In 30 seconds: The ongoing Iran war has driven sharp increases in energy and food commodity prices, with gasoline hitting record highs, markets pricing in Fed rate hikes, and consumer sectors underperforming the broader market. Analysts warn of a 'China Shock 2.0' as Asian surplus economies shift state assets away from US Treasuries toward private-style portfolios, with China recapitalizing state banks and reducing formal dollar reserves, raising risks of simultaneous trade and treasury market disruptions. Analysts argue that the BRICS bloc has failed to deliver on its promises over 17 years, with its only implemented program denominated in dollars and dwarfed by existing multilateral institutions. Canada is set to impose retaliatory tariffs of 15-50% on US imports, with the US threatening further tariffs and export bans in response.
The commodity scoreboard since the start of the Iran war reads like someone fed an inflation nightmare into a spreadsheet and hit sort descending. European Natural Gas is up 125%. Sulfur is up 123%. Heating Oil, Jet Fuel, and Diesel have surged 77%, 62%, and 56%, respectively. WTI crude, the headline number everyone watches, has climbed 36% and last settled at $91.48. US Natural Gas closed at $2.97. It is not just energy. Rice is up 47%, Wheat 24%, Palm Oil 22%, and Corn 17%. Cotton has gained 32%. Fertilizer inputs are along for the ride: Diammonium Phosphate is up 26%. The Fed funds futures market has noticed. Markets are pricing a 60% probability of a hike at the September 16 meeting, 71% by the October meeting, and 86% by year-end. Both consumer sectors — Staples and Discretionary — have been straight down relative to the broad market over the last year. Historically, that's not what bulls want to see. You have input costs surging, a central bank with rising hike probabilities, and consumer sectors underperforming the broad market. Fed hike probability by year-end: 86%.
The phrase "de-dollarization" gets thrown around a lot, usually by people who want it to sound scarier than it is. The more precise term is something like 'de-reservification': not really dedollarization but a shift away from US safe assets toward more private-style portfolios with credit and equity market risk. The dollars are still out there. They're just not sitting obediently in Treasury portfolios anymore. Here is the structural picture. The Asian surplus economies are still adding to state assets abroad, but those assets aren't in the hands of reserve managers. The growth is from national pension services and in China's case, the state banking system. South Korea's National Pension Service mounted a backdoor defense of the won via changes to its hedging strategy, and the resulting rebound in the Korean won has been impressive. The yen, sitting near 150 JPY/USD, is still bloody cheap. The risk flagged is that it would be possible to have both a 'China shock' and a 'Treasury market shock' at the same time — China shock 2.0 isn't China shock 1.0 in some key respects. That is not a combination the textbook prepares you for.
There is a certain kind of international organization that exists primarily as a venue for communiqués. Leaders fly somewhere pleasant, pose for a group photo, announce sweeping plans to reshape the global financial architecture, and then fly home. The reshaping does not happen. The communiqués accumulate. Over roughly 17 years of existence, the group has done nothing but talk. That is a long time to talk. You could earn a doctorate, forget everything you learned, retrain in a completely different field, and still have years left over. The bloc is now 18 years old by some counts, and the concrete output remains remarkably thin. How thin? The bloc has managed to implement just 1 program. One. And that 1 program? It is denominated in dollars. This is somewhat inconvenient if your founding premise is that the dollar-denominated global financial system needs a counterweight. You have built the counterweight, and it runs on the thing it is supposed to counter. The scale problem is arguably worse than the denomination problem. That sole program did less over 10 years than the IBRD did in one year. That is one institution operating within one year, compared to a bloc of major economies operating across over 10 years. The math is not flattering. None of this means the bloc cannot eventually produce something meaningful. But 18 years is a long runway for an organization whose members collectively represent major economies. At some point, the gap between the ambition of the summits and the modesty of the results stops being a phase and starts being the product.
The nice thing about a trade war between neighbors is that the escalation ladder is short and the rungs are close together. Canada is set to impose retaliatory tariffs tomorrow, with rates ranging from 15% to 50% on a set of US imports. Canada will impose retaliatory tariffs. The 50% tier is punitive. The signal is out there: if Canada imposes retaliatory tariffs on US imports, the response could be further tariffs and possible outright bans on some Canadian exports. Notice the progression here. You start with tariffs, which are a tax you impose on your own importers and pretend is a tax on the other country. Then you escalate to outright bans, which skip the pretense entirely and just say: we do not want this stuff crossing the border at any price. The logic of retaliation is always the same. Country B retaliates. Country A treats the retaliation as a fresh provocation rather than a predictable consequence of its own actions, and escalates further. Each side gets to claim it is merely responding. Nobody is the aggressor. Everyone is defending themselves. The tariffs just keep going up. You are not taxing some distant trading partner whose goods arrive by container ship. You are taxing the supply chain that runs through your own backyard, which means the pain arrives faster and lands closer to home.
Here is what your weekly spend looks like right now.
Gas (per gallon): $4.07, down 0.34% on the week
Groceries (CPI food at home): 346.68, up 0.08% on the month
Eating out (CPI food away from home): 349.88, up 0.08% on the month
Average hourly earnings: $37.75, up 0.27% on the month