GM. This is Milk Road, the crypto newsletter that slaps harder than a throwback song on a road trip!
Here’s what we’ve got for you today:
- ✍️ Oil: Nothing else that matters rn.
- 🎙️ The Milk Road Show: The Market Should Be Crashing… So Why Is Crypto Holding Up? w/ Christopher Perkins.
- 🍪 Gold and silver just got absolutely bodied.
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OIL. THAT’S IT. THERE’S NOTHING ELSE THAT MATTERS RIGHT NOW. 🛢️
ICYMI last week: we’re now running ‘crypto macro’ editions on Thursdays, written by our mNoP (macro-Nerd-on-Payroll), Tomas!
Here’s what he’s seeing right now…
It’s all about oil
As the Iran war continues, oil prices continue to move higher.
The Strait of Hormuz is still effectively closed as Iran continues to attack tankers in the vital trade waterway.
This means a massive chunk of the global oil supply is still choked off in the area.
U.S. officials have talked up the prospect of reopening the Strait of Hormuz by providing military escorts for tankers.
But this doesn’t seem to be very likely anytime soon (I wrote about this earlier this week).
And so, with every day that passes, more upward pressure is being applied to the price of crude oil - there’s simply just not enough oil for everybody.
According to expert consensus on what different oil prices (if sustained) mean for the global economy, we’re currently in the “stagflation zone”, and rapidly moving closer to the “danger zone”.
Oil rising into the danger zone ($120+) and remaining there would likely have a significant impact on the global economy.
This is the level where commentary would probably shift from “macro drag” to “heightened recession risk fears” across the world.
As oil prices have risen, market-derived inflation expectations have shot higher.
One-year inflation swaps have surged to 3.2%, from 2.2% just a few weeks ago.
This means the market currently expects headline U.S. inflation to be 3.2% on average over the next 12 months - much higher than the current 2.4% CPI level.
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OIL. THAT’S IT. THERE’S NOTHING ELSE THAT MATTERS RIGHT NOW. (P2) 🛢️
Oil is driving the bus. And the bus is global markets.
U.S. equities remain almost perfectly inversely correlated with oil:
- Oil up = S&P 500 down.
- Oil down = S&P 500 up.
Bitcoin and crypto did well to outperform many other assets over much of the time since the war started.
But now they are also coming under pressure in recent days as oil has continued to move higher and a widespread risk-off environment has intensified.
Additionally, the dollar (DXY) is moving higher as the classic “safe-haven trade”.
Continued strength in the dollar would be no good for broad risk assets looking forward.
Elsewhere, we see copper dropping meaningfully lower.
This could be a bad sign for the global economy, because copper - a key industrial metal - is an important indicator of global economic health.
And what does it all mean for the Fed?
So, what does the energy price spike mean for the Federal Reserve?
I covered this week’s Fed meeting in detail in today’s macro newsletter.
But the general gist from Chair Powell in his press conference was “we don’t know” (he said this repeatedly).
Sudden spikes in energy prices are a headache for central bankers - because they are inflationary (which might mean hiking rates in some cases) but could also negatively affect economic growth at the same time (which might mean cutting rates in some cases).
Or, in other words: stagflation (inflation up and growth down) - a central banker’s worst nightmare.
The market is now much less convinced of a Fed rate cut this year than it was previously.
Expectations are sliding towards no cuts at all in 2026 - after more than two cuts were expected just a few weeks ago.
The Fed likely can't cut into an oil shock, but they also likely won't hike into an economic slowdown.
The word "trapped" comes to mind.
Away from the Fed, more and more rate hikes are now being priced in for 2026 for central banks across the world, including in Europe and the UK - where inflationary pressures may be worse.
This chart, based on the Bloomberg World Interest Rate Probabilities function, shows how global expectations have swung wildly from cuts to hikes since the war began.
If we are at the precipice of a global central bank interest rate hiking cycle - this is likely not good news for risk assets.
But what will happen next?
Honestly - nobody knows.
But the trajectory we are on right now - with the Strait closed and oil prices flying higher - does not look pretty.
Oil is still the most important chart to watch.
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Ouch! Gold and silver just got absolutely bodied.
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