Late at Night, the World Is Surprised, Danger Delayed by 48 Hours

Source: Wall Street Intelligence Circle

The market is not trading "doomsday," but is instead trading "trouble."

There was only a sense of "tremor" and "surprise" in the global markets on Monday:

- The US stock market did not crash; the Dow Jones fell 0.15%, the S&P 500 rose 0.04%, and the Nasdaq gained 0.36%.

- However, US Treasuries were "hit hard," with the 10-year yield breaking above 4%—the most honest signal on Monday.

- Gold and crude oil both surged and then retreated, giving back most of their opening gains.

Each market is trading based on a different theme—the stock market is trading on "manageable shock," bonds are trading on inflation, gold is trading on policy delay, and oil prices are trading on supply shock.

First, it's very clear that the market is not experiencing a "panic trade" but an "inflation trade." The inflation shock has led to a "recalculation of the rate-cut path." The probability of a rate cut in June is now below 50%, and full pricing for one rate cut has been pushed back from July to September.

Second, although the stock market did not fall, it does not mean there's no risk; instead, risk has been postponed—the simultaneous surge in the dollar and US Treasury yields is a warning signal—the volatility in the global market today could surpass Monday's (except for crude oil).

Third, the level of drama in this episode depends on oil prices. Their "rise and retreat" is a move to calm nerves, temporarily halting a systemic market collapse, but this might be just a "halftime break." The market is still defining the conflict as "geopolitical risk," not "out-of-control inflation." As long as it's a "short-term shock," the market can absorb it. But if it turns into a "persistent supply contraction," that's a different story. If oil prices stay in the $80–$90 range for more than a quarter, inflation expectations will pick up again and could alter the trend since March.

The calm on Monday was due to the news breaking over the weekend, giving the market time to digest. If there is another "significant" event in the US-Israel-Iran situation on Tuesday, the market will have a harder time staying calm. It's also important to note that the real pressure typically emerges 48–72 hours after a conflict, and the most intense shakeout is just beginning. Yesterday was about "defining," today begins the "pricing."