Oil Prices Jump as Hopes of Any “Off Ramp” Have Been Totally Decimated
Brace for a $170 per barrel oil price peak.
Key Takeaways
Oil Prices Hit a Four-Year High Intraday: The big news overnight was that President Trump is now considering new military actions against Iran, which sent Brent crude up +7% at one point to a four-year high of $126 per barrel. According to Mike Rothman, who graced us with his presence on yesterday’s webcast, an oil price peak of $170-$180 per barrel is inevitable (that will be the pain-point threshold for a global recession) and a new future equilibrium price of $100 per barrel. Any hopes for an “off ramp” have been dashed; the Strait of Hormuz remains shuttered; and yet, barely a ripple in U.S. equity futures!
Bond Markets React to Central Bank Hawks: Bond markets have calmed down, but the damage has been done by the Fed (three dissents to signal no more rate cuts) and the Bank of Canada (musing that rate hikes could come if the inflationary impact of the energy spike spreads out). That said, a lot of bad news is now embedded at the long end of the coupon curve, and rare has been the day that it failed to generate decent total returns within a year with the real yield at a juicy 2.7%.
Tech Strength in the U.S. and Asia: The results from Big Cap Tech were strong, especially at Google. But the capex boom in AI has sapped the vitality of the rest of the business sector, where order books have contracted modestly for the first time since December 2024. The issue of concentration in the U.S. stock market is now being matched in Asia, where Taiwan’s stock market capitalization now equals that of Canada despite a GDP that is one-third the size. Speaking of which, the TSX Energy sector, which has been red-hot, is set to break out — once it does, a “buy signal” will present itself for higher highs and we are closely monitoring the situation.
