In 30 seconds: The US-Iran conflict has disrupted oil flows through the Strait of Hormuz, driving volatile swings in equity futures tied to deal speculation, record SPR drawdown rates, and Iran loading crude at alternative terminals while oil price manipulation allegations swirl. Brad Setser's new analysis finds China's FX settlement is running at a $500 billion annualized pace—potentially triggering a Treasury currency manipulation designation—while China's true US Treasury and Agency holdings are likely far higher than official custodial data suggest. China's April data revealed the worst retail sales growth since COVID, weakening industrial production, and a historic 36-month consecutive decline in home prices, even as electronics and EV exports remained relatively strong. Tech and semiconductors have dramatically outperformed the broader market since the March lows, with NVIDIA approaching earnings at its most overbought level since 2022 and options markets pricing a significant volatility event around the report.
The sequence on a recent trading day went like this: S&P futures declined Sunday night on headlines that it was 'time of the essence' for a deal, rallied two hours before open on reports the sides were close, declined by morning when they were not close, and recovered in the afternoon on word that a planned attack would be delayed. You could chart the index against the headline cycle and get a near-perfect correlation, which is either efficient price discovery or a nervous breakdown expressed in basis points. Two weeks ago, the emergency drawdown rate broke above 1.2 million barrels per day. Last week, it broke above 1.4 million barrels per day. In the oil market, this is shaping up to be a year of many, many records being broken. Iran is still loading crude into tankers at Jask, an alternative terminal outside the Strait of Hormuz, at roughly 44,000 barrels per hour, or about 1 million barrels per day, from a platform 5-6 km offshore. The US has simultaneously issued its third temporary waiver on Russian oil sanctions. One analyst flagged an apparent $7 billion in front-running of Trump administration tweets and announcements about the war, noting that no one in the administration seems concerned about investigating it. Urea fertilizer prices have already fallen ~20% from their peak in April.
The same dynamics driving the Iran War, Hormuz Blockade, and Oil Market Turmoil section are also a factor in China's Hidden US Treasury and FX Intervention Holdings.
The official data say one thing; the money says another. The April FX settlement gap of roughly $25 billion is down from recent months, in part because the PBOC balance sheet is expanding this year. The trailing 12-month pace of $500 billion is, according to one economist, enough to trigger a Treasury designation as it exceeds 2% of China's GDP. Then there is the question of what China actually owns. Official custodial data show China's agency holdings falling from $250 billion to $150 billion in the last few years. China's FX settlement runs at a 12-month pace of $500 billion. From 2010 to 2016 China primarily used Euroclear, which registers in TIC data as Belgium; custodial holdings in Canada, France, and Luxembourg have since risen significantly. A benchmark adjustment raises China's holdings by around $150 billion (using the change in holdings in France, Luxembourg, and Canada since mid-2022), and real holdings could be closer to $400 billion.
The same dynamics driving China's Hidden US Treasury and FX Intervention Holdings section are also a factor in China Economic Data Shows Deepening Domestic Weakness.
Retail sales grew just 0.2% year over year, the weakest pace since Covid. Industrial production came in at 4.1%, the lowest in roughly three years. China's property sector continues to drag — home prices fell in 53 of the last 57 months, averaging a 0.6% monthly decline, a collapse the records describe as unprecedented. Home prices have declined in 53 of the last 57 months. Unprecedented is the word for it, and it seems right. The bright spots are all pointed outward. China's latest economic data highlights an intensifying structural divide: strong export growth paired with stalling domestic demand. The data keeps arriving with the same message: China can make things, it just cannot convince its own citizens to buy them.
The broader market has climbed 17.2% since the March 30 low. Thirty percent upside was projected for the Nasdaq two months ago on the basis of nowcast data, and the index has obliged. The semiconductor complex, meanwhile, could be a massive pain trade if it moves even higher. NVIDIA is up 18% since its February earnings report. The QQQ NDX term structure holds a big kink due to NVDA earnings, verifying how important NVDA is for the equity complex. The kink is visible for single stocks too, like TSLA and AAPL. The S&P 500 has logged 79 trading days this year where breadth and price moved in opposite directions, a record high.
Here is what your weekly spend looks like right now.
Gas (per gallon): $4.50, up 1.08% on the week
Groceries (CPI food at home): 345.20, up 0.49% on the month
Eating out (CPI food away from home): 348.35, up 0.50% on the month
Average hourly earnings: $37.41, up 0.16% on the month