GM. This is Milk Road Macro, the newsletter that’s like having a map in the middle of an oil shock, a war scare, and a market identity crisis.
Here’s what we’ve got for you today:
- ✍️ The TACO is gone, and the NACHO is here.
- 🎙️ The Milk Road Macro Show: The Biggest Economic Crisis in History May Have Already Started (Oil Shock Explained) w/ Rory Johnston.
- 🍪 Fed Chair is watching rising weakness in private credit markets.
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Prices as of 10:00 a.m. ET.
THE TACO IS GONE, AND THE NACHO IS HERE
Is President Trump losing his grip on markets?
As the Iran war continues, investors have been hoping for a TACO headline.
(Trump Always Chickens Out.)
We’ve seen attempts at a TACO, but the power of the TACO appears to be waning.
And now a new breed of headline has emerged.
The NACHO headline…
So, what’s the latest with war?
What’s a NACHO headline?
And when will the Strait of Hormuz actually be reopened?
Let’s take a look…
What’s the latest with the war?
The Strait of Hormuz remains effectively closed.
It’s now been closed for four weeks, with very few tankers passing through.
All the while, the biggest energy supply shock in history continues to intensify with every passing day.
And crude oil prices continue to edge higher - now settling in the “stagflation zone” ($100-$120).
The U.S. continues to build up a presence of several thousand elite Marines in the Middle East, potentially foreshadowing a ground operation aimed at reopening the Strait by force.
Also, over the weekend, Iranian-backed Houthi rebels in Yemen formally joined the conflict, launching missile strikes on Israel.
This introduces a second maritime pressure point in the Red Sea, which has the potential to send oil prices even further higher.
Houthi officials have said they might attempt to close a second vital trade waterway: the Bab el-Mandeb Strait.
This would be yet more bad news for energy prices, with JP Morgan analysts predicting a Bab el-Mandeb Strait closure could add $20 to an already elevated crude oil price.
Bye TACO, hello NACHO
Investors have gotten used to TACO headlines since Trump took office last year.
What’s a TACO?
Trump Always Chickens Out.
This refers to several occasions in the past year when Trump has initiated a move or a policy, usually tariff-related, and then quickly walked back on that move.
This is often thought to be due to an initial negative market reaction, sparking a positive market reaction after the TACO.
Most famously, Trump surprised the world by revealing huge global tariffs on “Liberation Day” in April.
Then, just a handful of days later, he pulled back on those massive tariffs, commenting that the bond market had been getting “yippy”.
Now, as the Iran war continues, many investors and commentators have been thinking that Trump will TACO again.
But it seems like we’re no longer in a TACO world.
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THE TACO IS GONE, AND THE NACHO IS HERE (P2)
We’re in a brave new world.
The world of the NACHO headline.
So what’s a NACHO headline?
Not Actually Changing Hormuz Opening.
You could say that Trump has attempted to TACO on a number of occasions in recent weeks, putting out statements that appeared to signal a potential de-escalation.
But every time, his power over markets has waned.
And on two occasions in recent days, positive moves on a Trump headline have faded within just one day.
It seems that all the market truly cares about at this point is the reopening of the Strait of Hormuz.
And Trump doesn’t appear to be able to provide that, at least not yet.
Last Thursday, Trump revealed that he was “pausing the period of Energy Plant destruction by 10 Days”.
This caused an initial positive reaction from markets.
But this quickly faded, probably because investors realized that this development does not change the situation with the Strait of Hormuz.
Then, on Monday, Trump claimed that the U.S. was “in serious discussions with a new and more reasonable regime to end our military operations in Iran”.
Again, this headline saw an initial positive reaction, but was quickly faded by the market.
I don’t think we can get a “true” TACO headline until the market believes the Strait will reopen.
Until then, all we get is NACHO headlines.
The search for the “true” TACO continues.
Markets are saying loudly and clearly - “just reopen the damn Strait”.
So, when will the Strait actually be opened?
A report from the Wall Street Journal late on Wednesday seems to hint at a potential off-ramp.
The report suggests that Trump told aides he might conclude the war within his preferred 4-to-6-week timeline, even if the Strait of Hormuz remains largely closed.
The report details that U.S. officials reportedly assessed that a full-scale mission to forcibly reopen the Strait would extend the conflict well beyond that timeframe, so the priority is to wind down major combat operations instead.
This may actually work in terms of “reopening” the Strait.
If the U.S. backs away, Iran may effectively “open” the Strait again, but charge ships a toll to cross the waterway (Iranian officials have mentioned publicly).
While obviously not an ideal situation, and likely an embarrassing end to the conflict for America, it could alleviate the Strait issue, get energy flowing again, and likely avoid the risk of a global recession - even if tankers are forced to pay a hefty toll to pass safely.
However, despite this most recent headline, speculators on Polymarket aren’t confident that the Strait will reopen anytime soon.
They give it only a 17% chance that the Strait of Hormuz traffic returns to normal by the end of April.
Wrapping up
Markets want one thing and one thing only: the Strait of Hormuz to be reopened.
Until it becomes clearer that this might actually happen, Trump may have lost his power to positively influence markets.
The longer this drags on with the Strait closed, the more intense the global energy shock becomes.
And this then has negative knock-on effects for inflation and economic growth across the world.
It’s unlikely we’ll see a “true” TACO headline until the market believes the Strait is going to be reopened.
And when will this happen?
Well, that’s anybody’s guess…
THE BIGGEST OIL SHOCK IN HISTORY, EXPLAINED 🛢️
In today's episode, we sat down with Rory Johnston of Commodity Context to talk about why a Strait of Hormuz closure would be the largest oil supply shock on record, and what it means for markets, consumers, and the global economy.
Here's what you'll hear:
- About 20 mb/d of oil flows through the Strait of Hormuz. After reroutes and stock releases, the net deficit could still land around 6 mb/d.
- Paper markets haven't fully repriced yet thanks to jawboning and trader caution, but physical tightness is building fast beneath the surface.
- Refined products like diesel and jet fuel will feel the pain first. Asian refiners are already cutting runs, and product inventories are thin.
- If facilities like Qatar's LNG infrastructure are damaged, recovery could take years, with ripple effects across fertilizer, shipping, and beyond.
Tune in and see for yourself 👇️
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Fed Chair Jerome Powell said he’s watching growing weakness in private credit markets but doesn’t think the problem will spread to the wider financial system. Concern has rippled through private credit recently as more investors moved to withdraw their money.
Despite fears over how the energy supply shock might affect Asia, new data shows China’s factory activity expanded in March. The manufacturing purchasing managers index rose to 50.4 from 49 in February, beating economists’ expectations.
Huge investments in AI from U.S. tech giants face a major hurdle as the war clouds prospects for energy costs. Persistently high oil prices could force spending revisions, bringing a "really meaningful correction in all equity markets," one analyst warned.
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