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Repricing the Risk Curve

Traders went into last weekend’s U.S.–China trade negotiations with rock-bottom expectations. No one was pricing in breakthroughs—just a hope for minimal damage. Instead, they got a “good vibes” tariff truce, where most of the monster levies were walked down. That surprise détente triggered a full-spectrum reset across risk assets, unleashing a wave of relief and positioning recalibration that has yet to run its full course.

The S&P 500 didn’t just hold gains on Friday —it ticked higher, extending a 20% rally off the April lows. Monday’s 326-point sprint wasn’t a fluke—it was a positioning whiplash, as underweight portfolios scrambled to get back in after being sideswiped by the earlier tariff panic. The market got a taste of the worst-case scenario on “Liberation Day.” This week priced in the other side of that distribution.

Meanwhile, the stagflation base case is crumbling. Core CPI cooled. PPI deflated. Retail sales missed—but only marginally—and consumers are still spending. The University of Michigan sentiment data cratered, but markets don’t trade political noise. They trade behaviour. And what consumers are doing looks a lot stronger than what they’re saying.

Treasuries quietly staged a comeback, with yields peeling 15bps off Thursday’s highs. At first glance, it looked like a technical fade off 4.55%. But zoom out, and the bigger story is a coordinated push to exempt Treasuries from the Supplementary Leverage Ratio (SLR)—a move that would encourage banks to load up on government debt without regulatory penalty. SIFMA weighed in. House Financial Services echoed. Powell and Bessent have both flagged this as a priority. If that exemption becomes real, it provides structural support for the bond market at a critical time.

The dollar’s late-week bounce feels less about macro strength and more like it’s riding the coattails of the coordinated push to exempt Treasuries from the SLR. If regulators move ahead with this, it could ease a lot of the structural pressure in the bond market, reducing demand overhangs and clearing out some of the “Sell America” baggage that’s been weighing on the greenback for weeks.

It’s still early days, but the signals are stacking up. Between SIFMA’s statement, Congressional backing, Powell’s acknowledgment, and Bessent’s reform push, it’s clear the narrative is shifting. This doesn’t just matter for Treasuries—it could be a pivotal pivot point for FX flows if it reestablishes U.S. duration as clean collateral rather than a balance-sheet liability.

We’ll be watching this closely over the weekend news reels, but make no mistake—this isn’t noise. It’s a live macro input now, and it has the potential to reshape the way global capital allocates into dollar assets—definitely something to file under critical developments.

According to Goldman Sachs’ PB data, equities remain underowned and vulnerable to upside pain regarding positioning. CTAs are still flat to short, with new buy flows building—$14bn projected next week and $25bn over the month. Institutional net holdings remain at multi-quarter lows, and implied funding is flashing green. There is buying in the system, and more is expected.

In response to current macro conditions, Goldman Sachs has revised its S&P 500 12-month target to 6500, supported by better growth, improved earnings, and reduced trade friction. Recession odds have been lowered to 35%, and our core PCE peak forecast was trimmed to 3.6%, opening the door for three additional rate cuts in 2025. Q1 earnings season surprised on the upside, and we've revised EPS growth for next year to +7%.

The trade thaw gave markets the green light. Inflation cooled just enough to keep the Fed dovish. Positioning remains light, sentiment has turned, and the fear trade is in retreat. This wasn’t a rally born of macro euphoria—it was a forced rethink of what’s actually priced. The result? The squeeze is still on.

Weekly Equity Market Review

You didn’t need a trader’s sixth sense or even Spidey’s Wall Street alter ego to catch it—the shift in tone was visceral. It was as if someone reached into the global macro control room and dialed down the risk pressure valve just enough to take the edge off. You could feel it—not in some mystical way, but in how the screens started breathing easier, vol sellers returned, and the bid crept back into everything from cyclicals to carry.

Last weekend’s surprise U.S.–China trade truce, which shelved the threat of embargo-style tariffs and triple-digit levies, was more than just a relief valve—it was a full-blown sentiment reset. For the bears, it was a gut punch. For the bulls, it was a greenlight wrapped in a bow. Suddenly, equities aren’t just bouncing—they’re blasting through technicals, with the S&P 500 ripping 5.3% on the week, led by tech, consumer discretionary, and the ever-reliable banks.

We’re seeing a full-spectrum reprice of growth risk, with desks even tweaking up economic forecasts across the board—U.S., China, and Canada all got upgraded. The idea that tariffs would torch inflation while strangling demand? Not so much. Softer-than-expected CPI and PPI data gave the Fed just enough breathing room to stay in wait-and-see mode, even as April’s industrial production and retail sales limped across the finish line. Meanwhile, the NAHB homebuilder sentiment printed one of its worst post-COVID readings—yet markets barely blinked.

Why? Because when trade tensions cool, positioning flips fast. We’re in a market where macro narrative is lagging price action—and technical flows are leading the charge. The rally isn't built on pristine fundamentals—it's built on the removal of tail risk. And when you’ve had months of capital parked on the sidelines or hiding in defensives, it only takes one catalyst to force a repositioning scramble.

Globally, the vibe was risk-on—just with slightly less fuel. Europe joined the party, led by the CAC 40 and Germany’s DAX, which padded its near-20% YTD gain. The U.K.’s FTSE lagged, dragged by mixed data and skepticism over last week’s U.S. “deal.” In Asia, China’s CSI 300 and Japan’s Nikkei 225 eked out gains, but both remain in the red for the year, still mired in macro uncertainty and waiting for confirmation that this trade thaw has real legs.

This isn’t about macroconviction. It’s about clearing the decks and chasing upside while the window’s open. With trade risk dialed down, inflation softening, and no Fed panic in sight, the setup was too clean to ignore. Whether this move sticks or not, one thing’s clear: the bears are on the back foot, and the market just reloaded its appetite for risk.

Don’t Confuse a Breather With a Blow-Down: Gold’s Long Game Isn’t Over

Many are ready to stick a fork in gold, arguing it’s peaked simply because tariff anxiety has cooled. That’s a dangerously shallow take—and a classic case of mistaking short-term sentiment shifts for a structural top. Yes, the metal has drifted from its blistering $3,500 highs, but gold doesn’t need front-page chaos to stay in demand. It needs conviction. And that conviction is far from dead.

Let’s break this down. Gold has shed 10% off the highs—down to $3,150 in recent sessions—but in the context of a 20% YTD gain, that’s more consolidation than capitulation. The pullback has flushed out late longs, triggered some ETF outflows, and revived the tired “gold is overvalued” narrative. Nearly half of surveyed fund managers now think gold is overpriced. Sounds familiar? It should. The same sentiment surfaced in 2011 and 2020—right before multi-year consolidations. But unlike those periods, this rally isn’t built on Western ETF flows or inflation panic.

It’s being driven by Asian institutional buying, central bank accumulation, and structural de-dollarisation. Western financial players have barely participated. CFTC net length is still sitting near early 2024 levels—when gold was trading $1,000 lower. If anything, this has been an under-owned rally. China’s exchanges have seen nearly 9 million ounces of fresh open interest since March, and physical demand has quietly been relocating eastward as inventories on COMEX shrink.

Yes, short-term inflation expectations dipped as tariff threats de-escalated, but long-term expectations are grinding higher again. Markets may have downgraded the inflation shock from tariffs, but if a 30% baseline on China sticks, price pressures will build—just slower, and across the curve. The Fed’s flexibility is already shrinking. And if inflation expectations creep back toward 3%, rate cuts won’t be as easy to justify—especially with services employment still firm.

So while some believe we’ve hit “peak Trump” or “peak tariff fear,” gold’s real drivers are deeper: geopolitical fragmentation, central bank hedging, and a slow-motion erosion of fiat trust. Tariffs may dominate headlines, but deficits, deglobalization, and dysfunctional politics are the long game. And let’s be honest—if you’re relying on U.S. fiscal prudence to cap gold prices, you’re betting against history.

The short-term unwind may continue, especially if the dollar stages a bounce or the Fed stays quiet. But this retracement is not a reversal. It’s a necessary purge—one that strengthens the base for the next leg higher. Positioning is lean, volatility has cooled, and forward curves are stabilizing. The West hasn’t even joined the party yet.

This isn’t the end of the gold trade. It’s just intermission. The structural bid—central banks, Asia, and long-term hedgers—is intact. Once the dollar resumes its descent or political dysfunction takes center stage again, gold won’t just recover—it’ll remind everyone why it's still the only real asset without counterparty risk.

Crude Conviction Tested: Geopolitical Thaw Meets Domestic Drain

Crude settled higher on Friday, closing out a second straight weekly gain, but make no mistake—this market is skating on a razor’s edge. On the surface, easing U.S.-China trade tensions have taken some tail risk off the table. But under the hood, oil is caught in a geopolitical whipsaw and a slow-burning structural shift that’s making conviction trades harder to hold.

The initial bid came from Washington’s pivot away from escalation. Trump’s 30-day Houthi campaign has been traded out for a surprise nuclear détente with Iran—quietly brokered through Oman. That handshake moment spooked the longs who had built positions on Middle East risk premium. With up to 800,000 barrels/day of Iranian crude potentially waiting in the wings, the market quickly flipped from tight to top-heavy.

But the price action isn’t just about the Iran optics. WTI below $60 is flashing warning lights for U.S. shale. That’s the breakeven danger zone—too low to justify drilling expansion, but just high enough to keep SPR restocking bids creeping in from the government side. It’s a seesaw: every barrel lost from the Permian may be matched by a barrel bought for strategic reserves. That’s not a bullish thesis, but it’s also not a collapse scenario. It's an uneasy balance.

And this week, I’ll say it for the first time in years: I’m not aggressively short crude anymore. I’ve trimmed risk—not because I’m buying the near-term narrative, but because I think the market is underpricing structural supply fragility. The real “peak oil” moment isn’t about vanishing demand—it’s about domestic depletion in plain sight.

When guys like Travis Stice at Diamondback Energy come out and say U.S. onshore production has likely peaked and will decline this quarter, I listen. This isn’t barstool chatter—it’s the Permian elite waving the flag. Rig counts are sliding. Budgets are getting clipped. Completion crews are being pulled off pad. According to Diamondback, frack crews are down 20% from earlier this year. That marginal barrel—the one that saved us from real tightness in 2022-23—is starting to disappear.

Meanwhile, Putin’s snub of Zelenskyy’s Turkish peace overture keeps Russian barrels in limbo. Sure, peace headlines would be bearish, but they aren’t materializing. Tanker premiums in the Black Sea remain elevated. That floor is sticky.

The demand side isn’t offering clarity either. The IEA nudged its 2025 demand growth forecast higher to 740,000 bpd, but momentum is expected to fizzle in the back half of the year as EV penetration rises and macro tailwinds fade. OPEC+ knows this, but instead of slamming the brakes, they’re playing the long game—keeping output loose while subtly admitting U.S. production isn’t holding up. That’s a big tell.

So here we are: stuck between a peace dividend and a price floor dilemma. The geopolitical thaw with Iran is bullish for global diplomacy, bearish for barrels. But oil isn’t trading ideology—it’s trading marginal flows, positioning, and fragility. Add in soft technicals and stop-happy algos, and this tape walks like a tightrope artist during a crosswind.

I’m still short crude—but smaller, sharper, and with less conviction than I’ve had in over a year. This isn’t just a headline market anymore. The supply side is deteriorating quietly, and for the first time in a long time, traders may need to stop obsessing over demand noise and start pricing in what could be a real peak oil moment—not theoretical, not decades away, but happening now in the Permian, rig by rig.

Chart of the Week

Goldman Sachs Eyes 6500 on the S&P 500

US stocks are expected to rally in the coming months as the Trump administration overhauls the country’s tariff policy with its largest trade partners.

The S&P 500 Index fell in early April after the US government announced sweeping “Liberation Day” tariffs, but the index has rallied since then amid delays on the import taxes and signs of progress on trade-policy negotiations. China and the US agreed last weekend to reduce duties for 90 days amid ongoing trade discussions. “Investors have generally embraced the view that there's an off ramp for some of these hefty tariffs,” David Kostin, chief US equity strategist in Goldman Sachs Research, says in an episode of Exchanges. “I think that largely is priced in the market.”

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