In 30 seconds: Analysts and economists debate the Federal Reserve's outsized duration holdings relative to outstanding Treasuries, the implications of unwinding that position, and how the Fed should weigh inflation persistence against trimmed-mean measures as it considers rate policy. US stocks surged with the SOXX semiconductor index posting a record 17-day winning streak, bullish sentiment jumping above its historical average, and strong PMI and earnings data supporting the rally despite underlying volatility. The closure or threatened closure of the Strait of Hormuz has sent oil prices sharply higher, disrupting global energy markets, hammering hedge funds with wrong-way bets, and raising fears of prolonged supply disruption lasting into mid-2026. Analysts debate China's strategic use of Belt and Road lending to swap out of US Treasuries into commodities, its vulnerability to dollar shortages in energy imports, and the growing but still limited role of yuan in commodity settlement.
The debate isn't just about the level of inflation — it's about which measure you use to read it, since trimmed means, core, and PCE can tell very different stories about where prices are headed. The Fed, in other words, has been hoarding duration. Unwinding that mismatch is the interesting part. That would require offloading roughly 40% of its debt longer than five years. A third, more aggressive case drops it to 1.9 years. Any of these, if announced today, could steepen the 2s/30s curve by 50-75bp. Meanwhile the inflation debate has taken a strange turn. Fed officials leaned heavily on trimmed means. The counterargument: the Fed's target must be a comprehensive measure like PCE, and trimmed mean or core readings are diagnostic tools, not goals. Powell's stated base case remains a one-time price-level shift from tariffs, but the Fed wants evidence before cutting. Fiscal policy is expected to turn moderately restrictive over the remainder of 2026 and into 2027.
The semiconductor trade has gone from capitulation to absurdity. The SOXX index has now closed higher for 17 consecutive days, a record for the fund. Intel ($INTC) is back on the all-time high list after a quarter-century hiatus. The broader index is rallying too, though the internals are telling a different story. The S&P 500 rose more than 1% even though more stocks in the index were down than up. That is the sort of breadth divergence that either resolves itself quietly or becomes the thing people point to later. Earnings season is reinforcing the asymmetry. S&P 500 members beating first-quarter estimates are seeing an average next-day relative gain of 0.76%, while those missing are punished by 2.09%. The macro backdrop cooperated. Services PMI climbed to 51.3 from 49.8, pulling the composite to 52.0 against expectations of 50.6. Retail sentiment has noticed. AAII bullish sentiment jumped 14.3 percentage points to 46.0%, crossing above its historical average of 37.5% for the first time in ten weeks.
Stocks tanked and oil spiked since 1 PM ET, with Iran as the one-word explanation. The supply math is uncomfortable. Oil and gas firms expecting Strait of Hormuz traffic to return to normal by November or later: 40%. That is not a quick resolution. The collateral damage is already visible in Europe. German private-sector activity unexpectedly shrank as the Iran conflict triggered the steepest drop in the services sector in more than three years, dragging the composite German PMI to 48.3 in April. For historical context, the 1990 Gulf War produced a 19% drawdown in the P/E ratio.
China spent dollars on the BRI, swapping out of USTs and into critical commodities without bidding up prices of those commodities or hurting USTs. China owned lots of USTs (long USD) and needed lots of commodities (short commodities). Elegant, if you are the kind of person who finds sovereign portfolio rebalancing elegant. The vulnerability is straightforward. China can run out of dollars; it cannot run out of yuan. The problem is that the yuan-for-oil trade remains, for now, a sanctions trade. Folks who sell oil in yuan now tend to be sanctioned and tend to sell at a discount, so selling oil in yuan is not currently attractive. The Middle East isn't de-dollarizing; Iran wants sanctions relief so it can re-dollarize and stop selling to China at a discount. De-dollarization, in this framing, is less a strategic choice than a workaround for sanctioned sellers. On paper, China hasn't imported Iranian crude since 2022, according to China's customs data, yet estimated actual flows run at roughly 1.4 million barrels per day. That gap tells you something about how these arrangements work in practice. Meanwhile, a closure of the Strait of Hormuz would pressure China, but all allies in Asia will be crying uncle long before Beijing will. The mutual-hostage logic extends further: if China is cut off from oil by the US, the US will be cut off from Chinese goods; Chinese factories de facto back the SPX, and therefore the US consumer and the US Treasury market. Gold: $4,712.30. One counterpoint to the whole narrative: the argument that no one in China wants CNY is now dated; since the CNY started to appreciate, exporters have been selling USD for CNY, hence the large surge in settlement and big state bank purchases of foreign exchange to limit appreciation.
Here is what it costs to borrow money right now.
30-year fixed mortgage: 6.23%, down 7 bp on the week
15-year fixed mortgage: 5.58%, down 1.24% on the week
Auto loan rate (60-month): 7.52%, up 4.16% on the quarter
Credit card rate: 21.00%, up 0.14% on the quarter
Prime rate: 6.75%, flat on the day