In 30 seconds: The Iran war and threatened closure of the Strait of Hormuz has sent oil and energy prices surging, with US gas prices hitting $4.39/gallon, crude above $107/barrel, and major oil companies reporting strong earnings despite production losses. US equity markets continued their strong run with the S&P 500 posting its 11th all-time high of the year, the Nasdaq crossing 25,000, and the tech sector ETF recording its second-ever 20%-plus monthly gain in April. April ISM Manufacturing came in roughly flat at 52.7 but the prices paid component soared to a four-year high of 84.6 while the employment index fell to 46.4, prompting Fed dissents over the inflation outlook and rate cut timing. Analysts debate the erosion of US Treasury dominance as foreign central banks shift from UST purchases to gold accumulation, while Brad Setser critiques proposals to use the Treasury's Exchange Stabilization Fund as a geopolitical tool for Gulf states.
The arithmetic of the Strait of Hormuz is simple and brutal. The commodity scoreboard since the war began tells the story in ascending order of pain. WTI crude is up 55%, Brent up 52%, diesel up 48%, heating oil up 56%, and jet fuel, the sharpest mover, up 80%. European natural gas has climbed 44%. The contagion extends beyond hydrocarbons: sulfur up 68%, urea up 47%, fertilizer up 23%. As of the close, Brent sat at $108.68 per barrel, down 4.68% on the day, while WTI settled at $102.26, off 2.67%. At the pump, US gasoline has surged from 2.98 to $4.39 per gallon, a 47% jump over the last nine weeks, the largest such move in the past 30 years and the highest level since July 2022. The blockade would need to be maintained and aggressively enforced for another month before Iran has to start reducing production. Geopolitical risk analysts warn that even after the crisis ends, the global oil market will be more volatile, more uncertain, and have fewer guardrails. Exxon Mobil beat Wall Street earnings estimates, with higher oil and gas prices more than offsetting significant production losses in the Middle East.
S&P 500: 7,230.12. To appreciate the trajectory: the Nasdaq sat at 4,800 a decade ago, 14,000 five years ago, and 18,000 just a year ago. The line goes up, and it goes up faster. The seasonal picture looks cooperative too. July has historically been the strongest month of the year for the S&P 500 by both median and average return. Zoom out further and the decade scoreboard is staggering. NVIDIA leads with a 22,875% total return over the last 10 years, followed by AMD at 10,030%, Tesla at 2,362%, Apple at 1,233%, and Microsoft at 844%. The S&P 500 itself returned 312% over that span, comfortably ahead of gold at 245% and cumulative US inflation of 39%. Owning the index was fine. Owning the right names was something else entirely.
Manufacturing is expanding, with the headline ISM at 52.7. The interesting action was entirely in the subcomponents, which told two stories pointing in opposite directions. The prices paid index surged 6.3 points to 84.6, a four-year high. That is a number that screams. New orders ticked up 0.6 points to 54.1, production slipped 1.7 points to 53.4, and backlogs fell 3 points to 51.4. The employment index dropped 2.3 points to 46.4, its lowest since December. One analyst called the reading consistent with a modest drop in factory payrolls in April. April ISM Manufacturing PMI: 52.7. This is the kind of data that makes the Fed's job genuinely unpleasant. Prices say hike. Employment says cut. You pick.
The foreign public sector, led by China, has been absent for over a decade, while the foreign private sector is still buying. The problem is that foreign buying is not keeping up with issuance, so more is domestically funded. You might call this a slow-motion demotion. Where the money went is instructive. Gold closed at $4,622.10, up 0.16% on the day, and the gold/oil ratio has climbed from 13x to 60x since 2014. Swiss gold exports to GCC nations rose a lot. The idea is not new; the plumbing is just getting rebuilt. VIX: 17.00. Secretary Bessent is worried that GCC Treasury sales are a threat to Treasury market stability, which is a bad sign about the supposed 'depth' of the Treasury market; the Fed's FIMA repo facility already provides the perfect solution. The Treasury ESF's limited reserves should be reserved for countries with actual liquidity needs and not swapped with countries with more financial assets than the US Treasury. If Bessent wants a geopolitical slush fund to compete with China's policy banks and the PBOC swaps, he should go to Congress and make the case for a properly funded US policy bank.
Here is what moved this week.
S&P 500: 7,230.12, up 0.29% on the day
Gold: $4,622.10, up 0.16% on the day
US Dollar (DXY): 98.21, up 0.13% on the day
WTI crude: $102.26, down 2.67% on the day
Initial jobless claims: 189,000, down 12.09% on the week
Continuing claims: 1,785,000, down 1.27% on the week
Average hourly earnings: $37.38, up 0.24% on the month