The market ran ahead of big tech earnings today. The AI names ran, the Nasdaq closed up 1.3%, and the major indexes broke a three-day losing streak.
Meanwhile, the dollar, yields and commodities are all going higher.
The 10-year touched 4.64%, its highest since late May, and the long bond sits above 5%, near the top of its multi-year range. Italian yields at 4%. German yields above 3% (around 15-year highs). UK yields above 5%.
Crude oil has now spiked 27% in 13 trading days on aggressive U.S. strikes on Iran. Higher energy prices are pushing yields higher. Higher yields are pushing the dollar higher. A stronger dollar has pushed dollar/yen past 163, its weakest since 1986.
Last month Japan's finance minister and Bessent held a currency call and said they would take "bold steps" if needed. The officials drew a line. The market has walked straight through it.
Next, commodities. Silver jumped about 4% today. Gold is bouncing, after a six-month 30% correction — despite real yields climbing.
What does it all mean? It looks like markets pricing in risk of bigger, longer global energy supply disruption — more war.
Halliburton's chief executive said today that rebuilding reserves and supply runs "years, not quarters."
Maybe the cleanest signal is in this chart …
This (normalizing for unit of measure and exchange rate) reflects how much more Europeans are paying for energy (Dutch TTF Natural Gas) relative to Americans (Henry Hub Natural Gas).
It peaked a couple of weeks into the war. Now, here we are more than 140 days in, and we have a new high (of 6.95x).
For context, this ratio reached an extreme in 2022, when energy supply was used as leverage (and weaponized) in the Russia invasion of Ukraine. It spiked European natural gas prices to a ratio of 11.6X the cost of American natural gas.
Not coincidentally, the European sovereign debt markets started showing stress in the middle of 2022, and the European Central Bank had to restart QE (QE by a new name, the "Transmission Protection Instrument") to stabilize bond markets of the weak euro zone countries.
