Written Commentary
Oil again dominates global markets. Brent breached $100, U.S.-Iran hostilities escalated, Houthi attacks threatened energy infrastructure, while stronger Chinese demand added support. China CPI accelerated to 0.8% y/y and PPI to 3.8%. Asian equities were mixed overnight, with technology-heavy markets outperforming despite geopolitical risk. European equities weakened, with the STOXX 600 down 0.5%, the German 10-year yield up to 3.4% and UK gilts near 19-year yield highs. The dollar fell toward 98.6 as the yen extended its rally. Today’s U.S. focus is Treasury’s expanded buyback announcement and the $39 billion 10-year auction.
STOCK INDEX FUTURES
S&P 500 futures remain under pressure as $100 oil turns the Middle East conflict into a direct inflation and interest-rate problem. Tuesday’s S&P 500 decline of 0.58% understated the deterioration underneath the index: 356 stocks fell versus only 146 advancing, while healthcare, housing, autos, retail and other cyclical groups weakened. Semiconductors and selected AI infrastructure names provided important support, but the broader defensive rotation suggests higher energy prices and Fed tightening risk are hitting risk appetite and chart structures. The counterweight remains earnings: U.S. earnings upgrades have now persisted for 21 consecutive weeks, helping prevent the macro shock from becoming a broader valuation unwind.
CURRENCIES
The Dollar’s decline is increasingly a yen story rather than evidence of broad U.S. economic weakness. Dollar Index futures have fallen toward 98.7, while the yen has appreciated roughly 1.8% this week. U.S. Treasury Secretary Scott Bessent’s unusually explicit support for yen strength has reinforced expectations that Japanese authorities favor a stronger currency, while markets are preparing for potential Bank of Japan tightening.
TREASURY FUTURES
Treasury futures remain vulnerable because the oil shock is reinforcing inflation risk just as the market approaches Friday’s CPI report. Moreover, the extended energy supply shock increasingly complicates the Fed outlook. Markets entered Wednesday pricing roughly a 60% probability of a September rate increase and 71% chance in October. Friday’s headline CPI is expected to rise 0.4% and core CPI 0.2%; a soft core reading could allow the Fed to hold, while an upside surprise would strengthen the Hawks’ case for another hike.
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