Stock Markets Rose on US-Iran Deal Hopes. Ilya Spivak Warns This Will Not Save Them From Inflation

Added: 2026-05-30

[00:00:11]So, I guess the war in Iran has been solved. Another Axio's headline, another happy market. Now, of course, uh this is a movie we have seen before, but no matter that this is the fifth in a any moment now, we have a peace deal type of an announcement from Axios. And of course, we've heard enough times from them um subsequently um that uh the thing ended up being smoke and mirrors.

[00:00:43]But uh nevertheless the market likes it and we get a big unclenching across markets at least for a while. So do the markets choose to believe it because this time is different? Do they choose to believe it because uh of some other reason?

[00:01:03]Ultimately it doesn't matter. Uh the important thing here seems to be that the market is choosing to believe that things are good again at least for today. So what does all this mean going forward? That's what we're going to try to explore here on Macro Money. This is IPAC, head of global macro here at Tasty Live. And as ever, what we're going to do first and foremost is take a look at the price action. See what it told us.

[00:01:35]Perhaps on a day like today, most importantly, see uh what it didn't tell us. Uh because uh certainly there's a lot of reading the tea leaves going on here today. But the upshot of this story is perhaps a little bit uh less than meets the eye. uh and so that's what uh perhaps informs next steps much more than the price action as we see it here.

[00:02:08]So the question that we're asking ourselves uh as we look at all of this is of course is the problem really solved because the headlines today would suggest ah well everything is on the path to righteousness but the reality that emerges in the economic data that we see today and in the way the markets are positioned for it is perhaps not quite so sheer. And so uh we take a look here at u first and foremost the response from the S&P 500. And of course we can see here a meaningful break. Uh we don't get uh the same incidentally in the NASDAQ. It holds off taking out its uh swing high from earlier this month. But the S&P certainly manages it. we pushed up and nominally extend past the swing high here from the 14th and uh set a higher high. Now the same sort of considerations that we've had here around um questioning momentum behind the move they remain volumes continue to fade. The relative strength index continues to show us divergence uh telling us that momentum behind the move is fading but that of course doesn't stop the market and also does not change the fact that you would lose money if you were to try to fight it. So whatever sort of issues present themselves here, nevertheless, we have a sit situation where the market does manage to extend gains. Where we continue to see the same old same old is across all of the reflections of the various inflation will come as a consequence of this oil shock that we've seen market reactions and we can go by assets here. So we look at bonds, they heard the Axio story. They understood ostensibly what it meant. So bonds erase intraday losses. But do they actually overtake back this former support and say with clarity, ah the downtrend here since the start of the war is over. No, the series of lower highs and lower lows remains very much intact. This still appears to be corrected. The same is true of gold.

[00:04:56]It continues to set lower lows and lower highs. Obviously, this meandering lower is uh less aggressive than we've seen in other markets. Perhaps you could make the argument that this is a testament to uh underlying support for gold that it's not doing worse than it is. But nevertheless, the story of higher interest rates weigh against the metal that yields nothing is still seemingly in control. Here was the wartime sell-off. We had about a 50% pullback here, give or take, and since then we've continued to leak lower. Uh the US dollar doesn't manage the breakout it attempted once again, but is nevertheless pinned to the top of its range. Here was its wartime runup.

[00:05:43]Again, thank you. Higher yields uh and certainly risk aversion as well. Since we had the initial ceasefire announcement, a pullback not dissimilar from a gold of about 50%.

[00:05:57]Then we get the bounce and we're hugging the top of that range. So the war trade doesn't go away here. And of course crude oil itself very interesting indeed because it was up.

[00:06:12]It has erased those gains but nor has it really broken down. So if we're really going to look at some kind of a major resolution here, you sure would think that you'd have a more emphatic response. And needless to say, you do not. Moreover, uh if you look at the e the long end uh of the curve here for the end of the year, the CLZ6 contract, which we don't have on the on the screen currently, this is the the the first uh contract here, the active one. crude oil prices actually went up to one uh to uh 7930 a gain of 1.6%.

[00:07:04]And so when you look at it in this context what seems to be happening is actually higher oil prices extending further down the contract maturities and suggesting this thing is going to be sticky. Very tellingly, that gas also storms higher. Of course, it has likewise been disrupted by the closure of the Strait of Humuz. And you wouldn't think that that's what would happen in an environment where you've resolved that closure. So, stock markets again grasping its straws, liking the news flow. other markets much more circumspect because indeed even if you reopened the straight of Hormuz yesterday, it would take six months in a relatively benign scenario for those things to unclench and tell you that some sort of relative normalization in flows is underway. And that's even if you were to get to a place where everything was again a seamless version as it was before the start of this war.

[00:08:23]But of course that's not really what Iran is playing at. We've uh heard them say now multiple times that they want some sort of a joint with Oman control of the strait that they want uh to be able to charge a toll that they want their sovereignty over the strait respected. Uh and uh of course that's not good news to any of the other golf producers and uh something of a red line uh for the US. In fact, we just heard the president say again that no one will control the strait. It will be open to everyone. Uh and so what we end up with is a situation where Iran has shown clearly uh that it is willing to take the pain of a counter block uh blockade at least for now. Uh, and so the result ends up being that they actually have something of an incentive to keep the pain going and to keep the straight closed for longer be because it seems like the pain that that is extracting is creating a negotiating position. uh and a desire for a deal that maybe lets Iran have more of what it wants in a final deal. And so obviously this is a a delicate needle to thread. They don't want to hold out for so long that the other side walks and uh the pain is so great that um there's just nothing else to talk about and the the the situation resorts back to arms in a more sort of substantial way. But you clearly see across all of these markets, they don't expect this to unclench quickly and for costs to come down in a hurry.

[00:10:30]even as stocks read the front page of Axios and start feeling themselves all kinds of warm and fuzzy.

[00:10:38]Now, as far as the data uh flow today, it confirmed much of these concerns. Uh the PCE numbers uh not surprisingly showing us an aggressive runup in inflation. um numbers came out uh largely as expected and uh we can see now for two consecutive months inflation is accelerating. We're now just shy of 4% and in any case looking at inflation that's the highest in 3 years core interestingly where uh the cost of energy and food is factored out likewise looking at the highest levels since mid 2023 right here and when you look at the makeup not surprisingly um as you did in the CPI and PPI data.

[00:11:35]You see this big influence from an energy shock over the past two months.

[00:11:41]But the biggest issue here continues to be core services.

[00:11:47]And when you look at just the core and throw out the contributions from the uh the food and energy uh categories.

[00:12:00]And so you throw out the energy shock as a direct influence.

[00:12:06]You see what you saw in CPI that is the cost of core goods is accelerating. You likewise see here that the cost of core services excluding housing is accelerating. And as we saw in the CPI and PPI data, this is warehousing, this is truck freight. Uh this is all of the knock-on effects from the energy shock into other more sticky costs across the economy. And so you can clearly see now, okay, open the straight.

[00:12:41]Does this go away? No.

[00:12:44]This now looks like inflation that's becoming sticky within the overall complex. And you say, "Well, surely the markets understand this. Why aren't they more reactive?" And you go, "Well, remember 2021 when we thought inflation was a transitory thing and it took the Fed to really pound the table in June of 2021 to say, "Okay, listen. We had it wrong.

[00:13:12]We're going to have to look at this as more sticky inflation. We're going to have to hike in earnest now."

[00:13:21]And then it wasn't really until 6 months later at the start of 2022 that the stock market really got the memo.

[00:13:30]And then of course we had a year of u of downside momentum. So we're looking at a situation here where the evidence is there.

[00:13:46]It's not as though we don't see that this inflation is sticking. And it's not as if the market doesn't know, but the 2021 to 2022 is just the most recent example of the market having some very clear cognitive dissonance, especially as what you see in stocks doesn't line up with what you see in these other markets as we've just shown.

[00:14:10]Indeed, uh that very same PCE data tells the story very clearly. Where is um the biggest change in monthly consumer spending for April? Well, shock of shocks. On the goods side, it's gasoline and energy. On the housing side, it's derivatives of that. You can see there's that spillover. Utilities, of course, is energy prices. There it is. Um and on the goods side, the biggest loss of spending is in motor vehicles and parts.

[00:14:42]On the services side, it's financial services and insurance. But of course, insurance is, as we've seen before, linked to what we see in uh the motor vehicles uh part and the energy part. We saw this with what happened to the costs of insurance when we had uh the co shock and financing costs jumped and uh of course uh certainly in 2022 as well here there was a rate hike cycle and financing costs jumped. Um, and the prices were just so high that people did not buy new cars and tried to do as much as they could making do with the cars they had. That increased the cost of uh insurance just because the the fleet was older and so that was baked into the premiums that people were paying. So when we look at the situation here, it continues to look like a sticky inflation story. The other number uh of consequence here, the revised set of GDP numbers for the uh first quarter, down goes the revision to 1.6% from 2% annualized. Um, that's certainly better than the government shutdown month of 0.5% but less than halfway back to this give or take 4% average before the government shutdown struck. So the way back here, let's call it about halfway, a little bit less and a less vigorous rebound than initially reported. Now of course the same major components of the story remain here. It it was a remarkable first quarter where consumption actually had a smaller contribution to overall GDP despite the fact that it is 68% of the economy than fixed non-residential investment which is only 14% of the economy. That's of course because that residential investment grew so much faster and that's mainly thanks to the AI buildout. But if we look at the changes in contribution here, we find that here was the revision in real GDP from 2 to 1.6%.

[00:17:23]The share of consumer spending was revised down but so was the share of investment. both got downgraded.

[00:17:33]Meanwhile, imports and exports were basically a wash as was government spend. The action seems to be happening right here. And what this tells us, of course, is that yeah, consumers are hamstrung by higher oil, higher inputs, more expensive money because of in uh interest rates, but so are data center builders. They're not immune to any of these things. data centers don't magically sprout out of the ground when you sprinkle AI fairy dust on them. And so you have all the very same road blocks and the difference is sentiment.

[00:18:15]Stock market sentiment is yet to break.

[00:18:20]But the underpinnings of the problem here are very well understood. And so the question becomes well when does the market start to care?

[00:18:32]Looking at the situation um from the point of view of why hasn't the market cared so far, you start to see how the insulation strategies around uh the world from this oil shock have worked out. So you can see here's the price of oil and as it surges here with the start of the war you can see global inventories decline.

[00:19:01]So markets at this point are detocking and when you look at them even excluding the SPR what we find is that actually they're a little bit higher when strategic reserves are taken out of the picture.

[00:19:25]And and of course what that tells you is that the strategic reserve is being run down largely to pay and to insulate. And this is not just the US strategic reserves.

[00:19:39]This is these are global numbers. They sum up reserves for example in Singapore in Europe. Um, and so when you look at all of this, what you see is for now the price of oil is being digested because all of these strategic reserves and in general all of these inventories are getting dumped on the market and allowing prices to stay relatively contained. But as we look at where we've gotten to on these inventories, we're looking at levels unseen basically since uh middle to late last year.

[00:20:18]If we look at the overall uh inventories uh numbers here excluding SPR, if we take SPR into account, it's a similar story. If we look at just onshore inventories and we don't count what's stranded at sea because of course [clears throat] some of it is locked up in hormuz and can't get out. We're looking at uh the lowest numbers here uh the biggest outflows since back in early 2025. So the situation is going to have to come to a head eventually because invariably these things run out.

[00:20:54]Moreover, if you look at the situation in the US, we can see that as crude oil inventories have declined, so too imported while exports have surged, which seems to suggest that the US is helping to insulate the world from an oil shock by pulling down inventories and exporting them and to some extent, of course, by feeding the domestic market more out of inventory than out of imports.

[00:21:30]And so there seems to be inherently a timer on this because again eventually this runs out and there's various estimates for when it does. But now that we see the pressure that's already in core inflation from all of this, not just the energy shock. And we consider that the energy shock might have been much larger were it not smoothed over by uh inventories and strategic reserves being released in large quantity.

[00:22:04]We can see that the oil shock may well get even worse going forward. Again, even if the straight is open tomorrow, yesterday, anything uh that might follow from this Axio story and any progress in the negotiations happening right now is going to take months were it to actually work to restore some amount of the former capacity just in restarting rigs and repairing damage and all these things.

[00:22:39]and the shock is already there and inventories are running dry.

[00:22:47]The moment that let's say Europe comes to fill up its uh stockpiles of natural gas and oil for the winter, the pressure here is going to be that much more significant. And we're going to have to figure out whether the US can actually export enough into the market to smooth that over.

[00:23:08]But demand is likely to rise going forward.

[00:23:12]And so with that in mind, the situation doesn't look like it's unclenched in practical terms. In fact, it looks to be getting worse.

[00:23:23]Markets have certainly noticed uh we continue to see a story here where inflation expectations take a little bit of a dip right alongside crude oil. But as crude oil has remained sticky in its wartime range, so too have inflation expectations. So it's not as if the bond market doesn't know. These break even rates are derived directly from bond market pricing. And we can see the markets know that there's an inflation risk five and 10 years out. That that story has significantly changed. And not surprisingly, it has adjusted accordingly with central bank policy, which of course just makes money more expensive in in an environment where everything else is more expensive. The Fed is now seen at uh 17 basis points along the way to baking in a rate hike for this year. Uh if we consider what that means, that's about a 68% chance that you get a 25 basis point hike in 2026. There's obviously been a major hawkish revision to all of these central banks barring the Bank of Japan which as usual is on its own time. And so the story seems to be fundamentally unchanged. We have a stock market that despite diminishing volumes and ebbing momentum pushes to record highs. This time not because of anything semiconductor related but because it likes the Iran US news flow. But this is the kind of news flow that's disappointed before and all of the other markets continue to worry about all of the same things even as they hear it.

[00:25:07]And so the question becomes, well, at what point does the stock market decide to take notice?

[00:25:13]We don't have much in terms of event risk for the rest of this week and looking out into next week. Uh it is an interesting story uh just onto itself because of course what we find is there's not really a tremendous amount of big splash event risk next week until uh the very end we get the non-farm payrolls report update. We will see some ISM numbers over the course of the week that ought to, if the S&P global PMI numbers are any indication, tell us more about how inflation is getting stuck.

[00:25:57]And so if that's the story, then perhaps the uh stock markets have finally run out of earnings reports and semiconductor news that they have to pay attention to this. And maybe if in fact this Axio story is real and there is a kicking of the can down the road on this ceasefire for 60 more days as that story suggested, well then maybe the market finally gets into buy the rumor, sell the news mode and goes, "Yeah, okay. We know.

[00:26:26]We know."

[00:26:29]But does that change anything as far as what we're worried about? Not really.

[00:26:35]And so from the exposure perspective here um still very much uh positioned for higher rates both by uh being short gold long the dollar short bonds at the middle and the u long end of the curve. Uh in TLT it's uh put verticals in IF it's outright puts. Um I still have uh some uh riskoff exposure in the major stock indices.

[00:27:08]It's mostly through selling calls now.

[00:27:12]Um I was uh long put verticals from about 6 weeks ago. Of course, they've gone uh to max loss. And for the NASDAQ, they've already expired worthless for the S&P uh SPY here. That'll be happening here shortly. But I've taken the approach of selling calls as a way to extend bearish exposure, but also to pay for some of that loss premium and offset that cost. At least in the case of the NASDAQ, I've bought some time and the premium received was in excess of the premium spent on the puts. So, so far so good.

[00:27:52]looking at um the rest of it. Still long natural gas, still long oil, and looking for all of that to kind of come together in a single realization for stock markets that the price of energy is sticky, interest rates are higher, inflation isn't going anywhere, and all of this ought to be constricting risk sentiment at large.

[00:28:22]and may well do so uh in the coming weeks.

[00:28:28]And that's sort of the way that I've laid out my um experties here. I've been pushing things out 50 days uh and more to give enough time for the macro story to get caught up with by the markets.

[00:28:46]And that is macro money for today. As ever, we are here Monday through Thursday. That's right after overtime, a show that I co-host with Chris Veio, looking at the Wall Street close and where things might go there from. I'm also writing for the news and insights portion of tasty live.com and commenting at Ilaspac on former Twitter and on Blue Sky. If you're joining us on YouTube, please like and subscribe. Macro Money returns next week. Happy trading.