure.

Sprott Copper Miners ETF (COPP)

Sprott Lithium Miners ETF2 (LITP) is testing secondary support at 13. Declining Trend Index peaks warn of growing selling pressure, and a breach of support will likely test the primary level at 11.

Sprott Lithium Miners ETF (LITP)

Conclusion

The Dollar is strengthening amid expectations of higher short-term interest rates under the new Fed Chair, Kevin Warsh. But Warsh has yet to reveal his hand, and long-term Treasury yields are softening as fears of high inflation from spiking energy prices fade.

The ceasefire in the Persian Gulf is tenuous and could easily be disrupted by a flare-up of hostilities between Israel and Hezbollah in Lebanon. Stability in the region is even further out of reach than it was before 28 February and will likely remain so. States will likely build up larger strategic reserves and develop strategies to reduce their exposure to another closure of the Strait of Hormuz. This includes encouraging the use of electric vehicles and nuclear energy, two industries that we expect to be long-term beneficiaries from the conflict.

The biggest losers will likely be the Gulf States and Israel. The Gulf States have suffered an enormous setback in their ability to project themselves as a stable financial and industrial hub for future development. They will fall under Iran’s shadow, which will be able to exert far greater political sway in the region. Israel is also likely to suffer under whatever peace deal President Trump negotiates, with a financially stronger Iran able to extend its influence in the region and unlikely to be deterred from its long-term aims of regional hegemony.

Gold and commodities are falling as the Dollar strengthens, but we are convinced that this runs counter to the secular trend, which will likely last for decades. Increased fiscal spending and growing deficits will accelerate the debasement of the Dollar and other fiat currencies, with central banks continuing their shift to Gold bullion as the primary reserve asset.

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.
Posted on

A Lull in Hostilities

Key Points

  • Hostilities in Lebanon faded.
  • Tankers transiting the Strait of Hormuz increased.
  • Brent Crude futures fell to $77.64 per barrel.
  • 2-year Treasury yields rose above 4.20% amid expectations of tighter Fed monetary policy.

Brent Crude futures (Aug’26) fell to $77.64 per barrel on reports of a lull in hostilities in Lebanon.

Brent Crude Futures (ICE August'26)

Prices fell more than 3% on Monday after ​the United States granted Iran a 60-day sanctions waiver following initial peace talks, ​and as officials reported a lull in hostilities in Lebanon under the ⁠broader agreement.

“The gradual increase in oil flows through the Strait of Hormuz continues to weigh ​on the market,” said ING analysts in a note.

Two crude tankers with just under 2 ​million barrels of oil sailed through the Strait of Hormuz on Monday, ship-tracking data showed, in a sign that traffic was picking up following weaker flows on Sunday due to concerns over passage through the ​waterway. (Reuters)

The text of the Memorandum of Understanding signed by the US and Iran can be separated into two parts. The MOU is mostly “talks about talks” where the parties merely agree to negotiate the terms of a Final Deal, but it contains an agreement to cease hostilities while negotiations take place, including:

  • Immediate termination of hostilities on all fronts, including Lebanon.
  • Ensuring the territorial integrity and sovereignty of Lebanon.
  • The US to lift its blockade of Iranian shipping.
  • The US to waive existing sanctions against Iranian crude oil and petroleum exports.
  • The US to release frozen or restricted funds and assets belonging to Iran.
  • Iran will make its “best efforts” to ensure the safe passage of shipping through the Strait of Hormuz.

The MOU offers Iran a financial reward in exchange for allowing safe passage through the Strait. The deal is tenuous, and already the IRGC has threatened to close the Strait due to ongoing hostilities in Lebanon.

Israel is not a signatory to the MOU, and will not readily agree to the first two terms if it feels that they compromise their national defense. The Gulf States are also not signatories, and will similarly defend their national interests.

Financial Markets

2-year Treasury yields climbed to 4.209%, more than 45 basis points above the Fed funds target range, in expectation of tighter Fed monetary policy.

2-Year Treasury Yield (CNBC)

The Chicago Fed National Financial Conditions Index below -0.50 continues to signal easy monetary conditions.

Chicago Fed National Financial Conditions Index

Bitcoin1 is testing primary support at 60,000, signaling a shift in financial markets to risk-off. A breach of support would warn of a market-wide contraction.

Bitcoin (BTC)

Treasury Markets

10-year Treasury yields firmed to 4.51%, suggesting another test of resistance at 4.75%.

10-Year Treasury Yield

Stocks

SpaceX retreated to test its June 12 opening price of 150.

SpaceX

The Magnificent 7 also lost ground, with the Roundhill Magnificent 7 ETF (MAGS) retreating below support at 68 on the weekly chart below. Declining Trend Index peaks warn of a correction.

Roundhill Magnificent 7 ETF (MAGS)

The S&P 500 also shows signs of secondary selling pressure.

S&P 500

Dollar & Gold

The Dollar strengthened amid expectations of higher short-term interest rates. Breakout of the US Dollar Index above 100.50 indicates an advance to 103, but first expect retracement to test support at 100.

Dollar Index

Gold is testing primary support at $4,000 per ounce, with declining Trend Index peaks warning of selling pressure. A breach of $4,000 would indicate another decline, but beware of a bear trap. Gold is in a secular uptrend that we expect to last for decades.

Spot Gold

Energy

The Dow Jones Global Oil & Gas Index broke support at 575, signaling a primary downtrend.

Dow Jones Global Oil & Gas Index

Uranium

Sprott Uranium Miners ETF2 (URNM) broke primary support at 58, also signaling a downtrend.

Sprott Uranium Miners ETF (URNM)

Copper

Copper is testing support at 13,500, and declining Trend Index peaks warn of selling pressure. A breach of support would warn of a bull trap, with a decline to test the 50-week moving average.

Copper

Sprott Copper Miners ETF2 (COPP) reinforces the bearish copper chart, retreating from resistance between 44 and 45 while Trend Index peaks below zero warn of persistent selling pressure.

Sprott Copper Miners ETF (COPP)

Lithium

Sprott Lithium Miners ETF2 (LITP) is also retreating, and a fall below 13 would test primary support at 11.

Sprott Lithium Miners ETF (LITP)

Critical Minerals

Sprott Critical Materials ETF2 (SETM) shows similar signs of selling pressure, and another test of primary support at 30 is likely.

Sprott Critical Materials ETF (SETM)

Conclusion

Brent Crude and oil and gas stocks are falling as the Strait of Hormuz is tentatively reopened, but the real test will be the impact of global strategic reserves. A continued decline would cause a rebound in energy prices.

Financial markets are shedding high-risk assets amid expectations of tighter monetary policy. Declining Trend Index peaks on the S&P 500 signal a correction.

The Dollar is strengthening, and Gold is headed for another test of support at $4,000 per ounce, but these moves run counter to their secular trends where we expect Dollar weakness and Gold strength.

Energy metals are experiencing a broad sell-off amid expectations of lower oil and gas prices if the Strait of Hormuz is reopened.

Uncertainty remains high, and we expect elevated volatility in the months ahead. We adopt a defensive stance, with minimal exposure to high-multiple growth stocks and long-duration financial assets. Value stocks with stable income streams and short-duration financial assets are a haven in times of volatility, but we still expect a secular uptrend in Gold and maintain our position.

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.
Posted on

PPI Shock But Optimism Over Rate Cut Grows

Key Points

  • The Producer Price Index (PPI) grew by 1.06% in May, for the second straight month, at an annualized rate of 12.7%.
  • Annual PPI growth rose to 6.4%.
  • Bank credit growing faster than real GDP reflects rising inflationary pressure.
  • Bitcoin continues to test support at 60,000, signaling risk-off across financial markets.
  • Stocks and Gold are rising as optimism over a peace deal grows.

The monthly Producer Price Index (PPI) grew 1.06% in May, matching the April figure, with an annualized rate of 12.7%.

Producer Price Index (PPI) - Monthly

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Shift from Growth to Value

Key Points

  • The Dow jumped 1.7% to a new high above 51500, outstripping the S&P 500, which gained 0.4%.
  • The Russell 1000 shows a shift from Growth to Value.
  • Bitcoin is testing primary support at 62000, signaling a market shift to risk-off.

The Dow jumped 1.7% to a new high above 51500, boosted by a strong shift to value stocks in the blue-chip index. Rising Trend Index troughs confirm buying pressure.

Dow Jones Industrial Average

The S&P 500 lagged, with a 0.4% gain, though it remains in a strong uptrend.

S&P 500

The recent rally in Growth stocks (IWF) relative to Value stocks (IWD) in the Russell 1000 threatens to reverse with a break of the rising trendline.

Russell 1000 Large Cap Value ETF (IWD) vs. Russell 1000 Large Cap Growth ETF (IWF)

A shift from Growth to Value would reinforce the Bitcoin1 risk-off signal below. A breach of primary support at 62,000 would signal another decline, reflecting market attempts to shed risk assets.

Bitcoin (BTC)

The war with Iran has also upended the Treasury market, with the 2-year Treasury yield jumping above 3.6% at the beginning of March, ending the primary downtrend. The reversal signals no more rate cuts, with the rally now exceeding the Fed funds target range of 3.5% to 3.75% as expectations for rate hikes grow.

2-Year Treasury Yield

The economy is at full employment, with job openings exceeding unemployment for the first time in 12 months.

Job Openings

Inflation is rising, with CPI likely to follow Brent crude higher.

CPI & Brent Crude

It would be unreasonable to expect the new Fed Chair to push for rate hikes at his first meeting, but we are likely to see a switch to a tightening bias.

Conclusion

The Dow is gaining on the S&P 500 as financial markets shift to a risk-off stance.

Kevin Warsh will chair his first FOMC meeting on June 16-17. 2-year Treasury yields indicate the bond market does not expect further rate cuts. The FOMC will likely switch to a tightening bias to calm market fears of rising inflation.

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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There is No Deal

Key Points

  • President Trump raised hopes that he is about to sign a deal with Iran that will allow shipping through the Strait of Hormuz.
  • Crude prices fell, along with long-term Treasury yields.
  • The US economy is slowing, with real GDP growth at an annualized rate of 1.6% in the first quarter.
  • Real personal income per capita declined for the third straight month.
  • Personal savings plunged, warning of a recession.

Brent crude is testing support at $90 per barrel on news of an “imminent deal” with Iran.

Brent Crude

Every time the 10-year Treasury yield reaches 4.5%, Axios runs a headline citing sources close to the President saying he is close to a deal. Crude oil futures plunge, but the deal never materializes.

WASHINGTON/CAIRO, May 28 (Reuters) – The United States and Iran reached ​an agreement on Thursday to extend their ceasefire and lift restrictions on shipping through the Strait of Hormuz, sources told Reuters, though U.S. President Donald Trump has yet to approve ‌it and Iranian state media said it had not been finalized.

According to four sources familiar with the matter, the agreement would extend the truce for another 60 days and allow traffic to flow through the strategic waterway while negotiators tackle difficult issues such as Iran’s nuclear program.

Trump has not yet approved the deal, the sources said. Iran has yet to comment on news of the proposed ​deal, which was first reported by Axios.

Ignore the BS and focus on the bottom line. There is no deal until an agreement is signed — and adhered to by all parties, including Bibi Netanyahu.

US Strategic Petroleum Reserves fell by another 9 million barrels in the week ending May 22.

EIA Strategic Petroleum Reserves (SPR)

If the Strait of Hormuz remains closed at the end of June, crude oil markets will panic over looming shortages.
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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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