James Brodie
Head of Learning & Development, Flux
Oil Surge Drives Yields Up, Precious Metals Down and Risk Assets Lower
Oil spike lifts yields, trims Fed cut bets to 45bp, widens credit spreads and pressures equities as Iran tensions raise inflation risks.
Risk turned yesterday afternoon and with Brent ripping higher the bond market now sees this as a bigger inflationary risk than growth shock.
2-year yields are surging higher and potentially have a long way to go looking at the correlation to Brent (Chart 1, US 2-year bond yield and Brent white), The market is unwinding Fed easing, now only 45 bp cuts priced by year end. Precious metals have also turned lower with silver now down 8.5% from yesterdays open. And with yesterdays Iran-Straits of Hormuz news equities are falling again, the Kospi bubble has finally burst, down -7.2% today and S&P futures are down 1.3% today still just above critical stops at 6,775.
Gasoline pump prices are about to spike in US. Another hit to Trumps ratings. (Chart 2, gasoline futures vs pump prices, Bloomberg)
Shanghai tin futures dropped more than 10% as market volatility intensified, reflecting pressure on base metals.
Jamie Dimon: banks should expect cyber or terrorist attacks after Iran
Investors are hedging against a credit market crash at an accelerating pace: Put option open interest in US large credit ETFs, HYG, JNK, LQD and BKLN, is at a record ~11.5 million contracts. (Chart 3, Goldman Sachs). Meanwhile, tech high-yield credit spreads surged to 556 basis points, surpassing the April 2025 highs and reaching the widest level since October 2023.
Long term FX sensitivities to oil. (Chart 4, JP Morgan)
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