Thirty minutes after the market opened, an unexpected event occurred

Source: Wall Street Intelligence Circle

On Monday, it's not about whether the market is scared, but whether oil prices can turn this scare into inflation pricing.

The global market had a volatile start on Monday:

Oil prices jumped at the open, but U.S. crude has not yet risen above $75;

Gold prices gapped down at the open, immediately breaking below $4100;

The U.S. Dollar Index gapped higher, reaching the 101 level, marking the first alarm for global markets;

The 10-year U.S. Treasury yield rose to 4.59%.

First, this is not like the previous "one-minute moves," but rather looks like the market is starting to reprice. In the past few weeks, the typical scenario was "trade the war first, then trade as if nothing happened". But 30 minutes after today's open, the assets that rose did not see a pullback as before, and the assets that fell did not quickly recover their losses as in prior sessions.

Second, the only thing that really hasn't confirmed yet is oil prices. The Dollar and Treasury yields have basically reached the key levels we mentioned in yesterday's article. The main focus for the rest of the day is observing oil prices. If U.S. crude continues to stay below $75, it means that energy supply risk has not truly been priced into the market. Conversely, once it stabilizes above $75 and starts to push toward $77~80, the market is not just trading geopolitical risk, but a resurgence of imported inflation.

The uncertainty has intensified due to chaos in the Strait of Hormuz; Iran claims to have closed the strait, while the U.S. states that shipping can still proceed via southern routes.

Third, the focus this week is on the upcoming release of the U.S. June CPI on Tuesday, which is more important than usual (the day before CPI, the market often shows a "precautionary retreat"). Economists expect that both headline and core inflation will ease slightly in June, but both are still expected to remain well above the Federal Reserve’s 2% target.

The real thing to watch today is not how much assets move at the open, but whether these assets can maintain their current positions after the European session and before the U.S. market opens. If the Dollar continues above 101, the 10-year U.S. Treasury yield stays around 4.60%, and U.S. crude breaks through and holds above $75, the market may have entered a new stage of risk repricing; on the other hand, if oil prices fall back, and the Dollar as well as Treasury yields pull back after their surges, then this week may still be just a brief bout of sentiment-driven volatility.