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TQ Morning Briefing |
Three Fed officials spent Friday demanding a hike. The weekend broke the barrel under them. A manufacturing survey at ten now gets to rule on it. |
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Friday closed green. The market underneath it did not.
The index needed one name to do it. Amazon (AMZN) supplied almost all of the move.
The small cap index fell. One stock can hold a benchmark up. It can't hold a market up.
Then the weekend went to work. Oil broke hard. WTI is 6% lower, under $80 again.
Yields came in with it. That's the bond market calling a softer barrel disinflation. In hours. With no data behind it.
Futures point higher this morning on Iran relief. The Dow is leading the way, up around 1%.
Market Implication
Cheap fuel is a real earnings line for the small caps. For the handful of names holding the index up, it's a rounding error. If small caps still lag on a day like this, energy was never what was wrong.
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WHAT ACTUALLY MOVED MARKETS
The war premium left the barrel.
Trump says he held off the planned strikes at the request of Gulf allies. He says talks on the Strait and on nuclear work begin today.
Iran tells it differently. One side is claiming a deal. The other has called earlier claims a lie.
The barrel didn't wait for the referee. It's now priced for an agreement that only one government says exists.
The hawks made their case in public.
The blackout lifted Thursday. On Friday, all three dissenters spoke.
Hammack and Logan both said the hold left inflation unopposed. Kashkari reached back to the 1970s. His point is that policy still has to answer supply shocks, or they set.
There's a soft spot in that. The Fed's own July statement named energy as the supply shock. Energy is now falling.
Structural Setup
The front end trades the meeting. The long end trades the story about prices. Say oil keeps sliding and the long bond holds near its 2007 highs.
Then the term premium was never an energy charge. It's a charge for the debt. Treasury publishes its borrowing estimates this afternoon, and that's the test.
Asia sold off for two different reasons overnight.
Japan fell because the yen got stronger. Korea fell because its chip complex gave back part of last week's squeeze.
US futures ignored both.
Energy is where today's rotation lives. Those names were the quarter's quiet winners. They won on a war premium, and volumes never moved.
Tonight tests that. Diamondback (FANG) sells the barrel. Williams (WMB) moves the gas.
Nothing this weekend touched the gas curve.
Sector Read
Cheaper crude cuts the energy trade in half. Producers lose the premium. Gas and pipelines keep their volumes. Both halves report tonight, hours apart. Watch which one guides on price and which one guides on throughput.
OPEC and its partners agreed Sunday to add barrels in September.
That finishes the rollback they began in 2023. There are no voluntary cuts left to unwind.
Here is the part that gets missed. Most of this year's increases never became barrels.
War kept the exports from moving. The quota rose on paper while the ships stayed put.
Exxon (XOM) put a number on it last week. The routes were shut, so it pumped barrels it couldn't sell. Produced, and never booked.
So if the Strait truly opens, the paper turns into cargo all at once. And the group has nothing left to announce until it meets again in September.
Watch Signal
The next OPEC meeting sits ten days ahead of the September Fed meeting. If the surplus lands, the group has to choose between price and share with the Fed watching. The spread between the two front oil contracts moves first. It flattens before spot does.
The weekend's loudest policy move came from the Treasury.
It bought yen. Japan bought yen. Both governments have now confirmed it.
They haven't done this together since 2011.
Buying yen means selling dollars. That's the whole trade. The yen has appreciated over 4% in the last few trading sessions.
A weaker dollar makes every import dearer. Memory. Machinery. Components.
Retailers and hardware assemblers pay that bill first. It reaches them through cost of goods, one container at a time.
So one arm of the government is pushing import prices up. Three Fed officials want a hike to push them down. Nobody is coordinating this.
The Read
The dollar is now a policy variable with two owners pulling the same way. Say the intervention holds and the slide continues. Then imported goods replace the energy shock the Fed just lost. Same inflation. New source. And a hike would lift the dollar straight back, which is what the Treasury just spent billions to stop.
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Economic Data: ISM Manufacturing PMI and Employment
Earnings: Berkshire Hathaway (BRK.B), Marriott (MAR), Palantir (PLTR), Vertex Pharmaceuticals (VRTX), Monster Beverage (MNST), Williams (WMB), Diamondback Energy (FANG), ONEOK (OKE), On Semiconductor (ON)
Overnight:Nikkei -0.94% | Shanghai Composite -0.59% | FTSE +0.21% | DAX +1.51%
Two clocks run today.
One starts at ten. Prices paid sits inside the ISM report. It's the last inflation input the hawks get before the payroll print.
It's run hot for months. A cooler number narrows their case to wages alone.
The other clock has no time on it. Talks with Iran are supposed to start today. Nobody has said when, or where, or whether Iran agrees they're happening at all.
If both land the same way, the hike argument thins out fast. If the talks fall apart first, oil gaps back and the whole weekend gets erased.
The tape has priced one of those. It hasn't priced both.
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READER POLL |
Which leg of the Fed's energy shock argument breaks first? |
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