Geopolitical tension and negative sentiment appear to be unravelling rapidly. While the US session started innocuously with initial jobless claims staying remarkably stable (~210k for 5 out of 6 weeks) and US Philly Fed climbing to the strongest levels since April 2022 (boosted by a +12.2 jump in new orders and +23 in prices paid).

However, after finding their footing just a day, US treasuries received another gut-punch again as NY Fed President Williams suggested that a rate hike is no longer his ‘base-case’, stating that interest rates are at a “good place” and “I don’t feel urgency to cut interest rates”. Yields jumped between 5–6bp across the board with 2yr approaching their YTD peak at around 5% once again.

The jump in treasury yields and US$ index have caused US Treasury Secretary Yellen, Japanese FoM Suzuki, and South Korean FinMin Choi Sang-mok to make a join statement that the countries will “continue to consult closely on foreign exchange market developments in line with our existing G-20 commitments, while acknowledging serious concerns of Japan and the Republic of Korea about the recent sharp depreciation of the Japanese yen and the Korean won.”, effectively giving the greenlight to potential FX intervention out of the Asian blocs should the current trend continue. Furthermore, Reuters later reported further headlines that Japan FinMin Suzuki stated that it was meaningful that “G7 confirmed its commitment to excessive FX moves, which have a negative impact on the economy”. It would appear that headline trading risks are going to be back in en vogue for a little while.

Speaking of headline risks, a late-day headline of an Israeli strike on Iran led to a rapid sell-off across all asset classes (SPX futures <5000, Nikkei futures -3%, BTC dipped below from 63.5 to sub 60k), with risk sentiment likely to remain against the back-foot heading into the weekend as the war premium escalates. BTC ETF flows were disappointing again with IBIT adding only $37M out inflows against a -$90M outflow from GBTC.

We don’t have much further insights to add beyond what we have been advocating for the last 1.5 weeks on position de-risking and PNL protection. The geopolitical conflicts appear to be no closer to being resolved, while macro data is going to show little in the ways of any potential dovish relief until PCE next Friday, assuming it even comes in cooperatively, that is. Stay safe into the weekend friends.

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