Oil-Equity Link Breaks As Trump Says 'War Over Soon'; Market Plumbing Starts To Creak

Tl;dr: After NVDA's trillion-dollar surprise failed to impress, today saw a first for the post-war world - oil was up (though well off its highs) and uniquely, so were equity and bond prices (yields down). The dollar continued to weaken back but gold did not benefit as boitcoin outperfortmed again (but we are starting to see some notable moves in the plumbing of the capital markets).

Traders were 'lucky' and markets were 'charmed' today...

The correlation regime looks in tact but the close-close change was different this time (as bonds and stocks are now high beta negative oil bets)...

Oil

First things first, as usual since the start of the war, here's what moved oil today:

• Overnight: roller-coaster - New wave of attacks on Mideast oil infrastructure - Fujairah loadings were suspended again (along with a lack of coalescence by allies around a Hormuz safety team) pushed oil notably higher into the European session. Reports of the death of Iran Security Minister prompted selling of oil. Iranian President threats prompted a push higher in crude prices as the US session started.

• 0800ET No Headline but oil prices lurch lower (Bessent with his finger on the intervention button?)

• 0900ET *ISRAEL ERODING IRAN REGIME TO GIVE PEOPLE CHANCE TO OUST IT: PM - prices extend losses

• 0940ET *US COUNTERTERRORISM CENTER HEAD RESIGNS OVER IRAN WAR (prompting speculation over war length)- prices rebound but quickly fall back to the lows of the day

• 1100ET *TRUMP: WE NO LONGER NEED, DESIRE NATO'S HELP ON IRAN - (suggests longer disruption with no help) - pushing prices higher

• 1100ET WTI tested negative briefly then took off

• 1200ET *TRUMP: CHINA TRIP IN 5-6 WEEKS, WAR WILL BE OVER SOON - (signaling potential end to war but longer disruption timeline) - oil prices pushed higher

• 1345ET *TRUMP ON IRAN: A COUPLE WEEKS, NOT MUCH LONGER, WE'RE WAY AHEAD (same old) - nothing slowed rebound in oil

By the close, despite a lot of Trump jawboning, oil ended 'off the lows' with Brent settled up at $103.42 (remaining stubbornly above the $100 Maginot crisis line) and WTI around $96 up around 2.5% on the day...

Overall, a lot of desk chatter today about these mysterious violent moves in crude trading - absent specific headline-driven swings - prompting some discussions about whether the Surge Protection team was in action (red arrows on the hour), now that they realize war will take 'longer' and everything is a high negative beta traded to oil.

Also of significant note regarding today's action (Dr. Ilia Bouchouev @IliaBouchouev):

Over the last 24hr: spot oil is down $4, dec 27 up $1 - as explained yest, all SPR hedging.

It should stop at the close today when the final bids are due.

I'm getting less convinced now that all SPR bbls will be taken as  economics gets fuzzier..

Notable divergence... 

Before we leave oil-land, a reminder of the context in which we are working:

Based on reported vessel counts, estimated oil flows through the Strait of Hormuz (SoH) are down 19.3mb/d (or down 97% vs. normal) and stabilized at 0.7mb/d over the last days (4-day moving average), writes Goldman's Yulia Grigsby.

After accounting for pipeline redirection, the estimated total hit to oil flows from the Persian Gulf stands at 17.0mb/d, with estimated redirection via the Yanbu and Fujairah ports at 2.3mb/d (4-day moving average).

Light crude accounts for nearly all of the redirected volumes.

On its way to being biggest oil crisis in history very soon...

Stocks

But, as we noted above, despite oil being 'up', stocks were also up, led by Small Caps. The Dow lagged, but all the majors ended green...

...another cash open, another significant short-squeeze...

After yesterday's put-selling, 0-DTEs were actively selling calls today (which dragged the markets down in the last few minutes)...

Interestingly while NVDA continues to lag, AI Leaders basket overall was up today for the second day in a row...

A number of key headlines helping refocus eyes away from oil and Iran: 

• OPENAI SIGNS AWS DEAL IN BID TO WIN GOVT CONTRACTS: INFORMATION

• NVIDIA LAUNCHING ROBOTAXIS ON UBER ACROSS 28 CITIES BY 2028

• CROWDSTRIKE & NEBIUS ANNOUNCED GLOBAL PARTNERSHIP

• INTEL XEON 6 USED AS HOST CPUS IN NVIDIA DGX RUBIN NVL8 SYSTEMS (out late yesterday)

• QUALCOMM APPROVES $20B STOCK BUYBACK, BOOSTS DIVIDEND

On the bright side, Goldman's trading desk saw overall activity levels are sharply higher today, up +43% vs. the trailing two weeks, with mkt volumes are up +25% vs. the 10dma.

Our floor tilts +9% better to buy, the highest buy skew in a month, driven by both HFs and LOs

• HFs are +9% better to buy with covering across Macro Products outweighing supply in HCare, Comms Svcs & Energy.  Despite the elevated HF buy skew, their short ratio stands at 50%

• LOs are +15% better to buy with demand concentrated across Tech, Fins and Macro Prods.  LO supply looks similar to HF supply with Comm Svcs and HCare the largest sell skews

But, the macro overlay was large once again with ETFs as % of tape back to 35% today after failing to finish at that level for the first time in 11 sessions yday. 

What stands out today is the large pullback in liquidity...

S&P e-mini top of book at only $2.5mm, back to levels not seen in nearly a year.   

The S&P 500 is about 5% off its highs, but the aggregate belies the older and broader damage beneath the surface.

Morgan Stanley notes roughly half of the Russell 3000 and more than 40% of the S&P 500 were already down at least 20% from their 52-week highs before the Iran war became the market’s central focus.

Software & Services is the clearest example, with 97% of the group down more than 20%, according to Morgan Stanley. This move didn’t start with the war, but it made existing problems harder to ignore.

VIX was down today (along with credit risk)  but as the chart shows, equity risk is notably outperforming over the past week...

Everything Else

Treasuries were also bid - despite the oil price rise - with the long-end outperforming (2Y unch, 30Y -2bps)...

There is a de minimus 2.5% chance that The Fed will cut rates tomorrow, with expectations for 2026 now back at just 1x 25bps cut...

The dollar followed Treasury yields lower (for the second day in a row)...

Despite the dollar weakness, gold was unchanged, once again pinned around $5000...

...and once again, bitcoin outperformed gold, rising to $76,000 intraday before fading back to small gains...

As the Iran-War regime continues to see BTC >> Gold...

Ethereum continues to hold recent gains relative to bitcoin...

Finally, the plumbing may be starting to show cracks as the widening move in dollar swap spreads has extended on Tuesday, after its biggest spike since Liberation Day...

Whether this reflects increased risk aversion (or credit risk concerns within the banking system) or simply a flight to quality preference for Treasuries is hard to know, but for now, it's well worth keeping an eye on given the chaos in global capital markets.

At the same, cross-currency basis swap spreads have also widened significantly since the start of the war...

...generally signaling a dollar shortage (or dollar funding stress). Another thing to keep an eye on amid all this chaos.

And one more thing that broke today. Bloomberg reports that a group of banks led by JPMorgan halted a $5.3 billion debt deal for software firm Qualtrics after failing to win over investors amid deepening anxiety surrounding artificial intelligence disruption.

Back in October, 11 lenders provided committed debt financing for the Press Ganey acquisition. While it’s not clear exactly when that deal will close, banks will have to fund it themselves if they cannot sell the debt to investors in the capital markets. The lenders could attempt to offload the loan at a significant discount. Steep price cuts risk eroding fees or may even potentially result in losses.

Additionally, The Fed's expected hold tomorrow is unlikely to buoy either Treasuries or equities, as a wait-and-see stance from Chair Powell and the new dot-plots despite tighter financial conditions amid the Iran war and private credit angst will act as a headwind on risk sentiment.