In 30 seconds: The US is drawing on the Strategic Petroleum Reserve at record rates while Venezuelan crude imports hit a 7.5-year high, yet diesel prices remain near post-war highs and analysts warn a potential $5/gallon gasoline shock could follow ongoing Middle East tensions. April US PPI came in far hotter than expected at +6.0% year-over-year and +1.4% month-over-month, compounding concerns from earlier CPI data and pushing inflation to multi-year highs amid rising consumer delinquencies and falling real wages. The Senate confirmed Kevin Warsh as the next Federal Reserve Chair on a near party-line 54-45 vote, with markets already pricing out further rate cuts and debate intensifying over whether Congress will strip the Fed's employment mandate. President Trump's trip to Beijing has revived old-school trade diplomacy focused on opening China to US firms and agricultural purchases, even as analysts note China's growing economic leverage and the complexity of unwinding existing tariffs.
That is one way to manage a supply shock. Another way is to buy crude from countries you recently sanctioned. You take what you can get. Commercial crude inventories, meanwhile, are heading the wrong direction. They are leaving the country. The downstream picture is worse. US diesel pump prices are averaging $5.64 per gallon, sitting in the 88th percentile of historical readings and at or close to their highest since the war broke out despite the recent retreat in prices for crude. Regulators are already improvising. Every additional month of Putin's war adds to the economic strain. The economy shrank 0.3% in Q1, the first contraction since '23, even as the Iran conflict pushed up oil and gas prices. Russia needs oil above $100 for significantly longer to smooth over its economic problems. China's visible crude stocks remain ample and not falling, which offers some buffer. India launched a ~$4 billion plan to boost the industrial conversion of coal into synthetic gas.
Silver surged 3.74% on the day to $88.32.
If you wanted a bipartisan coronation, this was not it. Markets had already done the math. The market is strongly suggesting that the cutting cycle of 2024-25 is over. Part of the reason is the macro backdrop. Which brings us to the mandate itself. The average inflation targeting framework that defined the previous regime was operative from about Sept. 2020 until March 2022, and hadn't influenced any policy since March 2022. The average inflation targeting concept was operative.
When Trump and Xi sit down in Beijing on Thursday, the economic agenda will look surprisingly retro. It is very unlikely China would open up to US businesses without the US re-opening its market to direct Chinese imports. The White House recently had to intervene with Beijing to secure approvals for a large US firm with defence and civilian units that was losing hundreds of millions in revenue a month because it still could not get an export license. On the macro side, the stakes are smaller than they feel. Beans and Boeing exported to China are actually under 0.1 pp of US GDP; the US economy is huge and very domestically focused. When Trump and Xi meet in Beijing on Thursday, Taiwan will be top of mind for Xi. Markets, for their part, are not sweating it. The SPX term structure reflects little concern into the US-China summit, as shown in forward IV. The VIX closed at 17.92, down 0.39% on the day. rolling back some of the Lighthizer 301 tariffs after China didn't deliver on the phase one commitments would be a real concession from Trump. Everything else is pageantry.
Here is what your portfolio did this session.
S&P 500: 7,444.25, up 0.58% on the day
10-Year Treasury yield: 4.48%, up 2 bp on the day
30-Year Treasury yield: 5.05%, up 2 bp on the day
13-Week T-Bill yield: 3.60%, down 0 bp on the day
Gold: $4,697.60, up 0.43% on the day
Fed funds rate: 3.75, flat 0.00% on the day
Long bonds (TLT): $84.80, down 0.22% on the day