Mini Spidey

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DONALD TRUMP SAYS AMERICA IS MAKING A FORTUNE FROM THE IRAN WAR. AMERICAN DRIVERS MIGHT DISAGREE. We've got SEVEN DAYS until the US midterm elections. And I think the economic consequences of this conflict are becoming increasingly difficult to ignore. Look at the numbers. US petrol prices before the war: $2.98 a gallon. Today: $4.29. Diesel before the war: $3.76. Today: $6.35. Brent crude: around $116 a barrel. US inflation: 3.7%. And tomorrow, the Federal Reserve announces its latest interest-rate decision. Over the weekend, Trump told supporters in Georgia that America was making a fortune from the conflict in the Middle East. He's referring to the benefits of higher energy prices for American oil producers. And there's some truth to that. The United States is the world's largest oil producer. Higher prices can mean greater revenues and profits for parts of the American energy industry. But the US economy is considerably bigger than its oil industry. A haulage company paying almost $2.60 more for every gallon of diesel isn't making a fortune. Neither is a family paying substantially more to fill up the car. Neither is a business facing higher transport, manufacturing and distribution costs. Those costs eventually have to be absorbed somewhere. Either businesses accept lower profit margins, or customers pay more. And that brings us back to inflation. US headline inflation is already running at 3.7%. The Federal Reserve has a 2% target. We've got an energy shock that has lasted for months, and the geopolitical situation remains unresolved. Yesterday, Saudi Arabia, Turkey and Pakistan held talks with Iranian officials in Tehran. All four countries agreed to continue discussions. That's encouraging. But we still have attacks involving Saudi Arabia. The Houthis have claimed further strikes against oil infrastructure. And shipping through the Strait of Hormuz is reportedly running at approximately 60% of normal levels. That last figure concerns me. Before the conflict, roughly a FIFTH of global energy supplies passed through that narrow stretch of water. We're talking about an enormous amount of energy moving through an area that remains exposed to further disruption. And even if diplomacy succeeds, restoring confidence in shipping routes, insurance and energy infrastructure isn't necessarily an overnight process. I've said repeatedly that I'm taking these peace headlines with a considerable pinch of salt. My working view remains that oil dips could attract buyers while the underlying supply risks remain unresolved. I still see considerable upside risk in crude if we get another serious escalation. That doesn't mean oil can't fall sharply on a credible agreement. It absolutely can. But I'm not convinced we've reached that point. Now consider the position the Federal Reserve is in. Tomorrow's rate decision comes with inflation at 3.7%, oil above $100 and growing questions about the economy's ability to withstand expensive borrowing. If the Fed maintains restrictive policy because inflation remains stubborn, businesses and households continue dealing with elevated financing costs. But if the economy weakens and policymakers become more concerned about growth, the outlook for interest rates changes. That's precisely why I've been watching US Treasury yields so closely. The 10-year was above 5.3% earlier this month. It subsequently fell back towards 5%. Investors have been buying government bonds despite inflation remaining elevated. That suggests there's more influencing the market than the latest inflation number. Concerns about growth, financial conditions and corporate valuations are becoming increasingly relevant. And the technology sector is facing its own questions. Microsoft, Alphabet and Amazon all report earnings this week. Investors want to know whether the extraordinary spending on artificial intelligence is going to produce the returns being priced into company valuations. Now add expensive energy and elevated borrowing costs to that equation. It's not difficult to see why markets are becoming more sensitive to disappointing economic data or earnings. For the dollar, gold and Nasdaq, I think the next move in Treasury yields will be crucial. If oil climbs and yields rise with it, we could see inflation concerns regain control. That may support the dollar and put further pressure on rate-sensitive equities. But if oil climbs while Treasury yields FALL? I'd be looking much more closely at the possibility that investors are becoming concerned about economic growth. That would be a very different environment. I've spent 18 years following financial markets, and I wouldn't be comfortable making a significant directional call on the dollar or gold from oil prices alone. You need to understand what the bond market is pricing. And we've got an extraordinary week ahead. WEDNESDAY: Federal Reserve decision. THURSDAY: US GDP and PCE inflation. FRIDAY: Bank of Japan. TUESDAY 3 NOVEMBER: US MIDTERM ELECTIONS. Meanwhile, there is still no lasting settlement with Iran. The timing matters because expensive energy has become both an economic problem and a political one. Trump is right that higher oil prices can benefit American producers. But those benefits aren't distributed evenly across the economy. And there's a limit to how long businesses and consumers can absorb higher costs without changing their behaviour. My concern is that financial markets may eventually have to contend with BOTH persistent inflation and deteriorating economic activity. That's not a particularly comfortable combination for the Federal Reserve, the dollar or highly valued equities. I'm watching oil, US Treasury yields and the Nasdaq together. And I wouldn't be assuming that a few positive diplomatic headlines have suddenly resolved the energy problem. Seven days until the midterms. The Fed meets tomorrow. Petrol is $4.29 a gallon. Diesel is $6.35. And Brent is still around $116. Trump says America is making a fortune. But how much of that fortune is reaching ordinary Americans, and how much are they paying to keep the economy moving? I'm genuinely interested in what people think.

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