This has been a cornerstone of Trump’s agenda for decades. The only moment
of tariff softening came when the U.S. stock market dropped 20% earlier this
year, prompting a 90-day pause. But with equity markets at record highs again
the administration feels emboldened and is following through on its long-held
commitments. Markets should take this seriously. Crude oil is firmly in a bear
market. A recent bounce, triggered by supply concerns, only drew more sellers
particularly hedgers locking in prices. The backwardation curve reflects this
dynamic. Brent peaked around $80 but has since fallen to $69, trending toward the
2019 average of $64 or even lower. To curb oversupply, prices may need to dip into
the $50s, below U.S. production costs. Crude is a deflationary commodity. We’re
using less, producing more, especially in North America. Oil’s historical floor, since
its 2008 peak at $147, has hovered around $40, and we could revisit that level. On
the demand side, China’s oil imports are declining, U.S. gasoline demand remains
stagnant and below 2019 levels, while OPEC is increasing output. This creates a
textbook bear market: brief price spikes followed by aggressive selling. Oil prices
are down around 9% year-to-date.
Bond yields reflect paradigm shift of U.S. rejecting unreciprocated global trade
China’s 10-year yield is 1.65%, compared to 4.4% in the U.S., a deflationary signal
reminiscent of 1990s Japan. China is now exporting high-quality, low-cost goods
like EVs and solar panels, further accelerating global deflation. Interestingly, 40%
of the S&P 500 companies’ costs come from imports. Tariffs directly hit those
which could lead to lower equities.