Insights 
VT 
In the markets, WTI crude oil increased by 88 cents to $62.50, US 10-year yields fell by 2.3 basis points to 4.43%, and gold declined by $46 to $3193. The S&P 500 rose by 0.6%, with the USD strengthening while the Swiss franc weakened.
Foreign Exchange Market Dynamics
The foreign exchange market was quiet until data indicated a rise in inflation expectations, altering market dynamics and affecting yields. The US dollar gained strength, pushing EUR/USD down to 1.1131 from 1.1200, while USD/JPY increased to 146.05 from 145.45. Although some sellers of the US dollar reemerged, their influence was limited. The trade war’s intensity appears to have subsided, contributing to quieter markets as President Trump visited the Middle East.
That latest consumer sentiment figure—50.8—was not just weaker than forecast, but rather close to historical troughs, which tells us that households are still expressing caution despite relatively strong labour figures and equity markets. It’s not just sentiment either. April’s housing starts missed by a narrower margin, yet the lower reading supports the notion that underlying domestic demand might not be as firm as some had hoped. Meanwhile, import prices ticking up slightly instead of falling, albeit modestly, complicates assumptions that imported disinflation is continuing without interruption.
In the context of global markets, Japan’s hesitancy regarding bilateral trade agreements reflected broader questions over transpacific economic cooperation—doubt that remains a background theme we must continue to monitor when weighing safe-haven positioning. Domestic policy cues added to the mixed signals. The tax measure defeat on Capitol Hill, for instance, whilst not drastically altering fiscal forecasts in the short term, does underscore the political difficulty of advancing supply-side reforms in an election year. It goes to credibility and what Washington can realistically push through next.
Energy watched on quietly as the US oil rig count shaved off one unit. Not dramatic, but it speaks to a levelling-off in exploration growth, possibly flinching at softer energy demand projections and thinner refining margins. Meanwhile, the Fed’s plan to trim its workforce by 10% over several years is, on the surface, an efficiency move. Operationally, though, it often coincides with a quieter forward path for balance sheet expansion and limited hiring, reinforcing the view that monetary policy may edge closer to neutral than the forward guidance has let on.
From a price-action perspective, the climb in WTI was measured, not euphoric. Short-covering and physical demand pockets likely explain much of the move to $62.50. On the longer end of the treasury curve, we saw yields dip a modest 2.3 basis points to 4.43%. That’s not an about-face, but it is enough to push some floating-rate exposure toward the sidelines for now. Gold, however, sold off in heavier fashion. The decline to $3193—down $46—analytically lines up with the dollar’s resurgence and the recovery in real yields. That’s left options traders starting to lean toward re-pricing skew lower in the metal’s vol curve.
US Equity and FX Markets
The S&P 500’s advance by 0.6% was steady, not frantic. Volumes remained thin, and the upside was led by rate-sensitive sectors, rather than cyclicals. As such, the rally felt defensive, despite the headline number. This dynamic mirrored broader support for the US dollar, which pushed EUR/USD toward the 1.1130 handle. That’s a sizeable retracement, especially considering the relative steadiness of eurozone fundamentals in recent weeks. USD/JPY, too, reached higher—146.05— as traders recalibrated their inflation views and added back carry.
What drove this shift was not a speech, nor a surprise central bank policy twist, but a quiet rise in US inflation expectations embedded in the TIPS market. This altered the arithmetic around breakevens and real yields, pressing traders to clear duration exposures faster in the belly of the curve. While some stepped in to fade the dollar’s move, reconciliations were brief and lacking follow-through. The bid for dollars held.
Meanwhile, geopolitical risks lessened a touch. Trade tensions between Washington and Beijing edged lower in rhetorical tone, and with Trump busy in the Middle East, the market felt less compelled to price in another headline disruption over tariffs or sanctions. For the near-term, volatility premiums compressed accordingly.
Going forward, we will cautiously engage year-end rate positioning, with a preference to scale into short-term vol where directional bias is backed by break points on key inflation indicators. Liquidity remains favourable, yet sentiment is delicate. Our desks should lean into price confirmation before adjusting exposure in rates and FX, especially as options remain underpriced relative to historical realised ranges.
