In 30 seconds: The ongoing Iran war has triggered massive commodity price surges (jet fuel +60%, crude +35%), disrupted global oil flows through the Strait, pressured GCC finances, and is reshaping trade patterns as China buys sanctioned oil in CNY and European chemical firms benefit from Asian rivals losing naphtha supply. The S&P 500 has surged to new all-time highs, led by a Mag 7 recovery and record semiconductor streaks, with strong earnings growth and retail sales data supporting valuations despite lingering inflation concerns. Brad Setser raises alarm that the US Treasury is considering providing dollar swap lines to the UAE—one of the world's wealthiest sovereigns with ~$2 trillion in sovereign funds—as Gulf state finances come under pressure from the Iran war's disruption to oil revenues. A growing wedge between core PCE and trimmed mean inflation measures is raising questions about the Fed's policy path, with analysts debating whether tariff- and Iran-driven price pressures are transitory or persistent, echoing the 2021 inflation misread.
The commodity scoreboard since the start of the Iran war reads like a supply-shock textbook. Jet fuel leads, up 60%. Then sulfur, up 53%. Urea, up 49%. Heating oil and diesel, each up 46%. Brent crude, up 36%, closed Tuesday at $101.46 per barrel, gaining 3.026% on the day. WTI settled at $92.62, up 0.5319%. Gasoline, up 35%. European natural gas, up 33%. Even palm oil is up 14%, and rice 6%. The S&P 500, meanwhile, is up 3%. The VIX closed at 18.85. Equities, apparently, have decided this is someone else's problem. Brent at $100 is not a real crisis price, as one observer noted. Jet Fuel price up 60% since the start of the Iran war. US commercial petroleum inventories down 1.8 million barrels last week. European summer flight prices are running 2-3x normal levels, which will, in the elegant phrasing of demand destruction, simply mean fewer people fly. The Iran conflict appears to have solved the German chemical sector's biggest problem within 2 months — with Asian rivals starved of naphtha, BASF and Wacker Chemie are reclaiming pricing power they had lost over the past 6 years. CIPS daily volume: $150 billion. China has been buying Iranian oil in yuan for the last 15 years. Australia agreed to sell iron ore in yuan. China's cross-border payments system processed $150 billion in a single day last week, running at $1 trillion weekly and $50 trillion annually.
The S&P 500 closed at 7,137.90 on 2026-04-22, up 1.05% on the day. Just two weeks earlier, the market was staring at a 10% price decline and a 19% valuation drawdown. Now it sits at new highs. The forward P/E contracted 9.5% peak to trough. The rally off the March 30 low has been fairly uniform, although the cap-weighted S&P 500 has gained more ground (to new highs) than the equal-weighted index — and with the Mag 7 rocketing back to life after a six month correction, you can see exactly where the energy came from. YoY Earnings growth expectations are $AAPL 19%, $AMZN 35%, $GOOGL 35%, $NVDA 95%. Semiconductors have been particularly relentless, stringing together 15 consecutive up days, a record. Meanwhile, Caterpillar closed above $800 for the first time ever, having traded at $273 during the tariff tantrum lows. That is not a typo. The consumer data underneath all this is mixed. March pending home sales rose 1.8% year over year, the largest year-over-year increase since late 2024. One soft spot: spending at restaurants and bars remained soft in March, with the three-month moving average at just 0.1%. The breadth question lingers. On one session the S&P 500 gained 80 basis points while the equal-weight version was slightly red. S&P 500 $SPY 80 bps vs equalweight version $RSP slightly red.
The GCC's finances appear to have broken before the oil market after the Strait was closed, which is surprising given that Brent at $100 is not a real crisis price. You would have expected the oil market to crack first. The ESF is meant for stabilizing the dollar and supporting the international monetary and financial system, not for supporting US tech. The ESF is certainly not meant to fund foreign countries' investments in the US, particularly politically motivated ones. He is not pushing back against the UAE request in obvious ways, and appears more interested in keeping asset prices up than in protecting US taxpayer funds. The trouble is that the economic case has not been made. The UAE has a lot of bills, which are instant liquidity, and even more Treasuries, which can be used as collateral at the Fed's FIMA facility, so it has not presented the data that would make the economic case that it needs a swap. If you are sitting on that kind of balance sheet, the word "need" does a lot of work. The UAE is not known for its budget transparency, for its high-quality BoP statistics, or for even providing a proper accounting of the size of its royal and sovereign funds. Meanwhile, ADIA could pay a dividend to the UAE budget or make a loan to the UAE budget, given the size of external assets, and the UAE still has some exports unlike Qatar and Kuwait. There are, in other words, plenty of internal solutions before you get to the US taxpayer. The UAE's situation has nothing to do with China; everything to do with their coming budget shortfall and need to invest in and repair damaged infrastructure. Nothing says a country gets an ESF line to invest in higher yielding projects globally. That is not really the intent of the swaps.
There is a basic problem with having two thermometers that disagree. In February, the Dallas Fed trimmed mean printed 2.3% year over year, while core PCE came in at 3.0%. That is not a rounding error. A wedge has opened between them, and the question is which side of it you want to stand on. At his confirmation hearing, the Fed chair nominee dismissed core PCE as a "rough swag" and said he'd prefer to focus on better gauges of underlying inflation like median or trimmed mean. This is convenient, because the trimmed-average measure is probably the only inflation gauge still somehow trending lower. If you are about to inherit the Fed's steering wheel, you might naturally prefer the gauge that says you are closer to the destination. The trouble is that the trimmed mean has a known blind spot. The Dallas Fed calibrated an asymmetric trim dropping price changes below the 24th and above the 69th percentile, an approach designed assuming price changes are usually negatively skewed. That asymmetric design reflected the historical norm from 1977 to 2009. When pandemic-era shocks flipped the skew positive, and the trimmed mean lagged badly behind core and headline inflation, the measure's design assumptions broke down. Put differently, the trimmed mean did not give a good read on the 2021 inflation. The optimistic case for core inflation near 2% in 2027 is still plausible if goods are rising due to tariffs and this is a one-off, housing keeps slowing, and portfolio management fees normalize. Three conditions, each debatable, none guaranteed. And then there is Iran, described as the wildcard. The trimmed mean normally leads headline inflation, which is why analysts watch it. But a tool calibrated on the assumption that price changes are usually negatively skewed may not perform well in a regime of positive supply shocks. Dallas Fed calibrated asymmetric trim dropping price changes below the 24th and above the 69th percentile. The Fed's next chair wants to rely on the friendlier number. Markets will have to decide whether that number is actually friendly, or just late.
Here is what your portfolio did this session.
S&P 500: 7,137.90, up 1.05% on the day
10-Year Treasury yield: 4.29%, up 0 bp on the day
30-Year Treasury yield: 4.90%, up 0 bp on the day
13-Week T-Bill yield: 3.60%, down 0 bp on the day
Gold: $4,756.20, up 1.23% on the day
Fed funds rate: 3.75, flat 0.00% on the day
Long bonds (TLT): $86.74, up 0.20% on the day