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April 10, 2025
Morning everyone,
I’m sorry, did you think you could take your eyes off the screens for a minute?
I went for a walk and when I got back the world wasn’t ending anymore.
Dow up 2,900 points, Nasdaq up 12%. One small casualty? US treasuries are no longer seen as a safe haven.
More on that below…
FYI. I’m on the road tomorrow, so it’s unlikely that I’ll be able to put a post out. Have a great weekend.
What's in this issue:
Energy Market Recap
EIA Expectations
Bond Vigilantes are Back
Headlines
| Crude Oil (May) | $62.35 | +2.77 | +4.65% |
| Natural Gas (May) | $3.816 | +0.351 | +10.13% |
| Copper (May) | $4.1925 | +0.0485 | +1.17% |
| S&P 500 | 5,456.90 | +474.13 | +9.52% |
| Dollar Index (DX) | 102.62 | -0.08 | -0.08% |
Energy Markets
🛢️WTI ended a wild day up 4.65% to settle at $62.35. The brief foray into the 50’s, of course, ended by Trumps tariff pause.
In the short term the market remains headline driven, but the concern is that the economic destruction and uncertainty will be longer lasting. After all, you don’t just turn around investment decisions based on the latest tweet.
I would guess that major investment decisions are now on a 4 year pause.
Lost in the headlines was the EIA report that crude inventories grew by 6.2 million barrels, far exceeding analyst expectations.
WTI Spreads
May/June: +0.53
Jun/Dec: +2.08
Dec5/Dec6: -0.09
🔥 Natural gas rocketed higher by over 10% on news of tariff relief. Stay tuned for EIA data that is expected to report another above-average build in inventories.
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Bond Vigilantes are Back
The term ‘bond vigilantes’ was coined by Edward Yardeni of Yardeni Research in the 80s. The idea was that, at the end of the day, bond traders collectively “act as the law and order of the financial markets”.
In this older video, Yardeni points out that the bond vigilantes had no hope of imposing order against central banks quantitative easing in the recent past. After all, what’s the point of selling bonds if the government is there to hoover them up?
However, in this environment, that has changed.
Truss Was a Warning Shot
The first post QE glimpse of bond vigilantes at work was in the UK. Then Prime Minister Liz Truss’ famous “mini-budget”, which proposed sweeping tax cuts, led to a currency and bond sell-off.
The plan was immediately rolled back and Truss’ time in office was short. By short, I mean the shortest ever (50 days).
No Safe Haven
More concerning than the collapse of equity markets this week was the fact that US treasuries were being sold off with them.
Usually, in times of equity market turmoil, capital rushes into the warm embrace of the world’s most liquid “risk free asset” (hence your nice 60/40 stock/bond portfolio, they’re supposed to move in opposite directions). This bond buying, in turn, pushes interest rates lower.
Not this time.
Bonds were being sold off as quickly as stocks, raising interest rates and leaving the government to wonder who would be buying the next round of bond sales (and at what price to the government).
It’s enough to make someone already prone to u-turns take a second look.
As Clinton political adviser James Carville is quoted as saying:
"I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."
Headlines
“His decision to cave, at least partially, is a sign that Trump is still susceptible to a backlash from investors, lawmakers and donors — even on one of his signature policy promises.”
+Why did Donald Trump buckle? - FT
“Consumer advocate groups in Maryland and Pennsylvania have since filed protests with FERC against the deal, citing concerns that the merger had the potential to ultimately stifle competition and drive up power bills.”
+Constellation defends Calpine deal after consumer groups object - Reuters
“Four years is not enough to make that kind of capital expenditure and investment,”
+US refiners unlikely to spend big to process more domestic oil - Reuters
Economic Calendar
Monday -
Tuesday - NFIB Optimism Index
Wednesday - Crude Oil Storage Report, Fed Minutes
Thursday - Initial Jobless Claims, CPI, Natural Gas Storage Report
Friday - PPI