Trading Desk

NVDA

NIFTYThe RBI raised its policy rate by 25 bp to 5.5% on October 7 and moved to calibrated tightening. NIFTY's decline continued toward 21.97K–22.10K before Friday's rebound, and the levels continue to work miraculously.

Z1!

NKD1!

SOXAs if by magic—or was it me?

SOXX

Looking ominous.

KOSPI

HSI bounced alongside HTI1!, which initiated a rebound from key support. The Golden Week figures released on October 9 showed domestic tourism spending up 4.3% and trips up 6.3% year on year on a comparable daily basis. Spending per trip therefore remained weaker even as travel increased.

VIX technical structure is in line with our expectation of vol pickup near the election.

The front end is getting relief from the pace of tightening. On October 8, Waller said hikes do not need to come at consecutive meetings. That is in line with what I told you in the last Tactical Positioning: I doubt he'll hike at the October FOMC meeting, as he'll play the little puppet Trump wants him to be. US02Y has pulled back from the 5% resistance, as we expected.

US10Y and US30Y continue to print new YTD highs after hitting major resistance. The divergence between short- and long-end yields is particularly noteworthy, as it suggests the market is realizing the war could last longer than it had expected.

Trump delivered the TACO needed to tame oil prices, as we can see from the price of CL1!, which at one point was $20 a barrel below its high. But this TACO has not translated into lower long-end yields. This is perhaps what Trump least wants to see. As the midterm election gets closer and closer, I expect Trump to pull stronger and stronger TACOs in an effort to tame yields. But unlike in 26Q2, I doubt such attempts could deliver a material trend change in yields.

USDJPY

DXYWe called the bottom in DXY around 98.8, and the dollar index has since formed a base and rallied to break above the key resistance at 101.725. The macro picture continues to support dollar strengthening, except for a possible short-term pullback as yields hit critical resistance, though I doubt it will be significant.

HG1!

As mentioned last week, traffic through the Strait of Hormuz has shown signs of improvement, and those signs have continued this week. Yet the recovery has done little to ease pressure in the physical market.

As I have repeatedly argued, Iran's interest lies in controlling oil prices. The goal is higher for longer. That will push U.S. inflation higher and entrench a spiral that becomes harder to break the longer Washington waits. Higher rates will make financing and refinancing increasingly expensive for the U.S. Treasury and the AI sector, weakening the economy and forcing Washington to accept Iran's terms for peace. We made this judgment in the first week of the war. Since then, despite the daily barrage of fake-news headlines, nothing has changed that trajectory.

The barrels are returning, but moving them has become vastly more expensive. VLCC freight from the Middle East to China has surged to around $35 a barrel, versus roughly $3 at the start of the year. The increase alone is several times the toll Iran proposed in peace negotiations: 5%-7% of cargo value, equivalent to roughly 5-7 a barrel at $100 oil.

Some European refiners are already struggling to pass higher crude acquisition costs through to product prices. If they cut runs, crude demand falls while finished-fuel supply tightens further. Recovering crude flows therefore do not resolve the diesel problem. Diesel feeds directly into producer prices and transmits the energy shock through freight, farming and distribution costs into consumer prices. That keeps pressure on CPI and PCE even when crude futures retreat.

CL1! is much weaker than BZ1!, as Trump launched another round of SPR releases last week to curb out-of-control oil prices ahead of the midterms.

XAGUSD

XAUUSDheld the key 4.11K support over the past two weeks and staged a sharp rebound on Friday. China's September reserve figures, released on October 7, showed an addition of 740K ounces. Central-bank buying is continuing. But central-bank buying remains overshadowed by the negative backdrop from the Iran war. As I have warned repeatedly over the past few months, persistently high oil prices keep inflation pressure alive and yields rising, weighing on gold even with geopolitical safe-haven demand.

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Michael Burry is quite obviously in his first stage of grief, denial. Just as I predicted two weeks ago. Before 2000 and 2008, this stage lasted 6–9 months, during which the market went against his bets and investors started losing faith in him. The market sided with us by having the SPX print a fresh new ATH today. As the market delivers my prophecy and participants grow increasingly complacent, trail your stops. Like I said, sadly, it's like God gives with one hand and takes with the other. He's among the best value investors, but at the same time, he's terrible at timing the inevitable. But the inevitable will come. 
Tick Tock...

XAUUSD has not broken free of yields and the dollar. The rejection at 4.4K has now been followed by a break of the rebound's ascending trendline. That is consistent with the warning I have repeated over the past few months: persistent energy pressure can keep yields rising and gold under pressure, even with geopolitical safe-haven demand.

I expected a meaningful rebound in U.S. Treasuries across the curve this week as US2Y and US10Y approached major resistance, and therefore expected a strong push higher in gold. The bond rebound arrived later in the week, with 2-year and 10-year yields shedding 26bp and 18bp, respectively, from their highs at one point on Friday. Gold, however, had already sold off sharply on Monday, breaking down from its ascending triangle as the range tightened.

If the war follows the prolonged path I expect, a break below the July low remains in play. For now, watch 4.1K, followed by the strong support zone around 3.9–4K.

META

NIKKEI resolved higher as the wedge compressed. The latest prime-broker flows show renewed buying in Japanese semiconductors and AI infrastructure, even as overall risk appetite remains restrained, in line with the U.S. equity market.

BZ1!The crude shortage is easing. Crude shipments through the Strait of Hormuz have recovered to above 80% of pre-war levels. Saudi Arabia is moving more barrels out by taking on the transit risk through Hormuz and transferring cargoes to buyers' vessels off Sohar, Oman. The partial restoration of its East-West pipeline has also revived exports through Yanbu on the Red Sea, bypassing the strait. Refined-product flows continue to lag. Brent remains inside its rising channel.

As I have repeatedly noted, Iran and Iranian-backed military groups have yet to deploy their full capabilities against shipping and oil production facilities. Despite the recovery in crude flows, I doubt Iran will give up its leverage over oil prices. Once prices fall, it will find ways to disrupt shipping or production again.

Trump's TACO talk and fake-news headlines have become noticeably more frequent over the past two weeks. Yet even alongside the announcement of the final SPR release before reserves reach their operating floor, crude's downside has been limited. At its lowest, spot Brent was only about $10 per barrel below the high from two weeks earlier.

DXYLong-end yields remain firm and the war continues to raise energy costs abroad. DXY has pushed through 101.725 despite the weaker jobs report. My view remains constructive while that breakout holds.