Image Source: Unsplash

Markets spent most of the day floating in a tepid drift—until Powell dropped the match into the policy powder keg. What had been a sleepy Wednesday session turned twitchy as the Federal Reserve, without explicitly turning hawkish, made it crystal clear: they’re not done fighting the inflation dragon. The statement may have been boilerplate, but Powell’s tone told a different story—one of a central bank that’s seen enough inflation false dawns to stay trigger-ready, not trigger-happy.

Asian investors woke up and took one look at the shift in Powell's posture and shrank back a little. Futures for Japanese, Australian, and Hong Kong equities tilted red in early Thursday trade, echoing Wall Street’s indecisive close and pricing in a storm cloud or two. Meanwhile, traditional safe havens yawned—gold, the yen, and the franc moved in ranges so narrow they could pass for heart monitor flatlines. It's not that markets aren't worried; they’re just not sure which monster will come out of the closet first—inflation, recession, or geopolitical combustion.

Oil stayed pinned near recent highs, showing a trader's poker face despite Donald Trump’s latest verbal firecracker: “I may do it. I may not do it,” he said when asked about bombing Iran. That ambiguity hangs like jet fuel over a tinderbox. With U.S. naval assets now redeploying and Hormuz supply routes under theoretical threat, the oil market is quietly sweating behind its calm exterior.

Back to the Fed—Powell made it clear he’s not buying the soft landing just yet. Yes, the labor market’s not the culprit behind rising prices, but tariffs and war risk could make inflation sticky again. He warned that the Fed remains “well-positioned” to act but prefers to sit tight and watch the data rather than cut rates prematurely into a policy trap. Translation: they’re guarding the gate, not opening it.

Trump, never one to miss a Fed day spotlight, lobbed insults from the sidelines, calling Powell “a stupid person” while repeating his calls for a rate cut. But that tantrum did little to sway the outlook: seven of the Fed’s 19 policymakers now expect no cuts this year—up from four in March. The pivot is subtle but unmistakable. The doves are being clipped.

Short-term inflation metrics are flaring, but long-term expectations remain moored. Still, the Fed’s own projections now show core inflation topping 3%—a level that keeps the door to cuts bolted shut for now. Rate traders got the memo, and yields inched higher as the bond market began rethinking those rosy double-cut bets for 2025.

Equities, capped by the Fed’s hawkish undertone and geopolitical overhang, ended the day mostly flat—less caught in a tug-of-war and more pinned under a cloud of uncertainty. But under the hood, pockets of euphoria bubbled up. Crypto stocks went vertical after the Senate passed legislation regulating stablecoins. Coinbase (COIN) rocketed 16%, proving once again that in this market, regulation isn’t always a wet blanket—it can be a starter pistol.

Still, the broader market is pacing the floor. With Powell holding his cards and Trump possibly dusting off the war playbook, the road ahead is paved with conditionality. Will tariffs reignite inflation? Will jobs roll over and force the Fed’s hand? Will Hormuz turn from risk premium to real disruption?

One thing’s certain—markets are no longer coasting. The air has changed. Traders can feel it. And the next catalyst, whether from Capitol Hill or the Strait of Hormuz, might not knock politely before kicking the door in.

THE VIEW(s)

Pump, Fade, Rinse, Repeat: Powell’s Pessimism Outguns Trump’s Iran Hope

Markets opened with a bang and ended with a shrug. Stocks initially rocketed out of the gate on a sugar hit of Trump optimism—his off-the-cuff remark that Iran had reached out to negotiate sent risk soaring. But like most feel-good headlines in this tape, the rally was short-lived. By the time Powell stepped up to the mic, the air was already leaking out of the balloon.

And then came the gut punch: “We expect a meaningful amount of inflation in coming months.”

That single line from Powell was the kill switch. The Nasdaq turned red, broader indexes slumped, and the soft-landing narrative took another hit. For a brief moment, Trump tried to pump the brakes—“Haven’t closed the door to conversations with Iran”—but the follow-up sealed it: “Possible that fighting necessary to block Iran nuclear.” Hope whiplashed into hawkish dread.

By the close, only the Russell 2000 had anything to show for the day. Small caps led, but it felt more like a mispriced rotation than conviction buying. The majors ended more or less flat—muted by a Fed that refuses to blink and a geopolitical risk premium that’s starting to settle into the tape.

Powell, for his part, was anything but dovish. He dismissed labor slack—“The labor market’s not crying out for a rate cut”—and issued a dry warning on tariff-induced inflation that seemed to rest more on sentiment surveys than real-time price data. Still, he made clear the Fed’s not banking on tariff impacts being one-and-done. They’re watching the summer for signals, but Powell’s tone made one thing clear: cuts are on hold until the fog lifts.

Despite a dovish lean in the SEP, Powell undercut it with reality: the inflation threat isn’t theoretical anymore, and he’s not assuming it fades quietly. Even more jarring for the consensus crowd, Powell noted that tariff uncertainty has declined—flipping a key pillar of the recent bullish narrative on its head. That vacuum is now being filled by rising geopolitical instability.

Soft data may be rebounding, but hard data’s still on a downward slope—and the market is starting to take notice.

The early squeeze, driven by meme-stock momentum and low-quality tech, hit a wall once Powell started talking. Hedge funds, having barely caught their breath from Tuesday’s snapback, got tagged again. Meanwhile, Treasury yields oscillated but finished only modestly lower—par for the course in a market that’s treading water rather than trending.

Rate-cut expectations barely budged. The dollar, like most things today, round-tripped and ended flat. Gold drifted within a tight range, ignoring the usual haven script. Oil danced to Trump’s tune, sold off on diplomatic hints, then bounced—before settling back into its pre-session level. Even a massive crude draw barely registered.

Crypto? Same story. Bitcoin popped early, then faded into the close, despite a regulatory boost from the Senate’s GENIUS Act. Even the wildest asset class got bored.

In the end, everything from gold to the greenback to crude and crypto finished… unch. If you blinked, you missed a lot—and yet nothing at all. Welcome to the modern market: one giant headline whipsaw where volatility spikes but price doesn’t move.

But don’t get too comfortable. Friday’s options expiration could stir what today merely teased. And with the U.S. closed tomorrow, positioning ahead of that event could make for fireworks in otherwise empty streets.

The casino’s still open. The house just hasn’t picked a table yet.

Oil’s Not Done Running—It’s Just Getting Its War Paint On

The oil market’s been climbing like a fuse looking for a barrel, and make no mistake—it hasn’t exploded yet. Brent’s recent surge isn’t some technical bounce; it’s the market’s nervous system twitching under geopolitical strain. But here’s the rub: the worst-case scenario isn’t priced in. Not even close.

We’re six days into Israel and Iran slugging it out with missiles and F-35’s, and oil traders are still trading like it’s business as usual. That’s a dangerous game. One credible disruption to the Strait of Hormuz—a 21-mile-wide lifeline for 20% of global oil flows—and Brent doesn't pause at $85, it vaults toward $110 with momentum to burn.

Energy stocks will catch a bid, sure—but this isn’t a one-size-fits-all rally. Majors overweight the Middle East are playing with loaded dice. If logistics snarl or infrastructure gets hit, the pain won’t be shared equally. Some names are running with the oil tide; others could get dragged by the undertow. The smarter bet? Companies with little Middle East skin in the game and high-end gearing that can ride elevated prices without geopolitical drag.

Still, the Street’s asleep on the earnings front. Estimates haven’t moved. Risk models haven’t been rated. Analysts are anchoring to the idea that if Iranian facilities stay intact and tankers keep moving, this is just noise. That view misses the forest for the burning trees.

This isn’t a spike driven by fundamentals. It’s a war premium sneaking in through the side door while everyone watches the front. If the conflict slips from proxy to direct—if the wrong pipeline, port, or patrol gets hit—this market rewrites itself in real time. Suddenly, “temporary” becomes the new normal.

That’s when the dominoes start to fall: oil up, tech down, defensive sectors in vogue. If crude surges further, central banks lose room to cut. Inflation gets sticky again. Rate cut fantasies get walked back. Suddenly, the two-cut glide path looks like wishful thinking. And that low-volatility, soft-landing narrative? That dies in the sandstorm.

This isn’t priced for war. This is priced for a messy truce that never quite arrives. Which means positioning for anything less than an escalation is a bet against gravity—fine until it isn’t. The fuse is lit. The barrel’s waiting. And the market? Still whistling past the pump.

Oil Risk Rising: If Iranian Crude Is Cut, China Eats the Loss—Not the Dollar

For those following my oil lean—and the FX spillover it’s already triggering—let me make one thing crystal clear: if Iranian crude flows get shut off, the yuan bleeds, not the buck. And the euro and yen won’t walk away clean either.

Markets have been far too casual about the risk that Israel eventually targets Iran’s energy export infrastructure. It hasn’t happened yet—but the fuse is short and the intent is there. If Kharg Island gets cratered or if the “dark fleet” runs aground under stricter U.S. enforcement, the entire illicit Iranian crude stream dries up. And that’s a China-specific body blow.

Iran’s oil exports are a rounding error in global terms—1.7 million barrels per day, under 2% of demand—but they’re nearly everything to Chinese “teapot” refineries. These backdoor buyers in Shandong have gorged on cut-rate sanctioned oil, bypassing state channels to pad margins. They’re paying in renminbi, not dollars, and Iran—boxed out of global finance—has no choice but to spend those RMBs on Chinese goods. That’s not a trade relationship; that’s colonial lockstep. Cut the flow, and both sides get choked.

This isn’t just about barrels—it’s about FX leverage. Iran's crude-for-RMB pipeline gives China oil price insulation. Kill that, and Chinese refiners are forced back into the real market, paying dollar-set global prices for Brent, Oman, or Russian Urals with shrinking discounts. That’s a margin killer—and a yuan pressure point.

Meanwhile, energy inflation hits China hard. Not just at the pump or in PPI, but in the industrial heartland that still relies heavily on fossil fuels.

The market comfort blanket here is the OPEC+ spare capacity narrative. Yes, Saudi and the UAE are sitting on ~4 million bpd. But spare capacity is not the same as deployable barrels. Politics matter. Timing matters. Market reaction is front-loaded while supply response lags—and if crude rips higher in a conflict zone, you don’t get orderly hedging behavior; you get panic and disorderly flows.

Washington won’t love $100 oil either—especially not Trump, who hates paying high prices at the pump during campaign season. But geopolitics may override optics. If the mission is regime change in Iran, cutting off oil revenue is the kill switch. A strike on Kharg Island isn’t a tail risk—it’s a scenario that traders should be pricing now.

Bottom line: if Iranian crude goes offline, China absorbs the pain first, and the FX transmission screams louder than the barrel count. USD strength, CNY fragility, and reflation risks slam the euro and yen. This isn’t priced in. But it will be.

More By This Author:

The War Signal Heard 'Round The World ': Trump’s Combat Posture Jolts Global Markets
WW3-On, WW3-Off: Markets Spin The Mideast Roulette Wheel
Markets Bet On What Hasn’t Happened—Yet