Various: Bonds, Silver, SCOTUS, Copper and Oil

Bonds and Silver

First up, just something to keep an eye on in bonds. After Liberation Day, US 10-year yields shot up to 4.50%/4.60% and then traded a 4.20%/4.60% range. In early September, 4.20% broke, and that has been the top of a new 3.90%/4.20% range ever since. With inflation coming in soft in Europe and Australia this week, could we be making another clear top and setting up for a move back down in yields?

We are in the midst of an unusual regime combining attributes of a commodity supercycle with persistently low crude oil and gasoline prices. This does not feel particularly inflationary. While Friday’s jobs number is a wildcard, I think it’s easier to argue it could take us down through 4.00% than up through 4.25% as there appears to be sufficient labor market slack and meaningfully lower price pressures in goods and shelter.

The BCOM rebalance starts tomorrow, so all eyes on silver and gold into next week. Silver ramped again on the Venezuela news, but has failed to make a new high and the chart looks a bit double toppy. I found it impossible to maintain conviction with all the geopolitical stuff going on, so I remain bearish but with a much smaller position and lower conviction than I had before.

The bear case for silver isn’t completely dead, but the geopolitical crosswinds make it much less appealing. That said, the BCOM rebalance and the retail frenzy are still real. SLV is still the top trending stock on r/wallstreetbets.

As mentioned, there are many geopolitical balls in the air right now with Iran nearly at a boiling point while Venny is in play, Greenland is hot, and Russia-Ukraine talks seem to be making NATO happier. How any of this plays out in markets is TBD, and I don’t see much of a way to trade almost any of it.

SCOTUS

In a similar vein, you have a potential Friday ruling on tariffs from SCOTUS. It is boring to argue that the SCOTUS decision does not matter for macro or FX markets, but I think it's similar to the Maduro capture... It's a big deal historically and geopolitically and all that, but there is no clear read through to FX or bonds or big picture macro.

I suppose if the Supreme Court orders an immediate reversal of the tariffs, that is stimulative and bearish bonds at the margin (in theory), but SCOTUS could also allow a grace period that gives the admin time to pivot to new and more convincing justifications for the same tariffs. Also, while actual removal of tariffs is stimulative in theory (maybe, due to rebates, etc.), it's also disinflationary in that there will be a one-time price level reset back down for tariffed goods.

Too many ifs and thens and buts to trade it. There are probably at least six outcomes.

1. Full uphold
2. Full strike down
3. Partial invalidation / limited ruling (finds the tariffs unlawful but limits the remedy, no more tariffs, but no refunds)
4. Narrow ruling (requires more justification with a time limit)
5. Procedural dismissal
6. Remand to lower courts

Final Thoughts

• A commodity boom with oil left behind is something ne’er-before-seen by mine eyes.

• Alf and I recorded an episode of the Macro Trading Floor podcast this morning. It will be ready for your ears within 36 hours.

I hope your day has minimal or zero suction.