Everything bar something
Cross-asset volatility is likely to push higher in coming sessions whilst the market navigates significant earnings reports and economic events at the same time as it nurses a headache. That headache is caused by the dual risks of yesterday evening’s Federal Reserve decision and the seemingly re-escalating conflict within Iran. Kevin Warsh, chairman of the Fed, surprised markets during his first two months in post. Despite being appointed by Donald Trump, a vocal proponent of lower interest rates at any cost, Warsh seemed to talk tough on inflation.
That tough talking appears to be where his action on persistently rising inflation stops. Moving into yesterday’s decision many noted it carried the greatest degree of uncertainty since Alan Greenspan gave way to Ben Bernanke in 2006. Moving into the decision yesterday, the market had priced around a 50% chance of a 25-basis point hike. That probability had been on the rise since the breakdown of the US-Iran ceasefire and the concomitant resurgence in commodity prices. In today’s world of heavy central bank forward guidance, such uncertainty surrounding an imminent Fed decision is unheard of.
The problem with an uncertain decision is that your decision will, by definition, be perceived as ‘wrong’ in the eyes of a portion of the market. When the publication is delivered, the open interest built on the ‘wrong’ side of the decision must be priced out and creates volatile price action. As such you’ll see many headlines attesting to something like a ‘tantrum’ in the long-dated portion of the bond market today. Trades like the ‘dumping’ of treasuries will also be attested to. In such an environment the Dollar has inevitably underperformed as the markets question Warsh’s willingness and therefore credibility to take action against inflation.
Discussion and Analysis by Charles Porter
Related Insights
Daily Brief – Defiance
Charles Porter
Tue 12 May 2026
Defiance Yesterday’s market was defying one of two things: logic or gravity. Come to think of it, perhaps both. Take cable, GBPUSD, yesterday. The key events beyond minor data releases centred around any chatter from either side of the Iranian conflict and Starmer singing for his supper. Sing he did and tweet the President did, […]
Daily Brief – A technicality
Charles Porter
Thu 25 Jun 2026
A technicality Markets appeared to be fatigued by Trump’s Iran war before a ceasefire had even been agreed. This was evident from pricing that would have been considered complacent should the conflict have dragged on longer than it ultimately did. Now, that saga is far from over – it’s inevitable, for example, that as the […]
Daily Brief – Short-lived relief rally
Charles Porter
Tue 19 May 2026
Short-lived relief rally A tantrum in the bond market has continued to erode away at risk conditions in recent sessions. In the UK, the sell-off in gilts and corporate bonds has been particularly acute thanks to heightened political instability, the origins of which we have covered thoroughly in recent briefings. Yesterday, headlines delivered enough optimism […]
