Questions Aplenty

Three major themes are moving this morning’s late August market: Treasuries, crude, and Intel. All three are leading the futures higher in the premarket. Treasury yields, still processing the latest Administration gambit on the long end, are moving lower. The 10-year pays 4.66% this morning, down from 4.70% yesterday. Treasuries, at this point, may be more impactful for what they’re not doing than for what they are doing. Yields are not continuing higher, for the moment. Same for oil. WTI crude is down $3 this morning, to about $82/barrel. This decline follows Secretary Bessent’s new threats to choke off the Iranian economy through sanctions on its remaining trading partners (think China). Chips seem to be rallying this morning behind INTC’s unveiling of new AI chip architectures. Also, NVDA earnings are due tomorrow after the close.

At risk of committing the cardinal sin of overthinking the market, we have to ask ourselves if the reactions of treasuries and crude make sense. Given the declared intent to further destabilize the Iranian situation, and given the thinness of the veil that covers the Administration’s efforts to rein in long term yields, does it really make sense that crude and yields are falling? Has anyone given consideration to what happens if these gambits fail? Pushing China away from Iran may not be easy. Unsheathing our ultimate economic weapon, access to the global dollar system, is a very rare maneuver – for a reason. If nations develop a work-around, the US permanently loses any number of trade advantages. If the Administration loses the confidence of the treasury market, they may create a problem even the Fed can’t easily fix. And is it a great idea to play trade policy hardball with Canada right now? It seems the US has a lot of very high stakes balls in the air, economically speaking. How confident should we be that they all land in our favor?