The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Crude higher.
The Straits of Hormuz continue to be closed and help from the US Navy isn’t imminent, although it is promised. As a result, oil prices climb and overall risks build. Overnight, Asian markets continued the downward drift. Europe did the same in our early morning. The S&P 500 opened about 50 points lower and chopped-and-flopped in the down 90-point range for the bulk of the day. Yields climbed across the curve, with large increases in the belly.
The Dollar strengthened again and precious metals fell. Implied vols climbed and capital flow was slightly higher (112%), suggesting investors are adjusting without panic (so far).
Another day passes and the Iran war continues without indications of a near-term positive outcome. Markets are on the clock, waiting for a positive resolution. As they wait, risk-off continues and inflation concerns permeate sentiment. We may catch a relief rally or a short squeeze as we wait but it will be impossible to get a sustained rally in risk while the world waits and sees about the Straits of Hormuz.
Oil. GDP. Inflation.
Those are the issues that matter. They are obviously connected but there is uncertainty in the market as to how to calibrate the oil prices to the other issues. It’s a guessing game. It’s also understood that regardless of the degree to which elevated oil prices affect GDP and inflation…. higher for longer is bad. The current uncertainty doesn’t allow for quantifying things well. As such, it just a process of de-risking with every day that the situation looks bad.
See you tomorrow.
-Mike
Visdom Market Commentary
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