What Caught My Eye
Hi there,
After a period of hibernation, What Caught My Eye is back.
The aim is unchanged — to step outside the daily market noise and draw attention to the observations, signals, and shifts that don’t always make headlines but help build the bigger picture. Sometimes they confirm a trend. Other times, they offer a reason to pause or reframe the narrative.
Here’s what stood out to me this week.
Middle East Bombs. Oil Price Falls. Market Shrugs.
Following U.S. naval strikes on Iranian nuclear facilities, markets initially braced for a spike in oil prices. For a moment, that happened. But since then, Brent crude has retreated — now trading near US$66.
That isn’t what you’d expect from conflict in one of the world’s most strategically sensitive energy corridors.
Arculus Weekly (23 June) highlighted a key reason: China.
“China does not want the situation to escalate any further because of its dependency on cheap sanctioned Iranian oil.”
China has become a consistent buyer of Iranian crude, and the two economies have built a quietly critical energy-for-goods relationship. Disrupt that flow — especially by targeting Iran’s export infrastructure — and China is exposed. Severely.
So far, infrastructure remains intact. While rhetoric is high, the conflict has yet to affect physical supply.
But the Arculus note added a caveat: if Iran’s oil exports are blocked for just one inventory cycle (roughly 90 days), the price impact could be substantial. Brent north of US$100, with few immediate offsets.
“Supply responds to price. But it doesn’t respond instantly.”
So far, the absence of real disruption is enough for the market to look through the noise — for now.
The Fed: Still Waiting for Clarity
Last week’s FOMC meeting delivered more of the same: a cautious tone, no rate change, and a median outlook that still suggests two cuts in 2025.
But the spread of opinion is widening:
- Seven Fed officials now see no cuts at all this year (up from four).
- Others are still pencilling in one or two.
Chair Powell didn’t try to smooth the split:
“No one holds these rate paths with a lot of conviction.”
Then came Governor Waller on Friday, who added a new angle: a rate cut as early as July is now on the table. The market quickly adjusted — yields eased and equities gained.
On Tuesday, Powell returned to the spotlight in front of Congress, reiterating the Fed’s patient stance. He said that more time is needed to assess the impact of recent tariff changes and the broader inflation picture. These effects, he noted, could prove temporary or more entrenched — but the Fed will not rush to move until it becomes clearer which way the data points.
“We are navigating by the stars under cloudy skies,” he added, pointing to both the opportunity and risk of moving too soon.
So while Waller opened the door to near-term easing, Powell is still signalling a more methodical, data-dependent approach. The market now sees July as less certain, with September or later gaining traction.
Morgan Stanley: The Soft Landing That Wasn’t Priced
In this week’s Weekly Warm-Up, Mike Wilson argued that equity markets may already have priced in a moderate macro slowdown.
“Unless we were to see an accelerative rise in the unemployment rate or a string of significantly negative payroll numbers… we don’t think the equity market will become preoccupied with softer macro data this summer.”
Their view is that softening data won’t spook the market unless it comes with labour weakness. Otherwise, it could pull forward easing — helping equities.
Notably:
- Their Fed Sentiment NLP model shows a dovish turn in rate expectations.
- The equity–bond correlation has flipped negative, which tends to happen in “bad news is good news” environments.
Markets are reacting less to where data is — and more to where it’s headed.
A Few Additional Reads Worth Your Time
Oil, Inflation, and Early-Cycle Signals
Arculus pointed out that industrial gas prices began surging in late 2020, well before CPI caught up. Oil followed, and then broader inflation.
That same price signal is flashing again — with industrial inputs rising even as oil slips. The message: inflation risk isn’t gone. It’s just lurking in less obvious places.
Energy’s Shrinking — and Slow Reawakening
In 1980, energy made up more than 30% of the S&P 500. By 2020, it had fallen below 2%. The driver? Underinvestment, ESG headwinds, and tech’s dominance.
But Arculus notes a slow shift. Without meaningful new capex, any future supply shock — even modest — could send prices higher again. Especially in a world still grappling with energy security.
Final Thought: Still Fragile, Still Functioning
There’s a quiet tension running through markets at the moment. On the surface, things look orderly — oil has backed off, the Fed remains patient, and equity indices continue to edge higher. But much of this calm rests on a fairly narrow set of assumptions: that employment stays firm, inflation doesn’t re-accelerate, and geopolitical flare-ups remain contained.
None of these assumptions have broken yet — but they haven’t really been resolved either.
In environments like this, it often isn’t the headline event that moves markets, but a shift in tone or direction that’s been quietly building in the background. That’s the sort of change worth keeping an eye on.
Until next time,
Scott