Technology, as is often the case, again did the heavy lifting. At this stage, the equity market is a continuation of the “chips as macro” regime, where incremental demand signals from AI infrastructure drive index-level performance.

Elsewhere, the rotation out of defensives was notable. Healthcare lagged amid a combination of weak earnings and softer prescription data, with pressure on weight-loss drug narratives feeding through to the broader pharma complex. Financials also underperformed, weighed down by disappointing results and a lack of clear participation in the broader rally. The divergence highlights a market that is still selective, rewarding growth visibility while penalising anything that hints at cyclical or structural fragility.

Macro remains in a holding pattern. The absence of major data or Fed communication ahead of the blackout period has left markets trading predominantly on geopolitical headlines and earnings anticipation. Strong retail sales provided a reminder that the US consumer remains intact for now, but the broader picture has not shifted materially. Policy expectations are largely unchanged, and the market continues to operate within a narrow band of outcomes: resilient growth, sticky but manageable inflation, and a Fed that remains on hold unless forced to act.

Across assets, volatility continues to compress. FX markets were notably subdued relative to recent weeks, with the dollar trading in line with incremental Iran-related developments rather than leading them. Risk reversals point to a market that is tactically long USD on geopolitical uncertainty but structurally biased toward weakness over a longer horizon.

In rates, the move higher in yields, particularly in the 2y–5y, reflects a modest re-pricing of risk rather than a decisive shift in the policy outlook.

The broader takeaway is that equities are grinding higher without a clean macro anchor. The leadership remains narrow and micro-driven, the drivers remain flow-driven, and the geopolitical backdrop continues to inject episodic volatility. As long as the AI capex narrative holds and ceasefire dynamics avoid a renewed escalation, the path of least resistance may still be higher. But the market is increasingly behaving like one that is being pulled upward by momentum.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Micro Is Leading”

• “Carry Trade Indication”

• “The Reverse ‘Saudi Put’ on Oil”

• “A Crypto Stealth Rally”

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Micro Is Leading

Macro factors have dominated equity direction in recent weeks. The S&P 500 moved lower in a relatively orderly fashion, as markets priced in war risk and attempted to map the economic spillovers from the Middle East. Positioning played a role here, with little appetite to press shorts. Memory of last April’s squeeze is still fresh.

As tensions between the US and Iran appeared to peak, markets were quick to rebuild length and chase the rebound, helped along by the reassertion of well-worn themes.

Last week marked a shift. Micro factors re-emerged as the primary driver, even if the headline index barely moved. E-mini S&P 500 futures finished the week up just 0.4%, masking a more active underlying tape. The index may look flat on the surface, but beneath it, areas of the market are running hot.

Semiconductors.

April has not yet drawn to a conclusion, but semiconductors are firmly living in the right tail.

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Alongside that, we outline a tactical UK rates expression. The recent run of inflation and PMI data has nudged the market toward a hawkish near-term narrative ahead of next week’s Bank of England meeting, and we do not think it is priced correctly.

Before turning to those trades, however, it is worth pausing on a potential macro constraint that sits just ahead. A statutory deadline tied to President Trump’s handling of the Iran conflict could bring Congress more directly into the decision-making process, shaping the next phase of the conflict in a way markets have not yet fully engaged with.

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Trump’s D-Day

We could be approaching an inflexion point in US policy toward the Iran conflict, not due to commodity supply chain issues or the Hormuz Blockades-of-all-Blockades, but rather to statutory constraints imposed by the 1973 War Powers Resolution.

Under this framework, the president can conduct military operations without congressional authorisation for up to 60 days following formal notification to Congress. Given that Trump notified Congress on March 1st, the current case sets a key deadline of May 1st.

To date, congressional Republicans have largely supported the administration, blocking Democratic efforts to curtail the campaign. However, the upcoming deadline is beginning to expose fractures within the GOP, which we believe markets haven’t fully appreciated. Several lawmakers have signalled that their support may not extend beyond the 60-day window without explicit congressional approval, raising the probability of a policy pivot or heightened political tension as the deadline approaches.

What are Trump’s options? Beyond the 60-day mark, the president faces three main pivots.

1. Seek formal authorisation from Congress

2. Begin a withdrawal of US forces

3. Invoke a limited 30-day extension to facilitate a safe exit

Notably, this extension does not legally permit continued offensive operations, constraining the administration’s flexibility.

Importantly, precedent suggests the administration could challenge or sidestep these constraints, which wouldn’t surprise us with Trump. Yet, in terms of the precedent we speak about, it was actually President Obama who continued the 2011 engagement in Libya beyond the 60-day mark and argued that US operations didn’t involve sustained fighting or ground troops. This did incur bipartisan backlash, so any similar move by Trump risks increasing political pressure, particularly as some Republicans have already framed the 60-day mark as a meaningful legal and institutional boundary.

We could term the May 1st deadline as “a discrete political catalyst.” What we mean by this is that Trump is going to struggle to keep this conflict going on his own terms. Rather, as of next week, Congress is likely going to have a much larger say in deciding the path of the war. In some ways, it should help resolve the question of where the conflict goes from here, given that the range of outcomes is relatively constrained; the conflict is either extended, curtailed, or escalated through congressional involvement.

Notable Mini-Thematics

We’ve added three new standalone baskets on Plutus this week, focusing on topical areas where we believe investors can generate alpha in the coming months.

AI vs AI-At-Risk

We believe this group of 20 names is well-positioned for the current regime, as the market increasingly distinguishes between beneficiaries of AI capex and those exposed to its second-order disruption.

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A 13% drop in WTI crude acted as the immediate release valve, easing inflation expectations and unlocking a broad rotation into fuel-sensitive sectors. Autos, airlines and discretionary gained, while the unwind in energy positions marked a clean reversal of one of the most crowded trades of the conflict period. Beneath that, however, the move had the hallmarks of a classic positioning squeeze. Heavily shorted baskets surged double digits, and both dealer desks and systematic flows pointed to continued mechanical buying.

Goldman Sachs estimates a further $70 billion in CTA demand for global equities over the coming sessions, on top of already significant inflows ($86 billion last week), suggesting the rally has been as much about forced participation as about improving fundamentals.

“Previous episodes of accelerated demand have seen short-term consolidation, followed by medium-term strength for the S&P 500,” Goldman Sachs’ Brian Garrett wrote, noting the US index is typically up by an average of 2.2% a month after such a buying spree, and up 8.2% three months later.

Earnings season has not yet provided a clean fundamental confirmation of the move, but it validates an economy that is neither overheating nor rolling over, giving a sturdier foundation for markets beyond the near-term bounce. Bank results were broadly underwhelming, with strong equity trading offset by softer FICC performance, pointing to a more mixed underlying environment than headline index levels might suggest. The market has been willing to look through this for now, aided by upward revisions to full-year earnings expectations, particularly in sectors tied to energy and semiconductors.

Macro data offered a constructive, if incomplete, backdrop. Softer-than-expected PPI and stronger regional activity surveys helped reinforce the idea that underlying demand remains intact as inflation pressures begin to moderate.

Alongside this, Fed communication continues to emphasise patience, with policymakers broadly aligned around the view that current policy is appropriately restrictive given lingering uncertainty on inflation. The modest re-pricing of rate cuts in OIS reflects that balance, shifting back toward easing (white) but without the conviction seen earlier in the year (blue).

Across assets, the response has been more nuanced than the equity rally might suggest. The dollar weakened sharply as geopolitical risk premia unwound, with positioning and hedging flows now pointing back toward a broader structural downtrend. The decline in oil has allowed for a partial re-steepening of the curve as front-end easing expectations returned. Options positioning, particularly in the 10-year sector, indicates growing confidence in lower yields into the next data cycle.

Taken together, the past week marks a clear inflexion in sentiment, but not necessarily a resolution of the underlying macro tensions. The market has moved quickly to price in a best-case near-term outcome (stable geopolitics, easing inflationary pressures, and resilient growth), but that equilibrium remains fragile. If the ceasefire holds and oil remains contained, there is scope for positioning and flows to carry equities higher in the near term. However, the speed and nature of the rally suggest it is still being driven more by the removal of tail risks than by the emergence of a new, durable macro regime.

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Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Thematic Leaders and Beta Chasing”

• “EZ Rates: Between the Baseline and Adverse”

• “Play the Dollar Range”

Thematic Leaders and Beta Chasing

US Equities

What stands out in the current tape is the clarity of behaviour. Leadership has re-emerged quickly, and it is unmistakably high beta. The market has pivoted from discounting a meaningful deterioration in growth to re-embracing the same pro-cyclical, momentum-driven themes that defined the pre-conflict regime.

The cross-section of returns reinforces that point. Month-to-date performance is dominated by Q1 leadership, with capital rotating back into the most reflexive expressions of the AI buildout. Memory has reasserted itself at the centre of that trade. Names such as Teradyne (TER US), Micron Technology (MU US), and Sandisk (SNDK US) — all of which delivered outsized gains into the pre-conflict peak — are once again among the primary beneficiaries of the rebound. The reappearance of these names in the top decile of performance is a re-leveraging of existing narratives.

Alongside this, the speculative layer of the market is behaving as one would expect in a positioning-driven rally. High short-interest baskets, meme equities, and de-SPAC cohorts have all materially outperformed, with month-to-date gains exceeding 20%. This reflects a mechanical unwind of bearish positioning rather than any fundamental reassessment of underlying cash flows. Short covering remains a core driver of the move, and it tends to be self-reinforcing in the early stages of a squeeze. Even Alt AMs and BDCs had a good week.

The chase for speculative beta is also prevalent in the market right now. Short interest, meme stocks, and de-spac baskets… all more than 20% higher month-to-date. The former is a fundamental example of the short covering underscoring this move higher.

Where the signal becomes more nuanced is in the options market. In a typical relief rally, implied volatility compresses in line with rising spot. Yet that relationship has loosened. While the S&P 500 has advanced, implied volatility (proxied by the VIX) has not declined proportionally. Instead, it remains relatively firm, reflecting a market that is not simply adding exposure but actively paying for convexity on the upside.

Flow data corroborates this. Institutional call-put ratios have reached their most elevated levels since late 2024, while call skew has repriced sharply higher. Non-0DTE index call volumes have accelerated, and single-name call demand has intensified. Investors are expressing bullish views through leverage.

This matters for the durability of the move. The current options positioning, particularly into expiry this Friday, leans heavily toward calls on a delta-adjusted basis. SpotGamma estimates suggest the latest expiry profile is among the most call-skewed on record, following a double-digit rally in the index over a compressed time frame. That creates a dependency on continued dealer hedging support. Should flows slow, or should investors choose to monetise rather than roll exposure, the hedging dynamic flips. Dealers would move from buyers of strength to sellers of weakness, amplifying any downside move in spot. After all, the tail risks have lessened, but it’s not out of the question for a spanner to be thrown into the works of the negotiation.

In that sense, the rally is increasingly endogenous. It is being sustained by flows that, if reversed, would act in the opposite direction with similar force. That does not invalidate the move, but it does make it more fragile than the surface price action suggests.

From an allocation perspective, the distinction between beta and fundamentals is important. The former has already moved aggressively; the latter still offers more durable entry points. Two areas we like:

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Global markets were busy dealing with the situation in the Middle East for much of Q1. This overshadowed events in Brazil, where a combination of early positioning ahead of the elections in the autumn, an energy-driven export tailwind and a continuing carry appeal in FX provided some with healthy gains across various Brazilian assets.

We turn to Brazil as one of our favourite places to allocate capital in the emerging market space right now. For some of the thematic drivers, like carry, the consensus framing is relatively simple and attractive. Yet for other narratives (that a shift to a right-wing regime under junior Bolsonaro would be a large positive), the picture is more nuanced.

Below, we outline our outlook on Brazilian politics, energy, interest rates, and broader cross-asset dynamics, alongside actionable trade ideas. Consider this a structured guide through one of the more compelling opportunities in emerging markets, best read with a caipirinha in hand.

SUMMARY

We believe that Brazil has the potential to outperform both at an absolute and relative level this year, based on three strands of reasoning:

• A Lula continuity victory could be taken as a better outcome than a right-wing regime change. Lula is not fighting Jair Bolsonaro, but rather his unproven son, who risks alienating voters from better right-wing candidates.

• The net energy export status provides beneficial terms of trade, boosting related domestic equities and providing a tailwind for continued BRL appreciation.

• Elevated interest rates will continue to satisfy yield-hungry investors, especially when paired with low-yielding currencies like JPY, which is likely to remain under pressure throughout this year. The potential for an energy-driven inflation shock further reduces the likelihood of any material easing from the BCB.

Continuity Over Convexity

A BTG Pactual/Nexus ​poll published at the end of March showed Brazil’s President Lula da Silva and Senator ‌Flavio Bolsonaro tied at 46% in a potential run-off in the October elections. When you consider that Bolsonaro only entered the race in December and had an assigned probability of winning of 15% in the middle of January, the poll highlighted a trend that had gone under the radar for much of Q1, namely that Bolsonaro is now seen as the main challenger to Lula.

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The bulk of the gains were concentrated early in the week, as confirmation that the ceasefire was holding triggered a broad unwind of defensive positioning built during the height of the conflict. By Friday, momentum had already begun to stall ahead of scheduled US-Iran negotiations, underscoring how dependent the rally remains on incremental geopolitical progress. The price action continues to reflect a market that is trading headlines, with conviction fading as soon as the news flow turns less constructive.

Sector dynamics reinforce that interpretation. The Magnificent Seven reasserted leadership, with technology and communication services driving index-level gains, while semiconductors benefited from renewed optimism around AI-linked investment. Announcements from CoreWeave, alongside incremental demand signals from Meta, Anthropic, and Alphabet, provided a reminder that the capex cycle remains intact despite recent volatility. However, the divergence within tech remains notable. Software names continued to lag sharply as the latest wave of AI product releases revived disruption concerns, leaving the sector caught between structural growth and existential risk.

Macro signals continue to complicate the picture. Inflation data offered some near-term relief, with headline and core CPI both coming in slightly below expectations. However, forward-looking indicators paint a less benign picture. Elevated services inflation and a sharp rise in inflation expectations suggest that the second-round effects of the recent energy shock may still be ahead. At the same time, hawkish undertones in the FOMC minutes highlight that the bar for policy easing remains high, even as growth signals show signs of softening.

Across assets, the adjustment has been orderly but incomplete. The dollar weakened on the ceasefire news, retracing much of its year-to-date strength, though the persistence of a positive oil-dollar correlation points to a market still anchored in geopolitical dynamics. In rates, the move has been more muted, with the Treasury curve stabilising after an extended flattening phase. The lack of a meaningful rally in bonds, even as risk assets bounced, suggests that markets are not yet prepared to price a material shift in the policy outlook.

Taken together, last week’s rally looked like a release valve.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “No Deal to Back Up the Rally”

• “Earnings Season Opens”

• “From Missiles to Models”

No Deal to Back Up the Rally

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Yet from a macro perspective, Q1 opened with a familiar tone. Disinflation narratives fraying at the edges, commodities reasserting themselves as the marginal driver of macro, and equity markets still leaning into a narrow set of secular winners.

That equilibrium of constrained volatility did not last for long.

With the benefit of hindsight, writing in April, what followed in Q1 was a period defined by an abrupt regime shift. More specifically, the conflict in Iran (which began on February 28th) provided a sharp transition from a pre-conflict environment to a global headache. It forced markets to confront the reality that geopolitics is no longer a background variable but a primary driver of cross-asset pricing.

For macro traders, the period was one in which a year’s worth of P/L could be made or lost in a single day. When considering moves in oil and Euribor futures, we can reframe the timeline to hours.

The distinction between thematic investing and tactical positioning blurred as macro shocks forced even the highest-conviction ideas to pass through a liquidity filter. This ultimately punished anyone that though those forces would play out in a straight line.

What follows is our attempt to map that transition, assess where we were right, where we were not, and how the experience reshapes our positioning into Q2.

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Q1

The portfolio entered the year leaning heavily into the themes that defined the tail end of 2025: commodities, defence, and the evolving AI stack. In the opening weeks of January, it felt as though we were playing a game of Texas Hold’em where we had been dealt the “bullets.”

However, the quarter can be categorised into two definitive dynamics: pre-war and post-war.

Commodities led the charge, as our thematic basket gained 30% into the end of February as the “debasement” narrative took hold. The momentum was checked by the silver crash in late January, but ultimately the names held up strong considering. The real momentum unwind in metals came after the start of the Middle-East tensions and forced a recalibration of these holdings and our “hot hand” portfolio.

Our defence exposure acted as a necessary hedge to this volatility, providing a steady return while the macro dust settled. Global geopolitical friction is now a permanent feature of the investment landscape.

The sudden removal of Maduro in Venezuela provided the catalyst for our idiosyncratic Venezuela basket, which capitalised on the prospect of regional stabilisation and debt restructuring to return 23.5% over the quarter since inception.

We also saw significant alpha from our alternative asset manager basket, which rose 18% since its inception in early February. This thematic was an expansion of a short trade that we started in Blue Owl (OWL US) in Q4 of last year. As the Software-as-a-Selloff trade consumed markets in the form of the latest AI development, we increased this single trade into a basket of short trades in BDCs, looking to gain from rising stress in private credit. Markets were already punishing private credit before the war, and a risk-off environment to end the quarter only aided these positions.

The market has a way of punishing hubris. The outbreak of hostilities in Iran shifted the board entirely. The dynamic played into your hand if you were a commodity-focused shop (notably Andurand, finishing Q1 up 31.1%), but the broader impact for strategies was a tougher one, and we did not go unscathed.

The most fascinating (and painful) development was the behaviour of gold. Despite its status as a geopolitical hedge, gold fell 24% following the breakout of the war. As we detailed in our market memo, we witnessed a decoupling: sovereigns who had spent years building gold reserves were forced to use the metal as a “funding vault” to acquire dollars for oil. The fundamental fear bid was overwhelmed by a need for liquidity.

Read more: “A Chink in Gold’s Armour”

To protect the core, we spent mid-March raising cash and reducing exposure across the portfolio. This defensive posture cushioned the end-of-quarter sell-off in the equity portion of the portfolio (tracked on RunPlutus).

FX & Rates Portfolio

Our dedicated commentary channel for FX and Rates is APFX Research, where users can find regular trade notes and a portfolio trade tracker.

YTD trades and performance can be found below:

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A ceasefire in Iran has come closest to fruition since the escalations began in late February. However, in keeping with the current administration’s preference for maximalist leverage, this isn’t so much a white flag as it is a tactical timeout defined by an aggressive “15-point plan.”

From “Obliteration” to “Optimisation”

For the markets, the shift is strong. We were staring down the barrel of a Tuesday evening deadline, the point at which the Strait of Hormuz was either to be reopened or the Iranian military was to face what President Trump termed an “obliteration” attack.

Instead of the fireworks, we got a two-week, “double-sided ceasefire.” The geopolitical risk premium in Brent is currently being re-indexed. Equities, particularly those sensitive to energy inputs, can finally take a breather. We are moving from a fear of escalation regime to a sceptical stabilisation regime.

The architecture of this truce, brokered via Pakistani mediation, is precarious. It hinges on Iran agreeing to the “complete, immediate, and safe opening” of the Strait of Hormuz.

While Tehran has signalled acceptance, the devil is in the jurisdictional details. Iran has stipulated that “safe passage” would occur in coordination with their own military. In market-speak, this is counterparty risk. If the Iranian Navy is the one coordinating the passage, the definition of “safe” remains entirely at their discretion.

The 15-Point Reality

The diplomatic math here is a hybrid of two competing visions:

1. The Iranian 10-Point Proposal, which Trump surprisingly called a “workable basis” for negotiations.

2. The US/Israel 5-Point Overlay, the “hard” conditions regarding regional proxies and nuclear enrichment.

Combined, this 15-point plan represents a messy Venn diagram. Some points overlap (opening the Strait), while others (disarming Hezbollah) remain total non-starters for Tehran.

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This week, our market wrap has been jointly composed in collaboration with . You’ll notice some of his trademark charts and thoughts interspersed through the article. For anyone unfamiliar with his work, you can access a free trial of his Substack content here.

Last week was effectively decided in a two-day window. Tuesday and Wednesday delivered the entirety of the S&P 500’s 3.4% gain, as headlines pointed to a potential de-escalation in the Iran conflict. That was enough to trigger a sharp unwind in bearish positioning, with short covering across hedge funds, CTAs, and systematic strategies driving a broad-based squeeze. Flows from pension rebalancing and quarter-end dynamics added fuel, turning what might have been a modest bounce into a more aggressive rally. By Thursday, the move had already begun to lose momentum. President Donald Trump’s renewed hardline stance on Iran briefly knocked sentiment before dip buyers stepped in, leaving the index marginally higher into the close.

Goldman Sachs and JPMorgan desks both pointed to the bounce being led by an unwind of extreme positioning, rather than a sudden change in investor sentiment.

Investors are in one of the biggest “rushes to cash” in history:

Semiconductor and tech hardware stocks led gains, not on improved fundamentals, but as positioning snapped back. Energy (the market’s leadership cohort for much of the past month) lagged sharply despite brent breaking to multi-year highs, a sign that the trade had become crowded and vulnerable to profit-taking.

Private credit continues to cast a shadow over financials, with Blue Owl limiting redemptions across two funds after a surge in withdrawal requests. The move reinforces the broader theme of tightening liquidity within the space, and the knock-on effect was visible across listed asset managers. Consumer staples, typically a defensive refuge, also showed signs of strain, with mixed performance reflecting uncertainty around both input costs and corporate activity.

The dollar softened modestly on the week, but broader dynamics remain intact. In rates, there was a partial reversal of the aggressive flattening seen in recent weeks, with 5s30s steepening modestly as growth concerns begin to challenge the inflation narrative at the margin. Options markets are beginning to reflect that tension, with positioning suggesting a growing appetite for downside yield moves even as inflation risks persist.

Markets are oscillating between two competing forces: the hope of de-escalation and the reality of a macro environment that has already tightened materially. The fact that a modest improvement in headlines can trigger such a sharp squeeze speaks to how extended positioning had become. But without a sustained shift in either geopolitics or inflation dynamics, rallies are likely to remain fragile. For now, this looks like a reset in positioning rather than a reset in trend.

From the visuals that Macro Charts is observing, speculative ‘animal spirits’ have collapsed since October — but are still declining and could go lower. Buy signals are pending:

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “NFP: Strong Headline, Softer Reality”

• “Energy Shock Hits CPI”

• “Oil’s Physical Air Pocket”

NFP: Strong Headline, Softer Reality

US job growth rebounded in March, with nonfarm payrolls rising by 178,000 (vs 60k expected) and the unemployment rate edging down from 4.4% to 4.3%. In fact, the headline figure was the highest in almost 18 months.

The boost was supported by broad-based hiring, led by healthcare, alongside gains in construction and transport. Manufacturing activity also staged a recovery, with the strongest hiring since the end of 2023.

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This provided another Jenga-style piece removal of security with which the US economy is currently being propped up. The ongoing conflict in Iran is causing some to increase their probability of a recession. Although we wouldn’t position ourselves in the eternal optimists bucket, we believe there are several reasons why it’s still far too premature to start throwing around the R-word.

Things Are Different From 2022

Ok, technically, the last official US recession was in 2020. However, US GDP in the first two quarters of 2022 almost triggered a technical recession and provides us with the most recent blueprint to compare to. It’s also a relevant comparison due to surface similarities around an energy shock and geopolitical uncertainty from the start of the Russia-Ukraine conflict.

However, on reflection, the current macro backdrop differs materially from the 2022 recession template. Most importantly, the inflation dynamic is far less entrenched today. In 2022, economies experienced a shock as accelerating wage growth and tight labour markets emerged from the Covid pandemic, creating the conditions for a wage–price spiral. By contrast, wage growth is now moderating and labour market sentiment has softened significantly, reducing the risk of persistent inflation and pointing instead toward a more disinflationary or even deflationary impulse.

Policy settings also start from a fundamentally different place. Central banks entered 2022 well behind the curve, with rates deeply below neutral and forced into aggressive catch-up tightening (Powell might never live down his “transitory” comment from that time). Today, policy rates are already closer to neutral, with the Fed well into its easing cycle.

Finally, the labour and technology backdrop introduces a new asymmetry. Whereas 2022 was defined by labour scarcity, today’s environment is increasingly shaped by concerns around AI-driven labour displacement, contributing to weaker employment expectations and dampening wage pressures. Taken together, the current cycle lacks the key ingredients that drove the stagflationary shock in 2022.

Granted, this doesn’t excuse the worries about US vulnerability to growth downside, but it’s unlikely to result from a 2022 repeat of persistent inflation.

Current Indicators

There’s no exact science in determining which metric is the best when trying to predict a recession. Yet even if we take a spread of some of the most widely used or vouched-for, the probability still appears to lack any significance:

Bloomberg median forecasted probability of recession in 2026 (%):

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Early-week optimism proved fleeting. Hopes for a diplomatic off-ramp and a temporary reprieve in oil prices supported a modest bid on Monday, but conviction remained shallow. By midweek, now-familiar uncertainty intensified, energy prices firmed, and markets confronted the implications of a more persistent shock. Selling accelerated into the latter part of the week, leaving the S&P 500 at its lowest level since August and within striking distance of a technical correction. No one is willing to hold risk over the weekend.

Technology remains the epicenter of weakness. The sector is contending with a dual headwind: geopolitical risk and a growing reassessment of AI-driven valuations. Reports around Anthropic’s latest model and efficiency breakthroughs from Google have added to concerns that the competitive landscape is shifting faster than expected, weighing on semiconductors, cybersecurity, and broader software.

By contrast, the leadership is narrow. Energy continues to outperform as crude prices remain elevated, extending its run of relative strength and marking yet another record for the sector. Defensive areas such as consumer staples and utilities have also started to find a bid, reflecting a more traditional late-cycle posture as investors rotate toward balance sheet resilience and pricing power.

Positioning and sentiment are beginning to shift alongside price action. The early phase of the conflict was characterised by a willingness to fade the move, anchored in expectations of a quick resolution. That assumption is now being challenged. Sell-side desks are increasingly flagging the risk of complacency, with a growing recognition that elevated energy prices, if sustained, will have a more material impact on both growth and inflation than currently priced. The debate has moved from whether to buy the dip to whether the market is entering a more protracted adjustment phase.

Macro signals are reinforcing that shift. Inflation-sensitive data is beginning to pick up, with import prices surprising to the upside and providing an early indication of pass-through effects. Fed communication has remained firmly cautious, with the balance of risks tilting away from easing and, at the margin, reopening the possibility of further tightening should inflation pressures persist. Rate markets have responded accordingly, with expectations for cuts continuing to be pared back and tail-risk hedging around hikes starting to re-emerge.

Across assets, the US dollar has resumed its grind higher, supported by rising front-end yields and persistent geopolitical demand. The curve continued to flatten, with weak auction demand highlighting investor reluctance to add duration at current levels. Options markets are beginning to reflect a shift in regime as well, with positioning increasingly skewed toward protection against further policy tightening.

The key takeaway is that markets are trading a change in conditions. The combination of elevated energy prices, tighter financial conditions, and diminishing policy flexibility is creating a more fragile equilibrium for risk assets.

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Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Far More Reactive to Relief”

• “OECD Flags Risks to Inflation”

• “Safe Jobs, Hard Problem (NFP Preview)”

• “China’s Decoupling from Oil Risk”

Far More Reactive to Relief

After a bruising month that has pushed the Nasdaq into correction territory and dragged the S&P 500 close behind, the question is no longer whether the news flow is bad, but whether that bad news is already reflected in positioning.

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The recent drawdown in gold prices has been, in a word, violent. After a multi-year rally that seemed to defy the gravity of high real rates, the yellow metal has hit a wall of selling pressure. But to paraphrase a market adage: do not mistake a liquidity event for a change in regime. Our assessment is that the fundamental drivers of the gold bull market remain not only intact but are actually being strengthened by the very volatility that is currently depressing prices.

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Sovereign Sellers

The primary question on every desk right now is why gold is falling exactly when the geopolitical risk, specifically the escalation of the Iran war, is at its zenith. That answer lies in the plumbing of global finance, not in a sudden loss of faith in gold’s value. Gold is often described as the “ultimate haven,” but in the initial stages of this crisis, it functions as the “ultimate liquidator.”

The recent selloff has been predominantly driven by the urgent liquidity needs of major sovereign actors. For several years, central banks, particularly those in emerging markets, have been the dominant source of inflows into the gold market. However, a war in the Middle East and the resulting closure of the Strait of Hormuz create a specific kind of financial stress. When oil prices spike and regional currencies come under pressure, these same sovereigns often have to de-gross their portfolios to raise immediate cash.

In the early stages of a major macro correction or a geopolitical shock, investors and sovereigns alike sell what they can, not necessarily what they want to. Because gold is a highly liquid, deep market with no counterparty risk, it is the first ATM that central banks visit when they need to defend a currency or cover margin calls on falling equity positions. These liquidity-driven moves often disregard long-term fundamentals in favour of immediate solvency. When the Strait closes, the need for dollars becomes the only game in town.

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The S&P 500 opened with a bid, supported by tentative signs that traffic through the Strait of Hormuz could resume in some form. Crude drifted lower, with WTI briefly falling toward $94, and equities responded accordingly as dip buyers stepped back in. For a moment, the market was willing to treat the conflict as containable.

The optimism proved fragile by the midweek, with the narrative shifting decisively as attacks on energy infrastructure escalated. Iran confirmed damage to the South Pars gas field, while Qatar reported extensive disruption at a major LNG facility. Oil prices reversed sharply higher and, more importantly, the market was forced to reassess the persistence of the supply shock. At the same time, the policy backdrop turned more restrictive. Federal Reserve Chair Jerome Powell acknowledged that rate hikes had been discussed as a potential next step, with the ECB and BoE reinforcing that shift a day later. Rate-cut expectations are out of the picture, and equity outflows accelerated into the back half of the week.

By Friday, the S&P 500 had fallen to a six-month low, the Russell 2000 entered correction territory, and megacap tech traded meaningfully below recent highs. The idea that there was a “safe corner” of the equity market continued to break down, with correlations rising and diversification offering little protection.

Sector performance reflected the macro shift. Energy outperformed again as crude prices moved higher, while financials were the only other group to finish in positive territory, helped by the Fed’s proposal to ease capital requirements for large banks. In contrast, materials and consumer staples lagged as rising input costs and inflation expectations weighed on margins. The weakness in materials has been particularly notable, with the sector reversing sharply from one of the year’s strongest performers to one of the worst since the conflict began.

The broader message from positioning is changing. A market willing to fade geopolitical risk has now transitioned into one that is questioning the duration and economic impact of the shock. Sell-side desks are increasingly flagging complacency, with the risk that investors have underestimated how persistent elevated energy prices can be for both growth and inflation.

Citi’s Macro Risk Index consists of asset prices sensitive to risk (which includes credit spreads, Treasury bill-OIS spreads, basis swaps, asset swaps, VIX, etc.), and has been rising sharply, although it remains below its April 2025 high.

Policy is reinforcing that move. The Fed held rates unchanged, but the signal from the meeting was clearly hawkish. The bar for cuts has risen materially, with policymakers emphasising inflation risks and even entertaining the possibility of further tightening. Markets responded by aggressively repricing the front end, with Fed funds futures briefly pricing tightening scenarios and OIS stripping out much of the easing expected just weeks ago.

Across assets, the adjustment has been consistent. The US dollar ended the week softer but remains structurally supported, particularly as global central banks move in a similarly hawkish direction. In rates, the curve flattening intensified, with evidence of position unwinds and a broader recalibration of rate expectations. The inversion in longer-dated segments such as 20s30s highlights how much of the adjustment is now being driven by inflation risk rather than growth optimism.

Energy prices, policy constraints, and geopolitical uncertainty are feeding into each other, leaving equities in a position where rallies struggle to hold and downside moves build gradually. Until there is clarity on either the trajectory of the conflict or the path of inflation, the pattern of early optimism and late-week selling looks less like noise and more like the defining feature of this phase.

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Let’s get into the guide to trades moving markets, where things stand and where they may be heading. Following last week, the focus remains very much in the rates and FX space.

• “Gilts Get Renewed Headaches”

• “Sell the Liquid Winner”

• “The Underlying Dynamics Pushing USD/JPY Higher”

Gilts Get Renewed Headaches

UK Gilts experienced a sharp and disorderly repricing over the past week, with the 10-year surging through the 5% threshold for the first time since the global financial crisis, marking a decisive break from the disinflationary backdrop that had dominated pricing earlier in the year.

The adjustment has been particularly acute at the front end, where two-year yields have repriced aggressively higher as markets rapidly abandon expectations for rate cuts and instead begin to discount a renewed tightening cycle from the Bank of England. It has been nothing short of a very eye-opening move whereby the gilt market has transitioned in a matter of days from a “late-cycle easing” framework to one centred on renewed inflation risk. UK 1-year inflation swaps have moved sharply higher, rising by approximately 50bps to trade above 4%, while 5-year breakevens have also drifted upward.

The core of the move has been the sharp escalation in global energy prices following the Middle East conflict, which has reintroduced a classic cost-push inflation shock into an economy already exhibiting fragile growth dynamics. As we’ve noted since the conflict began, along with the EU, the UK does have a structural sensitivity to imported energy, which therefore feeds directly into inflation expectations. Yet the move in Gilts has been compounded by the BoE’s own communication, which, while holding rates steady, explicitly acknowledged upside risks to inflation and signalled that further tightening may be required if second-round effects materialise.

Having to wheel out Governor Bailey for media appearances on Thursday afternoon after the meeting goes some way to show how keen they were to try and calm the markets down (which didn’t do much good).

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Markets tend to assume that geopolitical crises escalate until something breaks. History suggests the opposite is often true. The moment when investors begin to imagine the worst is often when the incentives to avoid it become overwhelming.

The confrontation around Iran has quickly become one of those moments. Oil has surged, tanker traffic has slowed almost to a stop, and risk assets have been forced to price a scenario that earlier this month sat firmly in the tail of the probability distribution.

Yet crises are rarely governed purely by ideology or military logic, and are more often constrained by economics, domestic politics, and the basic question of who, if anyone, actually benefits from prolonging the conflict.

Viewed through that lens, the current standoff begins to look less like the start of a long war and more like a high-stakes game of incentives (something we should be used to in Trump-office markets). And once those incentives are mapped out, several conclusions follow, including one that markets may not yet fully appreciate.

Hormuz has to reopen.

Problems in the Strait

At a fundamental level, a prolonged conflict is not in the economic or political interest of most actors involved, including Iran itself.

The Strait of Hormuz, through which roughly 20% of global oil and LNG flows transit, is a critical artery not only for Gulf exporters but also for Iranian crude shipments. Sustained disruption would therefore undermine Iran’s own ability to export oil (much of which is sold to China) and deprive the regime of one of its most important sources of foreign currency. Even amid the current crisis, tankers carrying Iranian crude have continued to transit the strait toward Asia, highlighting Tehran’s reliance on the route for revenue.

A similar logic applies to the broader region. Gulf producers, Asian importers, and Western governments all have strong incentives to prevent a durable closure of Hormuz, given the scale of global supply at risk. Tanker activity has slowed to a snail’s pace, with severe implications for global growth and energy prices if it continues for much longer.

Trump Has an Eye on Midterms

From a domestic political perspective, there are also strong incentives for the White House to avoid a prolonged conflict. President Trump has historically framed his foreign policy around decisive outcomes and rapid demonstrations of strength rather than open-ended military engagements.

A drawn-out confrontation with Iran risks undermining that narrative, particularly if it results in sustained instability in energy markets, higher fuel prices for US consumers, or the perception that Washington has been pulled into another costly Middle Eastern conflict. With the US midterm elections approaching, the administration will likely be acutely aware that geopolitical crises can quickly become domestic political liabilities.

Energy prices are particularly sensitive in this context. A persistent spike in crude would feed directly into gasoline prices, a metric closely watched by voters and historically correlated with shifts in political sentiment. For any administration heading into a midterm cycle, a sharp increase in pump prices can act as a powerful amplifier of broader concerns about inflation and the cost of living.

The optics are therefore important: a conflict that drives oil materially higher risks turning a geopolitical event abroad into an economic grievance at home.

In that sense, the political calendar matters. Midterm elections often serve as referendums on the incumbent administration’s economic management and overall competence. Allowing a geopolitical crisis to evolve into a persistent economic shock, particularly through higher energy prices or financial market volatility, would risk complicating the administration’s domestic narrative at a sensitive moment.

Peak Fear Priced

There are increasing indications that markets may already have priced in peak geopolitical fear around the Iran conflict, which could limit the scope for further large downside moves in risk assets.

Recent price action across asset classes suggests that the most aggressive phase of the risk-off adjustment may already be over (see Brent, G10 STIR, etc.).

Positioning indicators flagged levels of stress comparable to major crisis periods, with volatile markets briefly showing dynamics similar to those seen during the early stages of the pandemic. At the same time, cross-asset repricing was swift and broad, with equities, rates, and commodity markets all rapidly incorporating a higher geopolitical risk premium. This type of sharp, front-loaded adjustment is often characteristic of the point where markets begin to price worst-case scenarios rather than base cases.

From a market-structure perspective, the key point is that large directional moves become harder to sustain once investors have already repositioned defensively. In the latest selloff, the biggest drawdowns occurred in markets that had been the strongest performers earlier in the year, suggesting that investors rapidly reduced risk in crowded positions.

Historically, such episodes of intense repositioning often mark the moment when fear peaks rather than when the decline begins, as the marginal seller becomes exhausted.

Importantly, the focus for markets tends to shift from the absolute level of geopolitical risk to the change in expectations. Even if tensions remain elevated, what matters for pricing is whether conditions are getting worse or simply becoming “less bad.” Once the trajectory of events stabilises, markets often begin to recover even while the underlying geopolitical situation remains unresolved.

The likely outcome is that volatility gradually subsides and the geopolitical risk premium embedded in assets begins to compress as investors reassess probabilities rather than possibilities.

Positioning for De-Escalation

Oil Lower

• Buy a 2x1 put spread on COM6 (spot ref 102.50)

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From Tuesday onward, a barrage of geopolitical headlines reignited inflation fears, pushing Treasury yields higher across the curve and extending the rally in the US dollar. By Friday, the index was sitting only marginally above its 200-day moving average, a level many investors had hoped might provide a near-term floor.

Sector leadership reflected the macro shock. Energy was the only group to post meaningful gains as crude prices surged, while defensive areas such as consumer staples and utilities held up relatively well as investors reduced cyclical exposure. Materials, industrials and consumer discretionary stocks bore the brunt of the selling as markets reassessed the economic implications of sustained high oil prices. Even the Magnificent Seven were not spared: the group slipped into correction territory as higher yields and geopolitical uncertainty pressured valuations. Interestingly, some investors appeared to treat parts of the software sector as a defensive allocation, reflecting the market’s search for businesses less directly exposed to commodity shocks or global trade disruption.

Financial stocks faced an additional headwind as stress in private credit markets intensified. A series of developments highlighted growing liquidity strains across the $1.8 trillion industry, with JPMorgan restricting some lending to private credit funds after marking down software-linked loans and Morgan Stanley and Cliffwater capping withdrawals from multi-billion-dollar credit vehicles following heavy redemption requests. The measures underscore concerns that the long-feared “cockroach” phase of the private credit cycle may be emerging, amplifying downside pressure on bank and asset manager equities.

Macro data did little to offset those concerns. Inflation readings remained elevated even before the latest oil shock, while fourth-quarter GDP was revised sharply lower, reinforcing the increasingly uncomfortable mix of slowing growth and persistent price pressures. Core CPI and PCE held near expectations but remained well above the Federal Reserve’s target, leaving policymakers with limited room to respond if energy prices feed further into inflation. Markets responded by aggressively repricing the rate path, with expectations for easing this year pulled back sharply as the conflict raised the risk of a more prolonged inflation impulse.

Cross-asset moves reflected that shift in macro expectations. The US dollar continued to strengthen as investors sought safety and as higher oil prices supported US terms of trade, pushing one-month risk reversals to their most bullish level in several years. Treasury yields moved higher as well, led by the front end where two-year yields rose more than 15 basis points amid a sharp repricing of rate-cut expectations. OIS markets now price only modest easing through the end of the year, down significantly from the outlook before the Iran conflict escalated.

Taken together, the market is increasingly being shaped by geopolitical dynamics rather than traditional economic drivers. As long as oil prices remain elevated and the conflict shows little sign of resolution, risk assets are likely to remain highly sensitive to headline risk, with the path of energy prices continuing to dictate the broader macro narrative.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “The Incentives to De-Escalate”

• “Rate Decisions in a World of Oil Shocks”

• “The Next Trade War”

The Incentives to De-Escalate

Reports over the weekend suggest that a potential diplomatic off-ramp may be emerging in the Iran conflict, even as the fighting continues. According to reporting cited by NBC News, US officials say Iran has signalled a willingness to negotiate a ceasefire or broader deal, though the current terms under discussion have been rejected by Washington as insufficient. President Trump said Tehran “wants to make a deal,” but indicated he was not prepared to accept the proposal yet, arguing that any agreement would need to be “very solid” and meet stronger US conditions.

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Yet stepping back from the noise, the research coming out from the Street offers a useful framework for navigating the week ahead. In summarising four of our favourite reads from this week, we note HSBC’s message is that markets have already travelled a long way in pricing fear. Bank of America thinks the supply disruption eases later this year, with Barclays’ equity derivatives desk liking an equities lower/yields higher play. As for Deutsche Bank, they still believe the current sell-off falls short of previous crisis thresholds.

None of the below should be taken as fact, but when setting up for another volatile week ahead, knowledge is power.

HSBC Says We’ve Hit “Peak-Fear”

Summary View: HSBC argues that the sharp market moves following the escalation in the Middle East likely marked a “peak fear” moment, with positioning and volatility indicators reaching levels comparable to early pandemic stress. Recent headlines, with little serious escalation, led the bank to conclude that markets had overshot to the downside and were pricing a scenario unlikely to deteriorate further.

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War in the Middle East dominated markets this week, sending volatility higher across asset classes and pushing investors toward a defensive posture. The VIX closed near 30, its highest level since April, while WTI crude surged above $90 per barrel for the first time since 2023 after gaining more than 30% on the week. The move reshaped sector leadership immediately. Energy and defence stocks benefited from the spike in oil prices. Still, most other parts of the market struggled as investors grappled with the inflationary implications of a sustained energy shock.

The macro narrative quickly shifted toward stagflation. A weak non-farm payrolls report reinforced concerns that economic momentum is cooling just as oil prices surge, an uncomfortable combination for risk assets. Consumer-facing sectors came under particular pressure as markets began to consider the effect of higher fuel costs on household spending. Materials, consumer staples, and health care were among the hardest-hit groups.

Financial stocks were pulled into the same wave of uncertainty while also facing renewed concerns in private credit markets. BlackRock reportedly wrote down a previously fully valued $25 million private loan to zero only three months after assigning it a full valuation, and subsequently restricted withdrawals from its $26 billion HPS Corporate Lending Fund after redemption requests accelerated. The developments reinforced a broader narrative that liquidity mismatches within the $1.8 trillion private credit market are beginning to surface more visibly, adding another layer of fragility to an already uncertain macro backdrop.

The rise in oil prices now sits at the centre of the market outlook. Crude prices sustained in the $90–$100 range tend to weigh on equity performance over the following year, largely due to their inflationary effect on the broader economy. With tensions in the Middle East escalating and the risk of supply disruptions through the Strait of Hormuz still present, markets remain highly sensitive to any headlines that could shift the trajectory of energy prices.

Cross-asset moves reflected this dynamic throughout the week. The US dollar strengthened as the inflationary impulse from higher oil prices supported demand for the currency. At the same time, the weak payrolls report only briefly interrupted the broader trend of USD buying. In rates markets, yields rose sharply in the five- to ten-year sector as investors priced a more inflationary near-term outlook and scaled back expectations for policy easing, bear flattening the curve in the process.

Taken together, markets are now navigating an increasingly difficult macro mix. Growth indicators are weakening while energy prices are pushing inflation expectations higher, leaving the Federal Reserve with little room to move in the near term. For investors, the result is a market that remains highly sensitive to geopolitical developments, with oil prices likely to remain the key variable determining the direction of risk assets in the weeks ahead.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “The Strait is Closed, the Reserves Are Open”

• “The Private Credit Stress Test Begins”

• “Misallocated Moves in Rates”

• “The Last Mile Problem (US Inflation Preview)”

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The Strait is Closed, the Reserves Are Open

Part I of our All Happening on the Everything Front is now free for all readers. Part II continues below:

The surge in crude prices following the escalation in the Middle East is already large enough to begin reshaping the macro outlook for inflation, growth and asset prices. Investors spent much of the past year assuming that energy would remain broadly contained, an anchor that allowed central banks to cautiously move toward easing policy without reigniting inflation. That assumption is now under pressure.

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The AI “scare trade” returned with force, and this time it wasn’t contained to speculative corners. A dystopian thought exercise from Citrini Research metastasised into a broad de-risking event, reinforcing a pattern that has defined 2026: anything perceived as capital-light, labour-dependent, or digitally exposed gets sold on the open. The selling was mechanical and reflexive, and by Monday’s close, it had already done its damage. IBM posted its worst day in 25 years. Payments, wealth managers, asset-light logistics — all swept into the same narrative vortex.

The more important signal was the shift in leadership.

Defensive sectors outperformed decisively. Utilities, staples and healthcare attracted capital in what looked less like a tactical rotation and more like a regime hedge. Goldman Sachs’ HALO basket (heavy assets, low obsolescence) has now outperformed capital-light peers by roughly 35% year-to-date. The market is increasingly rewarding tangible asset bases and pricing power over growth narratives tied to human or digital capital.

Even Nvidia could not arrest the drift. Strong headline numbers were met with indifference, and then outright selling. The stock trades at a multiple that would typically signal value relative to its growth profile, yet the marginal buyer is demanding proof that AI capex is durable. The burden has shifted from “how big can this get?” to “how long can this last?” When the market stops celebrating beats and starts interrogating sustainability, leadership fatigue is setting in.

Financials layered on their own stress. Private credit cracks widened, dividends were cut, redemption gates tightened, and the KBW Bank Index logged its worst drop since April’s turmoil. Credit spreads moved with it. Dimon’s “cockroaches” analogy resurfaced, and whether justified or not, the perception of latent balance-sheet risk was enough to tilt flows further defensive. The quiet storm in private markets is now visible enough to influence public ones.

Macro provided little relief. PPI printed hot, services inflation remains sticky, and Fed commentary stayed aligned with a prolonged hold. Rate-cut expectations remain clustered in September and December, but the path there looks less certain. The tariff workaround from the White House complicates the disinflation story further, reinforcing the sense that monetary policy is on pause rather than pivoting.

Cross-asset confirmation was clear. The dollar stabilised. Meanwhile, the 10-year yield breaking below 4% marked a flight-to-quality move. Bond options activity targeting sub-3.8% yields reinforced the idea that hedges are being layered.

All of last week’s events were capped by a weekend of major escalations in the Middle East. That creates the central focus for our writing and thoughts this week. So…

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “The Mechanics of Middle East Oil Risk”

• “Oil Scenario Analysis”

• “The Haven Bid”

• “NVDA’s Changing Tone”

• “EM Bears Are Extinct”

The Mechanics of Middle East Oil Risk

Geopolitics has returned to its familiar setting. The so-called Gulf of Nothing Ever Happens is once again being asked to matter for oil markets. It occasionally does. When it does, it matters quickly.

Before turning to scenarios, it is worth discussing barrels, infrastructure, and incentives.

Iran’s Production Machine:

Iran currently produces roughly 3.3 million barrels per day, up from sub-2 million barrels per day in 2020, despite the persistence of sanctions.

About 90% of exports now flow to China, largely via private refiners willing to absorb sanction risk in exchange for discounted crude. The trade is sustained by a shadow fleet of ageing tankers that routinely disable transponders and operate outside conventional monitoring channels.

Domestically, refining capacity is anchored by the century-old Abadan refinery (capacity >500 kb/d), alongside major complexes at Bandar Abbas and Persian Gulf Star, the latter geared toward condensate processing. Tehran itself hosts an additional refinery, underscoring that Iran’s system is geographically diversified rather than concentrated in a single node.

Exports, however, are concentrated.

Kharg Island Is the Real Fulcrum:

Nearly all seaborne Iranian crude moves through Kharg Island, the country’s primary export terminal in the northern Gulf. The facility includes multiple loading berths, offshore mooring points, and storage capacity measured in the tens of millions of barrels, with throughput exceeding 2 million barrels per day in recent years.

That concentration creates efficiency and vulnerability for Iran.

Weekend reports of an explosion on the island (notably without confirmation of damage to export infrastructure) highlight the distinction markets must make between events and disruptions. Oil only reacts to the latter.

Iran has reportedly accelerated tanker loadings in recent weeks, echoing behaviour observed ahead of last year’s hostilities. Barrels on water are harder to target than barrels in tanks.

The Strait of Hormuz Threat:

On February 1, Tehran signalled that it could close the Strait of Hormuz, the transit corridor for a substantial share of global crude and refined product flows, as well as Qatar’s LNG exports.

This remains the market’s nightmare scenario, but it is historically unprecedented.

Even partial disruption would matter. Saudi Arabia and the UAE have limited pipeline capacity that bypasses the strait, but it is not enough to offset a full closure. A sustained blockage would constitute a genuine supply shock.

Yet most analysts judge that Iran could not maintain such a closure for long against international naval pressure. Accordingly, the more plausible playbook consists of disruption rather than a full shutdown of oil passageways:

• Harassment of shipping

• GPS jamming (nearly 1,000 vessels per day experienced interference during last year’s conflict)

• Selective infrastructure strikes, as seen in the 2019 Abqaiq attack that temporarily removed ~7% of global supply

• Sea mines are another long-threatened option for deterring shipping

These tactics raise insurance costs, slow flows, and inject risk premia without triggering outright war.

Iran must also calibrate escalation against its relationship with China, its primary crude customer and diplomatic shield at the UN. Actions that materially threaten Gulf exports would run directly counter to Beijing’s energy security interests.

But the Market Has Already Run This Drill

The price response during last year’s conflict provides a useful template. Brent spiked above $80, its largest rally in more than three years, only to retrace once it became clear that physical infrastructure remained intact.

By the end of 2025, macro concerns about oversupply had pushed crude roughly 18% lower year-on-year, reinforcing the idea that structural balances still dominate episodic geopolitical risk.

And yet, despite that bearish backdrop, prices have risen ~19% this year, in part reflecting renewed fears of US-Iran confrontation. The geopolitical premium is back, but remains contingent.

A useful empirical rule of thumb comes from historical analysis: A 1% reduction in supply has tended to produce roughly a 4% increase in prices.

This elasticity explains why markets react violently to even small probabilities of disruption, and why rallies fade quickly when flows remain uninterrupted.

The Reality

The current situation is less about whether tensions exist (hint, they always do) and more about whether they translate into measurable supply loss.

But because the infrastructure is concentrated and spare capacity is finite, traders cannot afford to ignore it either. The region does not need to explode to move prices; it just needs to possess the possibility that it might.

Oil Scenario Analysis

Distilling thoughts into actionable ideas is ultimately where the money is made. We believe the US won’t leave Iran until a new regime (that’s friendly towards the US) is in place. We also believe it’s not in any of the allies’ interests to see this as a drawn-out conflict, so we struggle to see it continuing beyond the next 4-6 weeks.

On that outcome, oil will trade lower, as the risk premium currently implied evaporates and supply comes back online without any constraints.

Such a move lower likely coincides with lower implied volatility in the options space. Therefore, simply buying a put option leaves someone exposed to volatility decay. We like to take this off the table via a CL put spread on M6.

Buy CLM6 1.5x Lev Put Spread

Buy $65 strike 1x Put and sell $60 1.5x strike Put for corresponding May expiry for an upfront cost of $0.85, for a max payoff of circa 5.5:1. Downside kicks in at circa $51.50. Loss capped at premium paid for spot > $65

As was experienced with the whipsaw price action last year, when a similar scenario looked likely to play out, trying to trade this view via spot simply doesn’t work.

The tail risk of a survival of the regime, along with significant retaliation from the nation, can’t be ignored.

The Haven Bid

There is no such thing as a perfect shelter in a sustained Middle East conflict. Markets can reprice everything when geopolitics turns structural rather than episodic. The question is not which asset is immune, but which one fails the least.

On that score, the dollar still looks difficult to dislodge, even with its recent struggles.

Predictions of its decline have become a regular feature of market commentary, yet when judged against the practical criteria of a haven (negative correlation to risk assets, deep liquidity, perceived store of value, and institutional credibility), no rival quite matches it. Gold has history but lacks stability. The yen has tradition but no longer offers policy independence. The euro offers size, though not unity. The renminbi offers neither convertibility nor trust.

The present shock also carries an inflationary signature. Reports that Iran is obstructing transit through the Strait of Hormuz threaten a material energy supply disruption. Even with OPEC+ pledging modest production increases, the risk premium in oil is unlikely to vanish quickly. This is classic cost-push inflation: a supply constraint rather than an overheating demand cycle.

Here the US enjoys a structural advantage it did not possess in previous Middle Eastern crises. The shift from net energy importer to exporter subtly alters the macro transmission mechanism. Higher oil prices deteriorate the terms of trade for Japan, the euro area and the UK, all large energy importers. For the US, the effect is more ambiguous and potentially supportive at the margin.

Because commodities are priced in dollars, any appreciation of the currency mechanically intensifies the shock for importing economies. The stronger the dollar, the more acute the squeeze abroad.

From a growth perspective, the US slowdown is therefore likely to be milder than that faced by its peers. That in turn grants the Federal Reserve more room to remain vigilant against inflation. With fiscal policy still expansionary and monetary conditions not overtly restrictive, the hurdle for rapid easing rises. In that environment, Treasuries struggle to rally convincingly while the dollar benefits from relative policy firmness.

Real assets deserve mention. Gold and broader commodities traditionally provide protection in inflationary episodes. Yet their volatility is not trivial, and after sharp advances they tend to invite profit-taking precisely when investors most desire stability. A hedge that demands strong nerves is not a universal haven.

Which brings us back to the dollar. It may not be loved, but in moments of stress, markets rarely vote with affection. They vote for liquidity, institutional depth and relative resilience. On those measures, the greenback remains ahead — not flawless, merely first among imperfect alternatives.

NVDA’s Changing Tone

AI is an overarching market theme, but one that ebbs and flows within our guide to themes moving markets week to week.

Nvidia reported, and in a changing tone from recent years, markets barely budged. Perhaps because Nvidia’s guidance is just the other side of the story markets already know well: $650 billion in capital expenditure.

The other consideration we have is less about Nvidia itself and more about what its success implies for the rest of the ecosystem. Strong Nvidia results once acted as a clean read-through for the broader AI trade. “NVDA guides higher = Reward the AI trade.” A question we’ve asked ourselves recently is, “Does NVDA’s success fuel the downside concerns of AI, such as that happening in the software selloff right now?”

A lacklustre response to earnings last week may be an indication that the process has changed, and a stronger Nvidia means more disruption concerns for markets.

Yet, turning to the positive takeaways from the results, Huang pushed back on concerns about the sustainability of AI spending, arguing that customers are already making money from their newly acquired computing power. At the same time, the CFO, Colette Kress, alleviated concerns about the supply chain, noting that the company has supply commitments to fulfil orders well into 2027.

The only concern, one that hands over the entire industry and not Nvidia alone, is related to a memory shortage. Costs are surging from a supply that cannot meet the demands of the AI buildout, but Huang reported that it had supply visibility into 2027 and that its prized mid-70s gross profit margin would be maintained.

The results validated what markets already assumed and gave no downside risks, leaving positioning unchanged rather than forcing a new leg of the trade.

EM Bears Are Extinct

Emerging Markets have continued their standout start to 2026, and are worth a few comments as an update.

EMs started the year as a consensus trade, with money managers betting that a multi-year cycle of investment inflows is underway. Up 14% against DM’s 3% YTD return, it’s fair to say so far, so good on that bet.

The move reflects policy uncertainty and a widening US fiscal deficit that has prompted investors to diversify away from dollar exposure, while Japan and Germany have also increased spending, lifting yields across the board.

Consider also the chart below (courtesy of ). The excess returns relative to local cash rates for DM equities, while still positive, are well below more attractive historical levels.

“US equities have experienced a multi-year valuation expansion concentrated in a narrow group of high-growth, high-duration technology companies. As valuations rise, forward earnings yields compress mechanically, reducing embedded expected returns even if growth expectations remain strong.” — Prometheus Research

Central to the upside catalysts for EMs is earnings momentum. Profits are reviving, particularly in the emerging world, and there is solid confidence that this will continue. In such circumstances, the downside for markets is limited:

That wraps up our comments for today. With a busy, ever-changing week ahead of us, we’ll be active in the commentary and updates to our thinking, either through the Substack chat or via a few market memos.

AP

The metal occupies a distinct position in global markets, both as a precious metal held for investment and as a critical industrial input consumed in manufacturing, particularly in solar, electronics, and electrification infrastructure. That dual role means silver responds not only to real rates and currency dynamics, as gold does, but also to fabrication cycles, inventory management, and commodity financing conditions.

However, the physical market tightened as years of underinvestment met rising demand from solar, electrification, and defence electronics. Financial flows turned pro-cyclical, ETF creations absorbed thousands of tonnes, lease rates spiked, and the curve flipped into backwardation, revealing how little truly free inventory there was.

Price strength through 2025 reflected these structural pressures. However, early this year, silver quickly became a speculative bet as availability declined across both the physical and financial markets, reinforcing its sensitivity to liquidity, positioning, and supply-chain rigidity.

Now, silver is trading less as a leveraged expression of gold and more as a hybrid asset shaped by industrial demand, balance-sheet capacity, and the mechanics of the bullion market.

In this primer, we’ll consider the following:

• Drivers of Price Action

• Market Structure

• Notable Historic Events

• Trading Strategies

• Market Participants

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Key Drivers

Demand Dynamics

Silver’s demand profile continues to evolve in ways that structurally distinguish it from other precious metals. In 2024, industrial use accounted for approximately 58% of total silver demand, dwarfing jewellery and investment in many regions.

Within that industrial bucket, photovoltaic (PV) consumption alone absorbed roughly 170 million ounces, making solar the single largest end market, followed by electronics and electrical applications at about 140 million ounces combined.

In itself, the broader electrification trends, which include themes like power distribution infrastructure and advanced semiconductors, are a key factor in why we believe silver can keep moving higher in the medium term.

Supply Metrics

On the supply side, silver’s market dynamics reflect persistent tightness rather than surplus. The global silver market has now recorded five consecutive years of deficits, with the 2025 shortfall projected at about 118 million ounces, according to industry estimates.

Mine supply averages roughly 800-850 million ounces per year. Recycling adds a variable secondary stream.

Primary mine output is constrained by the fact that roughly 70–75% of silver is produced as a by-product of base metal mining. It has grown at a muted 1–2% per year, which is insufficient to offset rising consumption and again supports a conviction that silver is heading higher over the coming year.

Unlike primary commodities, higher prices do not quickly translate into new production because mine plans are driven by the economics of base metals rather than silver. That structural linkage leaves the supply side relatively inelastic, with incremental availability coming mainly from scrap flows. In practice, a significant portion of privately held silver (particularly heirloom holdings across parts of Asia) rarely re-enters the market, limiting the extent to which recycling can respond even during periods of elevated prices.

Liquidity Contraints

Liquidity and positioning act as the third driver. Silver futures are thinner than gold, ETF inventories are smaller, and physical availability is more constrained. As a result, speculative flows, CTA positioning, and options hedging exert disproportionate influence on short-term price dynamics.

This is why silver tends to overshoot both up and down. It is not just directionally sensitive. It is mechanically convex.

A good example illustrating this came in December last year. The month began with the market already tight after the October London funding shock (lease rates north of ~11% at the peak of the squeeze), and with most London vault inventory effectively unavailable to the spot market (end-September holdings were ~24,581 tonnes, remember ~83% was allocated).

Amid the thinner year-end liquidity, spot silver printed successive upside air pockets just before people started leaving for the holidays.

The critical point for shorts was that the physical market never really “relaxed” even when the price wobbled. Bullion market reporting still showed London lease rates around ~6% in early December, an extreme financing signal for a liquid precious metal and consistent with a scramble for borrowable ounces.

As momentum funds and dealer hedging joined the move, the squeeze phase migrated from financing spreads into outright price, culminating in the late-month vertical as silver hit $77.40/oz on 26 Dec and later cleared $80/oz before year-end.

In parallel, investor vehicles pulled incremental metal out of circulation: silver exchange-traded product inflows surpassed 4,000 tonnes, reinforcing the “available float” problem that makes short futures exposure fragile when delivery optionality suddenly becomes binding.

Correlations

Silver’s cross-asset correlation profile reflects its dual role as both a monetary and industrial metal. The strongest relationship remains with gold, where shared sensitivity to real rates and global liquidity conditions anchors silver firmly within the precious-metals macro complex.

The positive, but materially lower, correlation with copper and broad commodity indices (GSCI, CRB) captures silver’s partial exposure to global manufacturing and electrification cycles, particularly via electronics and solar demand.

More modest correlations with equities and crude oil reflect silver’s tendency to participate episodically in reflation and risk-on environments, but it is not a consistent proxy for growth or energy.

Finally, the negative correlation with the broad dollar speaks to the opportunity cost of holding an asset with yield versus one without. A higher interest-rate environment typically sees a bid for the greenback, with a wider carry differential against silver (and vice versa).

Market Structure

The global silver market mirrors gold in architecture but not in depth. Annual turnover across London and New York comfortably exceeds $5–7 trillion notional, yet the amount of metal that can be mobilised at short notice is a fraction of that implied liquidity.

Liquidity is split between the OTC market, coordinated through the LBMA, and exchange-traded futures, primarily on COMEX via the SI contract. Average daily volume on COMEX typically runs 60–80k contracts (equivalent to 300–400 million ounces), or more than one-third of annual mine supply changing hands each day. Open interest, however, represents claims on metal that are often 5–7x larger than registered deliverable stocks.

The London market dominates physical clearing, unallocated balances, and institutional custody. Roughly 85–90% of global spot transactions are estimated to price off the LBMA loco-London market, where bullion banks act as intermediaries between buyers. Pricing here reflects physical availability, lease rates, and balance-sheet conditions rather than futures sentiment alone.

The LBMA publishes vault holdings data each month. As of the January 2026 report, there were also 27,729 tonnes of silver (a 0.3% decrease on the previous month), valued at $92 billion, which equates to approximately 924,304 silver bars.

COMEX provides leverage, speculative access, and price discovery. It is where macro funds, CTAs, and producers express directional views, hedge exposure, and trade volatility. The contract is highly financialised: less than 3% of open interest normally proceeds to delivery, yet the threat of delivery disciplines the entire curve.

The two venues are linked through EFP mechanisms, forward curves, and bullion-bank arbitrage desks. But unlike gold, where visible stocks exceed 200,000 tonnes, silver’s accessible float is narrower.

ETFs such as SLV and SIVR play an outsized role in silver. Their custody holdings often represent 30–40% of identifiable above-ground investment stocks, compared with roughly 10–12% for gold ETFs. Creation or redemption cycles of just 1,000 tonnes (barely a few weeks of mine output) can therefore swing lease rates by several percentage points and invert spot-futures spreads.

Notable Market Episodes

Silver’s modern history has been punctuated by episodes of concentrated speculation and abrupt reversals, underscoring its sensitivity to leverage, liquidity, and retail participation. The most infamous example occurred in 1979–1980, when the Hunt Brothers, Texas oil magnates, attempted to corner the silver market by amassing large physical holdings alongside heavily leveraged futures positions. Their aggressive accumulation drove prices from roughly $6 per ounce to nearly $50 in less than a year. The rally ultimately proved unstable. As volatility intensified, COMEX raised margin requirements and imposed position limits, effectively tightening financial conditions within the market. The resulting forced liquidations triggered a violent collapse, with prices falling back below $10. The episode remains a defining lesson in the dangers of leverage in relatively thin markets, where liquidity can evaporate quickly once policy or exchange rules shift.

Three decades later, silver again surged during the 2011 QE2-era precious metals boom. Fears of dollar debasement, inflation overshoot, and unconventional monetary policy attracted both institutional and retail inflows into precious metals. Silver, with its higher volatility and smaller market size relative to gold, reacted with exaggerated momentum. Prices climbed from approximately $18 to nearly $50 within months, revisiting levels last seen during the Hunt episode. However, once inflation concerns subsided and global liquidity conditions stabilised, speculative positioning unwound just as rapidly. The subsequent collapse reinforced silver’s reputation as gold’s higher-beta counterpart, capable of dramatic upside during macro stress, but prone to sharp reversals when conviction fades.

More recently, in early 2021, silver briefly became the focus of a coordinated retail-driven campaign inspired by the broader “meme stock” phenomenon. Retail traders mobilised through social media attempted to engineer a so-called “silver squeeze,” directing flows into physically backed ETFs and encouraging collective buying pressure. The episode produced a short-lived price spike and record trading volumes in vehicles such as SLV. However, unlike in equities, where short interest can create mechanical squeeze dynamics, silver’s deep institutional liquidity and global OTC market absorbed the flows without triggering sustained physical bottlenecks. Prices quickly retraced as speculative enthusiasm waned, illustrating once again that while silver can respond violently to concentrated positioning, structural market depth ultimately constrains attempts to force prolonged dislocations.

2025/26 - Present

The January 2026 episode belongs in the same lineage as 1980 and 2011, but it was not driven by a new macro narrative. It was the moment when already-tight physical conditions collided with an overcrowded financial expression of that thesis.

By late 2025, the market had largely accepted the structural deficit story. What changed into year-end was positioning. Investors increasingly treated silver not as a slow-moving industrial theme but as a momentum trade built on genuine scarcity. ETF accumulation, derivatives exposure, and retail participation pulled incremental metal out of circulation while simultaneously increasing the volume of paper claims against it. The tradable float was shrinking as leverage was rising.

The final phase of the rally showed the classic characteristics of a late-cycle squeeze. Derivatives activity surged in the last week of January 2026, with exchange data showing exceptionally heavy futures and options turnover, consistent with concentrated speculative positioning. Prices accelerated vertically, culminating in an all-time high near $120.6/oz on January 29th.

What followed was not a reassessment of solar demand, mine supply, or long-term scarcity. It was a balance-sheet event.

On January 30th, silver fell roughly 25–31% in a single session, one of the largest daily declines since 1980, while ETF proxies recorded collapses of similar magnitude on extreme volume. The trigger was a rapid tightening of financial conditions inside the market itself. As volatility surged, CME raised margin requirements under a revised methodology, forcing leveraged participants to post collateral or reduce exposure.

In a market with limited depth, that shift flipped the reflexivity. The same leverage that had amplified the rally now accelerated liquidation. Selling pressure became mechanical rather than discretionary, producing a non-linear air pocket characteristic of silver’s most violent historical reversals.

Importantly, the structural backdrop did not disappear. Data continued to show persistent deficits and strong industrial demand even as prices corrected. What the episode demonstrated instead was how quickly silver can transition from a fundamentals-led bull market to a liquidity-driven unwind once positioning saturates.

If the 2025 move was about scarcity, the January 2026 move was leverage discovering that scarcity is not the same thing as liquidity.

We had the following film play out, but in the metals market…

Trading Strategies

Spot vs ETF Exposure

If the objective is long-term, unlevered exposure, spot remains the most direct route. An investor can access this primarily through the London OTC market.

Trading spot silver typically involves transacting bilaterally with a bank or bullion dealer, with settlement on a T+2 basis. On settlement, cash is exchanged for a silver position credited to a metal account. That account can be held on an unallocated basis, representing a general claim on metal within the dealer’s vaulting system, or on an allocated basis, where specific LBMA-approved bars are set aside in the investor’s name, with serial numbers recorded and custody fees charged.

From there, the position can be held outright, leased into the market, rolled into forwards or swaps, or converted into physical delivery. For participants with access, this is the cleanest way to engage directly with the underlying bullion market.

For many investors, however, ETFs such as SLV provide a more accessible alternative. These trade on equity exchanges, clear through standard securities infrastructure, and offer intraday liquidity without the operational complexity of bullion accounts. While ETFs lack some of the flexibility of the OTC market, they are often the most practical solution for smaller ticket sizes or for accounts without access to London metals desks.

Spot XAG/USD can also be attractive where available because it trades like a currency pair, offering near-continuous liquidity and tight execution. That said, there are clear reasons why spot or ETFs may not be appropriate:

• Full notional must be funded, limiting capital efficiency

• Shorting is operationally and economically more complex

• The exposure may need to be future-dated or aligned to another portfolio hedge

In those cases, an investor typically moves into derivatives, such as futures and forwards.

Futures vs Forwards

Silver exposure can be expressed through OTC forwards or exchange-traded COMEX futures. Both introduce leverage, simplify short positioning, and allow exposures to be tailored to specific horizons.

Forwards are negotiated bilaterally, typically out of London, and are fully customisable by size and maturity. Crucially, they embed physical-market dynamics, including lease rates and inventory conditions. When the trade thesis is tied to physical tightness or carry, this matters.

A live example is the recent backwardation in London silver, where spot has traded above forward prices. Silver normally trades in contango due to storage and financing costs. Backwardation reflects near-term scarcity.

In such an environment, a trader does not need a directional view on silver to express a thesis. Selling spot and buying a six-month forward is a way to position for a normalisation of the curve as tightness eases and lease rates fall. The P&L is driven by curve dynamics rather than outright price. That said, forwards are not guaranteed to converge smoothly, and access remains largely institutional.

For most tactical applications, COMEX futures are the more practical tool. They are standardised, centrally cleared, and highly liquid across benchmark maturities. Margining allows for capital-efficient positioning, and the contract suite now supports much finer sizing.

The introduction of the CME 100-ounce silver futures contract has been particularly important, materially lowering the notional barrier to entry versus the legacy 5,000-ounce contract and improving execution flexibility for active traders.

Options Strategies

There are periods when neither spot nor linear derivatives are the right tool. When the objective is defined risk, volatility exposure, or event-driven positioning, we move into options.

Silver options are where the market’s character is most visible. Implied one-month volatility recently broke to multi-decade highs, reflecting expectations of large and potentially disorderly price swings.

At those times, price-agnostic structures often dominate. Calls and puts can be used to express long or short volatility views, while spreads and convex structures can be built to shape asymmetry. Around discrete catalysts such as central bank meetings, macro releases, or geopolitical risk, straddles and strangles allow positioning for movement rather than direction.

For more advanced implementations, skew becomes a tradable variable. Relative pricing between calls and puts often reflects embedded positioning or hedging demand. In our experience, distortions in skew can at times be isolated and traded independently of outright direction.

When silver is being treated primarily as a volatility instrument rather than a price instrument, options tend to dominate.

Relative-Value Structures

There are also periods when an investor may not want outright silver exposure at all. Some of the most consistent strategies in the precious-metals space have been relative-value trades.

The gold–silver ratio remains the most common framework. Rather than forecasting absolute levels, the trade is structured around the relationship between monetary and industrial metals. Extreme readings often coincide with macro dislocations, positioning imbalances, or shifts in demand regimes.

A typical implementation is via paired COMEX futures positions: going long silver and short gold when the ratio is elevated and silver appears undervalued, and reversing the structure when the ratio compresses. This approach neutralises much of the shared dollar and real-rate sensitivity, allowing returns to be driven primarily by relative repricing.

Silver Equities

Primary silver miners and streaming companies provide a levered and operationally sensitive way to express silver views.

The benefit of trading single-name equities is the operational leverage gained from higher commodity prices. The company benefits from the elevated selling price almost immediately, while incremental extraction costs increase at nowhere near the same pace in the short run.

A good example is Pan American Silver Corp (PAAS), which is owned in our Master Fund and is up 180% over the past year.

Market Participants

Primary Producers

Mining companies represent the natural structural shorts in silver. Their objective is revenue stability rather than directional price exposure, and this distinction shapes how they interact with the market.

Because a large share of global silver output is produced as a byproduct of other metals, hedging decisions are often balance-sheet driven rather than price-driven.

Producers tend to increase forward sales when prices rise, when leverage increases, or when lenders demand risk management discipline during capex cycles. This flow profile makes producer activity procyclical. They sell strength and reduce hedges into weakness, which rarely determines trend direction but frequently influences trend velocity by supplying liquidity into rallies and withdrawing it during drawdowns.

Industrial Users/Fabricators

Industrial consumers form the structural long base of the silver market because they rely on the metal as a production input.

Their participation is motivated by cost control rather than return generation, and their hedging behaviour reflects procurement discipline rather than speculative intent.

Fabricators typically layer hedges over time and increase activity after price rallies, when procurement risk becomes more visible to management. Conversely, they tend to step back during declines and rely on spot purchasing.

Industrial demand therefore anchors long-run price floors while remaining largely irrelevant for short-term price discovery.

Bullion Banks/Cap Markets Desks

Bullion banks function as the core transmission mechanism of the silver market. They intermediate nearly all OTC flow, warehouse risk, structure derivatives, and arbitrage price differences across spot, forwards, futures, and leasing markets.

Dealer balance sheet capacity is a first-order determinant of liquidity. When risk appetite is strong and balance sheets are elastic, spreads tighten and markets absorb flow efficiently. When constraints bind, liquidity deteriorates quickly and price movements can become discontinuous.

Lease rates in particular provide insight into physical tightness and dealer funding stress, making them an underutilised signal for institutional investors monitoring market conditions.

Fund/Asset Managers

Institutional capital accesses silver primarily through futures, ETFs, and structured products, and it is this cohort that most often determines the marginal price.

Unlike producers or industrial users, these participants are explicitly return-seeking and frequently momentum-sensitive. Macro funds and commodity index vehicles all interact with the market through rule-based or macro-driven positioning frameworks.

Because silver’s market depth is thinner than gold’s, reallocations by large funds can produce outsized price reactions relative to flow size. ETF flows are especially powerful because physically backed vehicles must acquire or sell metal to match share creation or redemption. As a result, institutional positioning frequently amplifies trends rather than dampening them.

Retail Investors

Silver has historically attracted disproportionate retail participation compared with other metals. Its lower nominal price per ounce creates a perception of accessibility that draws individual investors into coins, small bars, leveraged derivatives, and short-dated options.

Retail participation tends to surge during periods of macro anxiety, currency debasement narratives, or viral social media attention. While individually small, retail traders can collectively influence price during liquidity-thin periods, particularly in derivatives markets where leverage magnifies impact.

Sovereigns/Central Banks

Central banks play only a minor direct role in silver markets, in contrast to their structural importance in gold. Official holdings are limited, and transactions are infrequent, which removes a stabilising demand base that might otherwise dampen cycles.

Conclusion

Silver is not one market. It is a stack of markets layered on top of each other (physical, financial, industrial, monetary), each governed by different participants, constraints, and reflex loops.

That structural complexity is why silver repeatedly confounds linear frameworks. Analysts who treat it as a simple commodity underestimate its financing channel. Those who treat it as a monetary metal miss its fabrication cycle. And those who view it purely through the lens of positioning risk, overlooking the physical plumbing that ultimately enforces delivery discipline.

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AP

US stocks managed a constructive week as the Supreme Court struck down President Trump’s sweeping global tariffs, removing a major overhang that had sat on corporate margins and consumer costs for months. The ruling triggered a broad Friday rally, particularly in trade-exposed retail and apparel names, and reframed the near-term growth outlook. Even dour data (softer GDP and firmer inflation) was overshadowed by the relief that a key policy risk had been neutralised, at least temporarily.

Earlier in the week, however, geopolitics kept markets on edge. Rising tensions between the US and Iran pushed crude to its highest level since August, lifting energy shares and reinforcing the bid in industrials tied to defence and infrastructure. Oil’s move was meaningful not just for equities but for macro expectations: it complicated the inflation narrative at a time when the Fed is already growing less comfortable with the pace of disinflation.

That tension came through clearly in the FOMC minutes. Policymakers signalled little appetite for near-term cuts and even entertained the possibility of hiking if inflation proves sticky. Rate markets responded by trimming year-end easing expectations, while the dollar staged its strongest week since October as short positioning unwound. The combination of firmer inflation prints and resilient labour data added weight to the Fed’s caution, even as growth showed signs of slowing at the margin.

The removal of tariff risk supports equities at the micro level, but macro crosscurrents (higher oil, a less dovish Fed, and geopolitical uncertainty) keep conditions tight. For now, policy relief has offset policy risk. Whether that balance holds will depend less on courtrooms and more on inflation data and energy prices in the weeks ahead.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “SCOTUS Rules Against Tariffs”

• “Oil, Talks, and Strikes”

• “The AI Trade Is Now the Index”

• “Illiquid Assets Don’t Magically Become Liquid”

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SCOTUS Rules Against Tariffs

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Chair Jerome Powell’s press conference on January 28 left investors searching for clarity on what, precisely, would justify further easing. The minutes suggest the answer is straightforward, if not especially comforting for those hoping for imminent cuts. Inflation remains the dominant concern, and most participants indicated they would need to see additional evidence of progress before considering any reduction in rates. That’s a process that could take some time.

Markets had already begun to edge toward the conclusion that policy would remain on hold through much of the first half of the year. The minutes reinforce that view.

More interestingly, they reopened a possibility investors had largely set aside. Several participants noted that the Committee’s policy outlook might better be described as “two-sided,” explicitly acknowledging that further increases in interest rates could be appropriate should inflation remain above target.

The Fed is not signalling that it intends to hike. But it is reminding markets that it has not ruled the option out.

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A Historical Lookback

Before we take a look forward at the current outlook for inflation, labour, and demand for US Treasuries, it may first be worth looking back.

The closest modern parallel to a Fed contemplating both easing and renewed tightening came not in the inflationary 1970s, but during the tenure of Alan Greenspan.

In the autumn of 1998, the Federal Reserve cut interest rates three times in quick succession. The motivation was less so domestic weakness—the US economy was expanding at a healthy pace. Instead, policymakers were responding to a sudden tightening in global financial conditions following Russia’s default and the near-collapse of Long-Term Capital Management. The cuts were framed explicitly as insurance against systemic stress.

The modern-day comparison could be argued to be Powell’s comments about not falling behind the labour market in the second half of last year.

Those cuts in 1998 worked, perhaps too well. Financial markets stabilised rapidly. Credit spreads retraced. Equity markets surged to new highs. Rather than slowing, US growth accelerated into what would become the final phase of the technology boom.

By mid-1999, the rationale for emergency accommodation had evaporated. Inflation pressures were beginning to build, not because of supply shocks, but because an already-strong economy had been given additional stimulus. The Fed reversed course, beginning a sequence of rate increases that continued into 2000.

What is striking in retrospect is how little the underlying economy changed between the easing and the subsequent tightening. The shift lay instead in the balance of risks as perceived by policymakers. Insurance cuts designed to guard against downside tail risks ended up adding fuel to an expansion that required restraint.

The modern-day similarity can be linked to the debate over whether AI will increase the need to cut or hike. Incoming Chair Warsh is on the former side of that debate. In recent days, Barr and Jefferson have made the opposite argument.

“AI will be a significant disinflationary force, increasing productivity and bolstering American competitiveness.” — Fed Chair nominee Kevin Warsh

“I expect that the AI boom is unlikely to be a reason for lowering policy rates.” — Fed Governor Michael Barr

“All other things being equal, persistent increases in productivity growth are likely to result in an increase in the neutral rate, at least temporarily.”
— Fed Vice Chair Philip Jefferson

The comparison of today against the late 1990s is not exact. We acknowledge that. Today’s Fed faces an inflation problem that Greenspan largely did not. But the structure of the policy dilemma is similar.

• The initial move toward easier policy has been justified as calibration rather than crisis response.

• Growth has remained resilient.

• Financial conditions have eased more than expected.

• Inflation progress has proven uneven.

In that environment, policy can migrate from a one-directional debate about when to cut, to a two-sided discussion about whether current settings are restrictive enough. This week’s FOMC minutes present as Exhibit A.

Validating the Fed’s View on Labour and Inflation Since Its Meeting

Before we touch on the US curve’s recent flattening and ideas in the rates space, let’s first validate the Fed’s views, factoring in the data prints since that meeting on January 27-28.

One immediate objection is that the minutes may already be out of date. Economic data released since the meeting offer ammunition to both sides of the policy debate, and if anything have made the picture less clear.

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