Markets Have Returned To Taking Headlines As Gospel

By Molly Schwartz, cross-asset macro strategist at Rabobank

US Treasury yields have been falling for the past two days. On Monday, we saw US rates grind lower after Powell gave a speech at Harvard University where he seemed to hint that hikes were not part of the Fed’s plan for the immediate future, noting that “tariffs have a one-time impact on inflation” and that “there are risks to both sides of the mandate.” In times like these where inflation fears have been the headline, Powell’s refusal to doomspeak on the inflationary impacts of the war and elevated energy prices said enough on its own.

Powell also took time to talk about the continued issue of Fed independence, or lack thereof, highlighting how “there’s broad consensus” that the Fed requires independence on monetary policy. However, as we have noted previously, history suggests otherwise. The Fed was not independent from the Treasury until 1951 when the DoJ investigation continues, he will remain on the Board of Governors even after his term as Fed Chair ends, preventing Trump from appointing a third Governor to the Board this term.

However, the move lower yesterday was sparked after a

What markets cared significantly less about was a new Truth Social post, Trump bemoaned Europe’s refusal to get involved, and has especially called out the UK’s Keir Starmer, saying that “all of those countries that can’t get jet fuel because of the Strait of Hormuz, like the United Kingdom, which refused to get involved in the decapitation of Iran, I have a suggestion for you…build up some delayed courage…and just TAKE IT…the USA won’t be there to help you anymore, just like you weren’t there for us. Iran has been, essentially, decimated. The hard part is done. Go get your own oil!”

Trump’s ire comes as several European countries, including the UK, have pushed back on US demands in the context of the war. This includes Italy denying US aircraft access to a base in Sicily, and of course, the UK’s hesitancy and red tape in allowing American access to British military bases.

While markets have focused on the energy crisis in the middle east, another war is fueling its own energy crisis further north. Russia’s Bloomberg, “Primorsk and Ust-Luga handled about 45%, or 1.72 million barrels a day, of Russia’ seaborne crude exports,” and the damage has set  Russia’s oil flows to its lowest level in more than a year