US equities were a bit weaker on Monday, with S&P down 0.3% amid light northern summer volumes and  US10yr yields down 8bps to 2.57%. But oil was a significant casualty overnight and closed down nearly  4 % after European governments delayed plans to restrict insurance provision to tankers carrying Russian crude.

It looks like the downturn in equities may be related to US House of Representatives Nancy Pelosi, with media reports saying that she is, after all, expected to visit Taiwan. After grinding higher through much of the London session, US socks have erased all the gains and some throughout the North American trading day. So with headline risk out of China and Ukraine. Right now, the US Bond market could be seen as a safe harbour.

Indeed, price action slumped across macro assets due to concerns about the potential US-China escalation, and risk could deteriorate quickly.

Risk is mounting. The Biden administration is trying to downplay the tension between US and China. But as Pelosi is almost sure to visit Taiwan on Tuesday, now it is on China’s hands to see if the situation escalates. According to local media, one possible response is that China will send fighter jets to fly over the island in the next 48 hours.

China’s onshore investors are not overly concerned and do not think there will be a war but believe it will be more war games “action.” It could be little more than a tempest in a teapot still; international, and Taiwan investors are pretty concerned.


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ISM manufacturing was better than feared and helped the tape to recover from overnight Pelosi jitters. UST yields continue to move lower on the long end with the curve, unfortunately, flattening further as a result. The peak Fed hawkishness narrative continues to gain traction, with fed funds futures still implying a Fed pivot in March 2023, but at a lower rate than prior, with peak fed funds at around 3.30%

Whether the Fed Chair intended it or not, his comments last week, framed dovish by a weak US GDP, seem to have been interpreted as signalling a ‘pivot’ of sorts on the time and pace to the top of the rate hike cycle.

It is clear that many of my colleagues out there don’t believe in the recent rally – but are still asking when and what to buy. And with “Fed pivot” overrunning the markets lexicon, I’m sure folks have been forced to chase. The key for most remains the Fed.

I’ve been trading this instrument for decades and have never seen sentiment towards the S&P 500 1,000-point spread wide. Ask macro traders what they are positioned for, and the answer comes back as 3,500. Ask what they expect is possible, and it’s 4,500.

So with everybody being a momentum player these days, the question is: how long can this rally last, driven chiefly by positioning and systematic buying?


Oil traded over 4% not just because of the Taiwan worries but also on the back of ongoing China economic woes.

China is always a big worry, but it has a solid energy security program and continues to buy crude through thick or thin. Although China is not consuming as much as it was, month-over-month demand is improving.

Libyan production has reportedly recovered to 1.2mb/d from ~860kb/d last week, following the lifting last month of force majeure resulting from protests and militia activity that led to the closure of several major fields and export facilities. And while few are willing to price in stable Lybian output at the current level, the rebound in production weighs slightly on the oil price.

Also negative for oil in the near term is news that European governments are delaying plans to restrict insurance provision to tankers carrying Russian crude. Insurance restrictions would likely have limited Russia’s ability to redirect flows away from Europe toward Asian buyers (notably China and India), who have significantly increased purchases from Russia this year. So the physical brokers are then forced to find a home for more Middle East crude than they had expected.

Originally published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT