Both Treasuries and equities sold off as soaring crude futures reignited fears the Fed may ratchet up hawkish rhetoric at next Wednesday’s FOMC meeting. Hence a pullback in crude would be crucial for any prolonged risk rally, given implications for inflation expectations.

And for the central bank fraternity intent on frontloading rates, chapter two of the current playbook reads that aggressive tightening risks a material decline in housing, consumer confidence, and consumption that will eventually drive their respective economies into recession and send stocks tumbling.

So until we reach peak inflation which will trigger a less hawkish Fed and lower recession odds, it could be a gloomy summer for global stock pickers.



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US inventory data brings more attention to the current energy crisis enveloping global markets, so higher oil prices. According to the Energy Information Administration, US crude oil inventories at Cushing, the largest US hub, fell 1.59 million barrels last week. Gasoline inventories also declined despite soaring prices. The gasoline situation encapsulates just how tight markets are,

Prices are likely to increase as China’s demand picks up, with big-city dwellers feeling increasingly confident to leave their lockdown cocoon. As we move deeper into peak summer US driving season, higher prices at the pump do not seem to be stunting demand, which could also keep gasoline stocks in short supply this summer.

If you doubt we are in or on the precipice of an energy crisis, you may want to pay attention to recent comments from the IEA and Trafigura. Earlier in the week, Jeremy Weir, CEO of Trafigura, warned that the oil market could reach a “parabolic state” and warned of issues for the next six months. He also said the economy had not seen the worst of the energy crisis. On Wednesday morning, IEA chief Birol warned of energy rationing in Europe this winter if freezing weather coincides with a pick up in economic growth.


Besides higher energy and the US vs JP interest rate differentials supporting the bid, FX traders bought USDJPY into the Tokyo Fix for the past three days. Japanese Banks and life insurers continued to sell foreign bonds in May hence the steady bid into the morning FX. This coincides with the headline that Japanese life insurers will buy JGBs and pare FX hedges for the fiscal year through March 2023.

Stephen Innes
Managing Partner