That changed on Wednesday, at least temporarily, when Kevin Warsh delivered his first FOMC meeting as Chair. Rates were left unchanged, as expected, but the statement and press conference made clear that this is not a Fed trying to preserve optionality around cuts. The new message was inflation first, patience second. The shortened statement was blunt: “The Committee will deliver price stability.” Updated projections showed headline and core PCE revised materially higher, with nine officials now seeing at least one hike this year and six pencilling in 50bps or more.

Markets reacted accordingly. Equities sold off through the statement, press conference and into the close, while rates repriced sharply. OIS now prices a 25bp hike by October, a remarkable shift from the pre-war environment.

The front end bore the brunt of the move, with 2s5s close to inverting as policy expectations adjusted. The Fed reaction function has changed, and the market is still adjusting to what that means.

Yet equities again proved reluctant to stay down. Thursday’s rebound was led by semiconductors. Macro markets are trading a genuinely tighter policy path, while equity markets are still willing to look through it as long as AI-linked earnings and capital spending remain intact.

The dollar was the clearest macro winner. Even as oil prices fell toward the end of the week, the hawkish Fed repricing kept the greenback well bid and raised the question of whether the USD can finally break out of the structural weakness that defined the last 18 months.

USD/JPY moved back above the prior intervention zone, trading beyond 161, which keeps Japanese officials firmly in focus.

Markets have entered a more complicated phase. The geopolitical tail risk has eased, the AI trade remains alive, and dip buyers are still active. But the Fed has become an active constraint. From here, the market needs either continued AI earnings strength, a durable fall in oil, or a clean disinflation impulse to offset a policy path that is now moving in the wrong direction for risk assets. For now, equities are still climbing, but the macro floor underneath them has become noticeably less forgiving.

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

• “AI Funders and Winners”

• “The Hawkish Hold Needs a Witness”

• “Sentiment Can Adjust Immediately, Oil Barrels Can’t”

AI Funders and Winners

The dominant theme over the past week has been a broadening of the AI trade away from the largest mega-cap names. Mag 7 and hyperscaler names are both nearly flat for the year.

For most of the past two years, exposure to AI was simple. Own the largest US technology platforms and own the semiconductor leaders. The trade is now starting to separate. Memory, semiconductors, custom chips, Asian supply chains, and data-centre infrastructure are among the leading beneficiaries of the AI capex cycle. The hyperscalers themselves are beginning to look more like the funding vehicle for the cycle than an upside expression of it.

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The S&P 500 ultimately recovered from Tuesday’s 2.3% intraday drawdown, with the Nasdaq 100 helped by Friday’s successful SpaceX debut. In a market increasingly starved of clean positive catalysts, the IPO gave investors one. SpaceX priced its $75bn offering at $135 per share, opened at $150 and closed at $160.95, giving the company a fully diluted valuation of roughly $2.2tn. That made it more than just another listing. It became a test of whether public markets still had the balance sheet, appetite and imagination to absorb a mega-cap growth story at a premium valuation.

For now, the answer was yes. Demand was reportedly multiple times oversubscribed, with several institutional orders of $10bn or more and visible participation from Gulf sovereign wealth funds. This mattered because it framed the listing as something bigger than a retail liquidity event. SpaceX has become a global capital allocation story, sitting at the intersection of space infrastructure, defence optionality, AI compute geography, sovereign ambition, and Elon Musk’s retail gravity machine. The first-day performance lifted risk sentiment into the close, but the real test starts now. If SpaceX continues to trade well, it can remain a risk-on barometer. If the stock starts to fade, the speculative bid that carried markets into Friday could disappear very quickly.

The macro backdrop is less forgiving. Last week’s ECB hike was the clearest signal yet that central banks are not ready to look through the Iran shock. The ECB raised the deposit rate by 25bps to 2.25%, its first hike since 2023, and framed the decision around the broader inflationary impact of the war rather than energy alone. We’ve now shifted our view from thinking the ECB would halt at one insurance hike to now looking for multiple further hikes this year, something we explained last week in “After You, Christine”.

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

• “Same Old Global Playbook”

• “Warsh in the Hot Seat”

• “UK Risk Premium Gets Two Votes”

Same Old Global Playbook

Markets keep deciding, after briefly noticing the risk, that it is still better to buy the same winners.

Wars, oil shocks, higher yields, and occasional policy scares are all still capable of producing a wobble. But they are not yet capable of producing a durable change in equity leadership. The market continues to come back to the same trade: AI-linked momentum, semiconductor earnings, hyperscaler capex, and the equity markets most exposed to that supply chain.

If that sounds too simple, remember that simple has been working… a lot.

Momentum remains the dominant factor globally, up nearly 31% year-to-date. Low-volatility stocks, by contrast, are down 23% and remain the worst-performing global factor. Value has made occasional appearances, but has not managed to take control outside a few regional pockets. The market keeps flirting with rotation, only to return to concentration.

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US equities began the week with another record on Tuesday, as another burst of AI enthusiasm carried the market higher. Nvidia (NVDA US) pushed deeper into the PC market, Alphabet (GOOGL US) raised $80 billion for AI-related capex, and Marvell (MRVL US) surged after Jensen Huang declared it could be the next trillion-dollar company.

By Friday, the same mega-cap and semiconductor names that had dragged the market higher since March became the source of the drawdown. Broadcom’s (AVGO US) disappointing forecast was the first real warning that AI expectations are now running ahead of even strong fundamentals. In a market priced for perfection, “good” no longer clears the bar.

The jobs report then turned a valuation wobble into a rates shock. May payrolls came in far stronger than expected, with positive revisions reinforcing the idea that the US economy is not slowing enough to justify easier policy. Fed pricing moved further toward hikes, while the dollar squeezed higher.

Geopolitics remained in the background rather than the driver. The US-Iran ceasefire looked increasingly fragile, with little progress toward reopening the Strait of Hormuz and fresh clashes testing the truce. Oil and the dollar still carried some war premium, but the dominant move was domestically in the US.

The CTA setup adds another layer of fragility. Goldman Sachs estimates that systematic flows now look asymmetric, with downside scenarios carrying far more potential selling than upside scenarios offer buying. The rally has leaned heavily on momentum, positioning, and forced participation. Once those flows turn, the same mechanics that supported the market can amplify the reversal.

The burden of proof has shifted. AI still has the structural story, earnings are not collapsing, and the S&P 500 remains close to highs after an extraordinary run. But the combination of stretched expectations, narrow leadership, and a Fed path moving toward hikes leaves the market much less forgiving.

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

• “Equity Risk-Off”

• “US Rates View”

Equity Risk-Off

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The market’s leadership remained heavily concentrated in AI beneficiaries. Micron crossed the $1 trillion market-cap threshold, while AMD and Broadcom advanced again. Dell was the standout, surging after lifting its annual sales outlook on the back of AI server demand as RetroTech continues its omeback.

Oil provided the other major support. Crude fell around 7% as hopes for a 60-day US-Iran truce extension gathered momentum, easing some of the inflation anxiety that had dominated the previous month. The energy sector lagged as a result. Lower oil gives equities breathing room, especially when the Fed is still more worried about inflation than growth. The problem is that the peace process remains incomplete. Mixed signals from both sides mean markets are pricing progress, not resolution.

The macro backdrop improved, but not enough to change the Fed story yet. Core PCE came in slightly softer than expected, giving equities a clean disinflation impulse for the first time in a while. Fed speakers remained firmly cautious, with several officials still openly discussing the possibility of hikes if inflation fails to cool.

Rates reflected that tension. Treasury yields moved lower on Iran optimism and softer inflation, but the curve itself was stable and demand at supply remained healthy. At the same time, options flow still showed traders paying for upside yield risk, with 10-year structures targeting levels above 5%. In FX, the dollar ended broadly flat as month-end support offset the risk-on selloff following positive Iran headlines. Spot markets still look ready to fade dollar strength on peace news, but options continue to price a more durable USD premium, especially in USD/JPY.

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

• “Earnings Season Takeaways”

• “Japan’s $73bn Speed Bump”

• “NFP Preview”

Earnings Season Takeaways

With the bulk of corporates now having reported for Q1, there’s enough data to get clean takeaways from a helicopter view rather than just at a company-specific level.

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In what has become a predictable start to these week-ahead notes, US equities extended their winning streak to eight weeks, the longest run since 2023. Improving signals out of US-Iran negotiations helped ease geopolitical risk that has been present in markets since Q1. Oil was lower on the week off due to that same sentiment, but feed-throughs to inflation are already causing problems elsewhere. US rates have pivoted from two cuts priced pre-war to a hike before the year is out. But then again, equities are higher still.

Nvidia (NVDA US) was last week’s main course, but sang a familiar tune of realised coming in below implied vol. We’d call it a non-event compared to NVDA of old. Off 4.5% from prior Friday’s close. As for the results themselves, the flagship of the AI chip trade beat headline expectations, lifted its dividend and announced an $80 billion buyback. The disappointment in price action did not spread across the entire complex (SMH +3.5% on the week), with Dell (DELL US) and Qualcomm (QCOM US) still posting strong gains, but it did reinforce the point that the market is becoming more selective. AI is still the anchor, but not every beat is enough anymore.

UBS noted that the S&P 500’s recent six-week advance was the narrowest in 35 years, which captures the tension well: the index keeps making progress, but its leadership structure looks fragile. Positioning in semis is quite something.

The most important macro development was expressed most cleanly in rates. Waller struck a hawkish tone and backed, removing the easing bias from the FOMC statement, joining other officials who have pushed back against the idea that policy is close to turning easier. The FOMC minutes showed a majority of officials believe a hike could be warranted if inflation persists. Longer-term inflation expectations were revised higher.

A well-received 20-year auction at 5.122% on Tuesday helped stabilise bond sentiment mid-week. UK 30-year gilts surged toward 6%, and German bund yields also rose, making this a coordinated global bond selloff, not a US-specific story (market memo: “Making Sense of Yields”). Japan’s 30-year exceeded 4%, quite the move from near-zero yields just six years ago.

In currency land, the dollar remained steady, with dips on positive Middle East headlines being bought, suggesting underlying demand remains intact. The dollar bid is increasingly tied to Fed repricing and energy dynamics rather than safe-haven demand.

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

• “Rates: Cuts Are Buried, But Hikes Look Too Certain”

• “Equities: Shrugging Off Yields, China’s Chips, and WHAM”

• “Commodities: Returning to an Old Favourtie”

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Rates: Cuts Are Buried, But Hikes Look Too Certain

Kevin Warsh was sworn in last week, but not into the environment markets once imagined when his name first moved into serious contention.

The original Warsh trade was straightforward. A Trump-aligned Fed governor with a public record of criticising the Fed for keeping policy too tight and with a more optimistic view on AI-driven productivity… it all looked like a clear dovish impulse.

That was then.

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Earnings helped sustain momentum in the semiconductor complex for much of the week, with investors increasingly treating any short-term weakness as a buying opportunity rather than the beginning of a broader unwind. Q1 has shown that semiconductor earnings strength is fundamentally different from the late-1990s revenue mirage.

Geopolitics added another layer of pressure. During his visit to China, President Trump’s remark that the US did not need the Strait of Hormuz open triggered a sharp rebound in oil prices, reinforcing the view that even if active hostilities in the Middle East fade, energy markets are unlikely to return quickly to pre-war normality.

The final pressure point came from abroad. Political instability (“The Starmer Drama”) in the UK triggered a disorderly selloff in gilts, particularly in the long end, which spilt directly into global bond markets. The combination of higher inflation prints, elevated oil prices, and fiscal concerns abroad created a toxic mix for duration. Treasury yields accelerated sharply higher into Friday’s open, with the move in long-end rates finally becoming too large for equities to comfortably ignore.

That dynamic was particularly visible in the market leadership reversal late in the week. High-duration growth equities, especially speculative technology and non-profitable tech names, came under renewed pressure as real yields rose.

On policy, OIS markets now fully price a 25bp hike by March 2027, a remarkable shift from early March, when traders were still pricing cuts for late 2026. The direction of travel matters as much as the level itself.

In FX, the dollar benefited from almost every major macro theme simultaneously: higher oil prices, stronger rate differentials, geopolitical uncertainty, and weakness in sterling.

For months, AI enthusiasm, resilient earnings, and systematic inflows have been able to overwhelm macro concerns. Friday served as a reminder that there are still limits. As long-end yields move toward cycle highs and inflation remains sticky, the market’s tolerance for expensive duration-sensitive assets becomes increasingly fragile. The AI trade remains intact. The question now is whether it can continue carrying the broader market alone in a world where the cost of capital is structurally moving higher.

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

• “Inflation, Inflation, Inflation”

• “Semi’s: 2000 vs. 2026”

• “You Win Summ(it), You Lose Summ(it)”

• “Nvidia Earnings, Same Old Story?”

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Inflation, Inflation, Inflation

UK

The week ahead for the UK promises a lot to digest for markets, both on the political front and in the economic data.

Let’s start on the data side. April UK inflation is expected to deliver a modest fall, with headline CPI forecasted to slow 0.3% to 3.0% y/y, broadly in line with the Bank of England’s April MPR forecast, while core CPI is expected to fall more sharply, down 0.5% to 2.6% y/y.

This might surprise some, given the UK economy’s sensitivity to the energy spike. Yet if we look below the surface, the headline print should be restrained by softer services inflation, even as the energy complex moves higher. Pump prices are expected to rise materially as the shock continues to feed through to petrol and diesel, but this is partly offset by the fall in the Ofgem dual-fuel cap following measures announced in last autumn’s Budget.

If we had to summarise what the inflation print is likely to show us, it’s that services disinflation is doing the heavy lifting, energy is moving in the wrong direction, and food remains sticky but not accelerating. However, this print shouldn’t be treated with much slapping on the back from politicians or even from MPC members. There’s still plenty of work to be done on price levels, and the caution is not to get lulled into a false sense of security here.

Now let’s pivot to politics, which has been the main driver behind the spike in Gilt yields, particularly at the long-end.

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Technology once again carried. The semiconductor complex remained the clearest expression of the market’s conviction around the durability of the AI capex cycle, with Advanced Micro Devices (AMD US) delivering the standout report of the week. The company’s stronger-than-expected sales outlook reinforced the view that hyperscaler and enterprise spending on AI infrastructure remains robust, even after months of investor concern around saturation and monetisation. Importantly, the strength was not confined to GPUs. AMD highlighted renewed demand for CPUs tied to AI workloads, a reminder that the buildout story is broader than a single chip category. The positive read-through extended across the ecosystem. Akamai Technologies (AKAM US) rallied after securing a major agreement with Anthropic, underscoring the degree to which AI demand is beginning to pull through into adjacent infrastructure providers.

Beneath the surface, however, the rally retained a distinctly geopolitical undertone. The fragile ceasefire between the US and Iran held together for another week, helping suppress the tail-risk premium that had dominated markets earlier in the quarter. Yet the absence of meaningful progress on reopening the Strait of Hormuz continues to leave a structural risk embedded within energy markets. Traders have become more comfortable fading escalation headlines, but not fully comfortable removing the risk premium altogether.

On the macro side, the latest payrolls report effectively reinforced the market’s baseline assumption: the Federal Reserve remains firmly on hold. The data was neither weak enough to force easing discussions nor hot enough to revive serious tightening fears. Wage growth continued to moderate, revisions softened the headline strength, and the broader labour-market picture still points toward gradual cooling rather than collapse. The Fed is trapped in wait-and-see mode, with officials increasingly acknowledging inflation risks while simultaneously resisting the idea that hikes are imminent.

Rates and FX markets reflected that equilibrium. Treasury curves finished little changed as oil price fluctuations continued to dominate day-to-day moves more than domestic data releases. In currencies, the dollar ended broadly flat, though USD/JPY remained the key source of volatility amid growing suspicion of renewed Japanese intervention activity. More broadly, FX markets appear stuck in a holding pattern, unwilling to fully re-engage structural dollar bearishness until the geopolitical backdrop becomes cleaner.

The bigger picture remains one of a market climbing despite, rather than because of, the macro environment. Earnings are holding up, AI spending remains relentless, and positioning dynamics continue to provide support on pullbacks. But underneath the surface, the rally is increasingly reliant on a narrow set of conditions remaining intact simultaneously: contained geopolitical risk, stable growth, moderating inflation, and continued faith in the AI investment cycle. For now, markets are willing to extend that benefit of the doubt.

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

• “Party Like It’s 1999”

• “Energy Keeps CPI Warm (US Inflation Preview)”

• “Global Rates Rundown”

Party Like It’s 1999

Equities have reached the part of the move where momentum is both the argument and the risk. Following one of the strongest short-term rallies in modern market history, the S&P 500 has broken into fresh all-time highs, with its 14-day RSI now sitting around 72. In isolation, that normally argues for caution. Markets that move this far, this fast, tend to digest the move. Two-week forward returns after similar momentum bursts have historically been weaker, as some degree of mean reversion usually follows the initial chase.

But overbought is not the same thing as bearish. It is often the condition of a market with genuine force behind it. The ability to get this extended, particularly after a “blue sky” breakout into all-time highs, is also evidence that the underlying trend has become durable.

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The S&P 500 notched a fifth consecutive weekly gain, grinding to fresh record highs as month-end flows and a late-week risk bid helped offset what was otherwise a choppy, headline-driven stretch. Friday’s push higher, driven by institutional rebalancing and renewed optimism around US-Iran negotiations, masked a more uneven tone beneath the surface, where dispersion across sectors and within mega-cap tech continues to define the market.

AI beneficiaries once again led from the front. Strength across semiconductors remained the clearest expression of the current macro regime (“chips as macro”). The latest round of mega-cap earnings highlighted a more nuanced reality. Alphabet (GOOGL US) and Amazon (AMZN US) were rewarded for tangible progress, while Meta Platforms (META US) and Microsoft (MSFT US) were punished for leaning further into spending without yet delivering a commensurate payoff.

Outside of tech, leadership broadened modestly. Caterpillar (CAT US) provided a reminder that the AI buildout extends beyond silicon, with power and construction demand feeding into industrial upside. Energy also continued to grind higher as geopolitical tensions lingered, even as the market has grown more accustomed to trading around the Iran conflict rather than through it.

Under the surface, however, the setup is becoming more technical. With month-end rebalancing behind us, attention shifts to systematic flows, where Goldman Sachs flags CTAs as potential sellers across scenarios in the week ahead. That introduces a degree of fragility to what has been a flow-driven advance, particularly given how much of the recent strength has come from positioning resets rather than fresh fundamental conviction.

“The one-month change in US positioning across the major systematic cohorts is the 2nd largest re-leveraging in our dataset going back to 2016. Systematics have bought almost $80 billion of US equities in the past month, and CTAs are now long $44 billion of US equities.”

Macro signals remain broadly supportive, but not emphatically so. The Federal Reserve delivered a hold as expected, though the presence of multiple hawkish dissents complicates the path forward for policy under incoming leadership. Growth data continues to show resilience, particularly in business investment and consumption, but the mix is not clean enough to shift the policy narrative decisively. Markets briefly reverted to a more textbook reaction function on softer ISM data, suggesting that the distortion from geopolitical noise may be fading at the margin.

In rates, the tone was more cautious. Treasury yields edged higher following the FOMC, with the long end approaching key technical levels that could act as a volatility trigger into May. In FX, dollar weakness was more about external shocks, most notably intervention in USD/JPY and a hawkish tilt from the ECB.

That all results in an equity market that continues to move higher, but with a shifting burden of proof. AI remains the anchor, flows remain the accelerant, and geopolitics remains the wild card. The trend is intact, but the composition of the rally (narrower leadership, greater sensitivity to earnings quality, and growing reliance on technical support) suggests that the next leg higher will require more than just momentum.

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

• “Software and Private Credit”

• “The Market Chooses Its Own Adventure”

• “Yentervention”

• “A Broken Cartel”

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Software and Private Credit

For much of the last six months or so, private credit has traded as a software derivative. Private credit funds lent heavily to software businesses during the last cycle, and the market has spent this year marking down anything that looks vulnerable to AI substitution, lower seat growth, or weaker pricing power. Last week brought the first real shift to that narrative.

Ares (ARES US), Blackstone (BX US), and Blue Owl (OWL US) all moved to reassure investors last week on software exposure, with scorecards, outside consultants, and portfolio reviews designed to separate actual AI vulnerability from market panic. Blackstone’s BCRED said less than 5% of investments faced AI headwinds, Ares said 85% of its software-oriented investments were low risk, and Blue Owl reportedly found “minimal” risk after re-underwriting loans for AI vulnerability.

There is an obvious “talking your own book” element here. That is not a criticism of them. Private credit is built on confidence, marks, funding access, and the continued belief that senior secured exposure can survive equity volatility. Nobody in this ecosystem has an incentive to declare the collateral impaired before the cash flows force the conversation. The question is, however, whether the next refinancing cycle agrees with their scorecards.

The other narrative shift came from software itself. Atlassian (TEAM US) was the cleanest expression last week. TEAM surged after earnings, with revenue and adjusted earnings ahead of expectations, cloud revenue growth of 29%, and management leaning hard into the idea that AI is a product accelerant rather than a terminal threat. After months in which “AI risk” was enough to flatten almost anything with recurring revenue, the market is finally rewarding a software company for showing resilience and a path toward profitable growth.

Don’t get us wrong, this one shift does not kill the software bear thesis, but we will see a more selective market approach to software going forward.

For markets, that is the important transition. The first phase of the trade was indiscriminate. Software was sold first and analysed later. Private credit firms with perceived exposure were dragged into the same bucket. The next phase should be more dispersion-led. Some software companies will show that AI improves distribution, workflow depth, and customer value. Others will discover that AI compresses pricing, reduces seats, weakens moats, or gives customers a credible reason to renegotiate.

Our read is that last week marked a shift from panic to underwriting. That is constructive for the best software names and the cleaner private credit platforms, but it does not remove the fault line. That is where we think the market will spend the next few months. Not in a broad private credit collapse, and not in a full exoneration of the asset class either. More likely, we get a slow separation between managers that can prove genuine insulation and those that merely disclose it.

The indiscriminate short-software / short-private-credit trade has probably lost its momentum, and the easy leg is behind us. The software names that can show AI-enhanced demand, stronger retention, and improving profitability will outperform, especially out of oversold conditions.

In case you missed it, we released our latest primer over the weekend mapping private credit and the software risks.

The Market Chooses Its Own Adventure

US equities pushed to fresh highs and capped their best month since 2020, even as the Fed delivered a more divided message and Japan stepped back into the yen market. In another regime, either of those stories would have been enough to cause headaches. A fractured Fed path would have been the rates story. Yen intervention would have been the global macro story. Instead, both were treated as supporting characters, all to the leading role which still belongs to AI.

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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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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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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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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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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 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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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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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

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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US equities ran headfirst into that level again last week, and failed to break through. What initially looked like healthy consolidation quickly morphed into another broad AI-driven de-risking, with Thursday delivering the now-familiar sharp rejection lower. The pattern since January is: approach the round number, stall, then unwind.

The difference this time was the breadth of the “AI scare trade.” This was no longer confined to richly valued software names. Wealth managers, insurance brokers, real estate services and even logistics stocks were pulled into the vortex as investors reassessed how far automation could reach. When transportation, previously considered an AI-resistant corner of the old economy, joined the selloff, its clear that markets define no sector with assumed immunity anymore. Whether justified or exaggerated, the market is repricing disruption risk in real time.

Financials bore the brunt. Insurance brokers slumped. Communication services and tech were dragged lower by their Mag Seven weightings, underscoring how dependent index stability remains on a handful of names. At the same time, utilities surged as policy swung back toward traditional power generation, with coal finding unexpected political tailwinds. In a week defined by disruption fears, regulated cash flows suddenly looked reassuring.

Underneath the surface, flows are starting to matter more. Goldman Sachs estimates CTAs may sell up to $2 billion of US equities in the near term, with a key trigger sitting roughly 110 points below current S&P levels. Stretched at resistance, vulnerable to systematic supply, and increasingly sensitive to narrative shocks. The AI theme that powered 2025 higher is now acting as both engine and brake, and until 7,000 decisively clears, the burden of proof remains on the bulls.

Macro is not offering a clean escape hatch either. January payrolls beat expectations and CPI printed slightly softer, yet neither was able to generate durable upside as rate-cut pricing continued to build into the second half of the year. Good data no longer extends rallies, it simply delays easing bets, while soft data reinforces the view that policy will eventually turn more supportive. With July and December cuts increasingly embedded in OIS and long-end Treasuries well bid on equity weakness, the cross-asset signal is one of late-cycle caution rather than renewed expansion. Until growth re-accelerates convincingly or inflation reasserts itself, macro looks more like a stabilizer for bonds than a catalyst for equities.

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

• “Memory Chip Crunch Ripples”

• “Political Clarity”

• “Macro Tailwinds Anchor EM Volatility”

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Memory Chip Crunch Ripples

For much of the past two years, investors have framed the AI buildout as a story about compute. GPUs were scarce, Nvidia set the tempo, and capital spending followed silicon. That framing is now shifting. The constraint is migrating down the stack, from processors to memory, where a less glamorous but far more pervasive shortage is beginning to bite.

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US equities spent most of the week digesting a sharp regime shift in how investors think about software, AI, and capital intensity. Earnings positioning quickly morphed into a broad de-risking across growth, sparked by the release of Anthropic’s new automation tools and reinforced by hyperscalers dropping eye-watering spending plans into an already fragile tape. Software, crypto (the tip of the spear for risk appetite) and adjacent sectors were put through the wood chopper, with megacap tech losing its role as the market’s shock absorber.

The selloff was fast and unforgiving. Software, financial services, and asset managers were hit simultaneously, underscoring how deeply embedded the growth narrative had become across portfolios. Wednesday’s drawdown marked the worst day for hedge fund equity strategies since Covid, a reminder that positioning, not fundamentals, was doing most of the work.

At the same time, volatility spilt into other crowded corners. Silver whipsawed, crypto unravelled, and Bitcoin briefly traded more than 50% below its October peak. Leverage was being reduced, not rotated.

Yet this wasn’t a blanket risk-off. Old-economy exposure did its job. Energy, defence, staples, and industrials outperformed, buoyed by geopolitical tension and relative insulation from AI disruption. The Dow’s break above 50,000 said as much, a milestone achieved through balance-sheet stability and pricing power. With growth multiples under pressure and capex scepticism rising, value and cash flow are back in the conversation, whether investors like it or not.

In macro, the Bank of England delivered a more dovish meeting than markets had anticipated, with the committee split 5-4 to hold rates. Governor Andrew Bailey said there “should be scope for some further reduction in bank rate this year,” as the BoE predicted inflation near its 2% target in April, as well as slowing growth and rising unemployment. Markets are beginning to align with the views we shared on APFX last week for a March cut, False Comfort in SONIA, and pricing has moved from a 5% chance to a coin flip. Upcoming data may confirm the MPC’s dovish views and move the needle further towards our base case.

There were no fireworks from the ECB, which held rates as expected.

The dollar finally caught a bid, its first positive week in a month, helped by the churn in metals and crypto that forced some de-levering into USD. Warsh’s nomination as Fed chair offered a convenient excuse to trim crowded shorts ahead of key data this week. As usual, USD/JPY was the cleanest expression, especially in the options market as realised volatility widened. For now, the dollar bounce looks tactical rather than the start of something durable.

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

• “Investment Gone Bad”

• “A Case of Duck Syndrome”

• “AI Capex: The Winners Are Downstream”

• “A Jobs Report with No Middle Ground”

• “Takaichinomics Takes Its Seat”

• “A Crypto Winter”

Investment Gone Bad

Software-as-a-Selloff was the biggest market mover last week. We wrote in-depth about this market reaction and our preferred expression to the theme, turning to the alternative asset manager space to find weakness in software-linked exposure. Following the swift re-rating of software names, markets have quickly turned skeptical of private equity and loans premised on supposedly predictable results

A broad market recovery to end the week on Friday saw software only modestly higher, and the bounce in asset managers signals to us an opportunity to increase short exposure in this space, seeing limited upside and decent downside.

Recall Jamie Dimon’s warning from last year about “cockroaches” in private credit markets after two auto-related blowups last year. We may see more of this concern related to private credit firms in the software space.

So as not to repeat our thougths from last week, see the below if you missed it.

Alongside our short basket of Blue Owl (OWL US), Ares Management (ARES US), and KKR & Co. (KKR US), we’re looking to add Saratoga Investment (SAR US) and TriplePoint Venture Growth BDC (TPVG US). The latter two were highlighted by as having significant software exposure (h/t). His recent note is worth a read.

A Case of Duck Syndrome

If you only glanced at the index this week, you would call it a routine wobble. The S&P dropped less than 1%. The Nasdaq down 2.5%. However, the story beneath the surface tells a deeper story.

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