We made it through the Fed. 25 bps with a sense they are looking to hike again. No “surprises” during the press conference, which was pleasantly short. He went out of his way to “blame” global supply, especially hyperscalers, for the pressure at the long end of the yield curve. That pressured the long end, which then dragged down stocks. The slightly hawkish tilt could have hurt stocks too, but it should have helped the long end. As always, positioning is weird, trading is heavily algo-driven, hunting for stops, during and immediately after the FOMC. I really wish this was done in the morning, so the market had more than an hour to digest the info.

I am still waiting, eagerly, for the task forces to report (especially the data task force). I did enjoy Warsh trying to focus on trends, rather than specific data points, but since the data points do help form the trends and algos are trained to respond to them, getting markets to respond more calmly to any individual piece of data will take time.

On the “regularly scheduled” programming:

• Oil and energy prices will remain the key drivers. There is optimism that the damage to the Saudi pipeline will be repaired quickly. It seems a bit optimistic, not so much that they can fix it quickly (seems somewhat suspect), but that it won’t be hit again if this is now part of the war Iran and the Houthis are waging. WTI below $100 is helping stocks and bonds rebound.
• It didn’t make much sense why the gains in stocks and bonds ahead of the FOMC were given away so quickly given the Fed largely delivered as expected. I do expect bond yields over time to rise, given my overall outlook, but the fade during and after the presser surprised me. Maybe “cooler” heads prevailed overnight?
• Japanese Yen. The Fed just made the BOJ’s job of further strengthening the yen a lot more difficult. I was already in the camp where they might disappoint FX markets (and Bessent) by signaling only one hike this year, and that they are patient on rate hikes. The JPY is currently above 155, which is potentially a key level. It has acted as “resistance” and “support” multiple times this year (or at least in and around that level). Keep an eye on a weaker yen, as supporting it has definitely become more difficult. I’m not going to stay up/wake up to see the BOJ decision, but the JPY will be one of the first things I look at tomorrow morning.
• Compute build and spend. There are so many confusing and conflicting narratives around this; it is difficult to keep track of what is “winning” the narrative on any given day. One thing that is “constant” for me is my concern about Cheap Chinese Compute. The Geopolitical Intelligence Group (and me) sees the competition for compute with China as a National Security Issue (in addition to an economic growth and valuation issue). As suspicious as I am about any announcement out of China, apparently Huawei’s “next gen” Ascend 960 chip is supposedly 9 months ahead of schedule! No idea if the improved schedule will be met. No idea how far behind their “next gen” chip is versus “next gen” chips being used in the U.S., but while D.C. seems to have multiple spinning plates, with only a few people assigned to keep them spinning, I remain fearful that we are making it easier, not more difficult, for Chinese Cheap Compute.
• Space. This is largely a placeholder today, though it is great to see space (including from a national security perspective) get some attention again! Space is part of the ProSec™ strategy (maybe not quite as urgent as energy and chips, but up there) and we need to expand on the opportunities presented in Space, The NOW Frontier in the coming weeks.

In this era of “faux liquidity” (lots of bids/offers with limited depth and the impact of leverage: ETFs, 0DTE options, etc.), it is crucial to keep positioning small and be responsive as markets continue to move more than they might normally move in response to any given headline. On some days it seems like we’ve gone from prudent risk management to playing a “game” of Whack-A-Headline.

So, yes, with the FOMC over, we are back to “regularly” scheduled programming, but that programming remains interesting and volatility-inducing!

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