The weakness inherent in Trump’s Iran strategy is gradually dawning on more and more investors.The US might have a vastly superior military advantage. But, given Trump’s focus on keeping the stock market’s plates spinning, he is almost completely at Iran’s mercy. The latest missive from Iran is evidence that they will continue to maintain pressure on oil prices and, therefore, inflation during the runup to the midterms. They would love nothing more than to neuter Trump in November.

It’s beginning to dawn on Trump, too. His increasingly unhinged social media threats are no longer taken seriously by anyone. If he were to resume bombing, the market would tank. The longer he postpones bombing, the more he ticks off the remnants of his loyal base. His opponents both here and abroad know he’s between a rock and a hard place, and are increasingly willing to publicly oppose him. He’s stuck, and it’s a dilemma of his own making.

Futures are softer this morning after a snapback rally yesterday as oil prices firmed back above 100/bbl.

Vol is firming somewhat, but VIX has been hammered to below its SMA200 for five weeks now.

CL broke below the initial TL from May 6, but caught a bid at the second one and is backtesting the first. Classic. The market’s enthusiasm about a breakdown has suddenly evaporated and fear about a breakout is back.

As we’ve discussed many times, interest rates would fall if equities tanked enough – delivering to Trump the lower interest rates he so desperately craves – but, not at the cost of a lower Dow.

You can’t always get what you want.

The 10Y has essentially reached our 4.7% target and could even reverse…

…if only oil prices would break down instead of out. The triangle has only one more day to play out – where the two trend lines converge – so we should know very soon.

Futures are hanging onto a modest ramp job as we approach the open.

Note that SPX’s RSI has rolled over and backed off its overbought conditions.

We should see the 10Y backtest the purple channel top from which it broke out on May 15. It would also close the gap at 4.46%, ideally between Jun 22 and Jul 22. Obviously, this depends entirely on Trump giving in on Iran, declaring victory and allowing the Strait to reopen. Israel and hardliners would be disappointed, to say the least. But, with the midterms only six months away and an estimated six month glidepath to normalization of oil markets, he has to get started now.

We’ll get Fed minutes at 2pm ET. Stay tuned…

UPDATE: 11:11 AM

We’re off to a good start. Here’s the TNX chart with that initial 4.46% target shown.

Between chip stocks’ sharp declines and new highs in the 10Y, the futures are under real pressure that not even obvious VIX manipulation can counter.

Check out the ridiculous move VX had to make to allow SPX to close above its SMA10 yesterday.

VIX itself was a little less obvious, but naturally it closed back below its SMA200 before gapping back above it this morning.

Bond buyers are laser focused on oil prices. And, right now, CL is telling them that the risk is not only rising in the lead up to a potential break out.

Imagine the jump in DXY and dip in rates which could occur if/when stocks were to experience a substantial correction – the one which is long overdue.

GLTA

Futures were down nearly 1% overnight…

…until VIX got hammered below its SMA200 yet again.

VIX first dove below its SMA200 over a month ago and has been dipping below it on cue any time stocks start to wobble. It’s not a coincidence.

It leaves plenty of doubt re a meaningful backtest. The targets are clear.

Also still being managed: oil and gas.

The bond market should have reacted when CPI or PPI was released, but was aptly supported by the Fed until Friday, when rates soared. It remains to be seen whether they can engineer a breakdown in WTI which would clearly help reduce rates.

There’s increasing talk about a Fed rate hike. But, obviously, the market is already doing that for them.

One thing that typically drives rates lower is a strong equity correction. Another is a strong DXY, which would also help with inflation.

Still on the road today…

Futures are down sharply following the conclusion of Trump’s visit to China where he reportedly whiffed on any major issues.

On the road today, so a quick update as ES approaches its 1.618 extension…

The PPI posted its biggest increase since March 22, rising 6.0% YoY and 1.2% MoM,  3x the 0.4% estimate. Core PPI, which excludes food and energy, rose 1.0% verus the 0.4% estimate.

Energy costs (+7.8%) which have soared due to Trump’s war on Iran drove the bulk of the increase. But the services index popped 1.2% due largely to a sharp 2.7% rise in trade services, a sign that tariff costs are impacting prices.

Vol has been handily suppressed, meaning the SPX futures are only slightly higher on the bad news.

…the hot inflation numbers are driving the 10Y to test recent highs where we expect the Fed/Treasury to take a stand.

We should soon see a rebound in the 2s10s.

CPI, though significantly understated, came in at 3.8% (0.6% MoM), sending interest rates higher and stocks lower.

We are meant to believe that commodities were flat month over month – hardly likely given the surge in prices for such inputs as diesel and fertilizer. Perhaps the worst part of the report, however, is the services inflation: 3.3% YoY and 0.5% MoM.

Even taken at face value, however, the trend is troubling. As we’ve said for the past several years, the bottoming of YoY gas prices meant the bottoming of inflation. Toss in a war that closes the Strait of Hormuz, and the result was inevitable.

Futures are off over 30 points…

…which is occurring after SPX tagged its 1.618 Fib extension yesterday.

Vol is being managed…

…but the 10Y gapped higher.

continuing…

Futures are fairly flat after a modest decline following Trump’s criticism of Iran’s response to his peace plan.

The politicians continue to fib. We’re not sure which politicians are fibbing more than the others, but they’re definitely fibbing. Even Trump admits the US was fired upon by the Iranians (presumably with missiles that weren’t obliterated) – a condition many would consider fire that hasn’t ceased. Oh well, the future are up nicely after a jobs report that confirms what we’ve said for ages: there is no justification for a rate cut.