🥛 Three major macro forces 🌎️

GM. This is Milk Road Macro, the newsletter that’s here to remind you that AI robots are going to take your job, but somehow, you still have to go to work.

John here.

I know this newsletter has been going through a bit of an identity crisis recently. I’m trying to find a balance between keeping it short and simple and dropping macro knowledge bombs.

I’m going to keep mixing it up to find that perfect milky macro balance, but in the meantime, your feedback really helps! So, please, stay engaged and let me know how I can be a better resource for all of you.

Let’s FAFO!

Here’s what we’ve got for you today:

✍️ FOMC dissent and Warsh monetary policy.
✍️ Global chokepoint and secondary macro shocks.
🎙️ The Milk Road Macro Show: Why 2026 Could End In A Massive Blow-Off Top w/ Andreas Steno Larsen.
🍪 Operation Economic Fury targets networks funding Iran.

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Prices as of 10:00 a.m. ET.

THREE MAJOR MACRO FORCES

Global markets are experiencing a profound realignment as three primary macro forces intersect:

Systemic supply shocks from the U.S.-Iran war.
Potential policy change at the Federal Reserve under new Chair Kevin Warsh.
NVIDIA’s Q1 FY2027 earnings release (yes, NVIDIA is a macro force now, I don’t make the rules lol).

These developments are driving inflation higher, escalating global bond market volatility, and testing the liquidity of traditional equity markets and pretty much everything else.

FOMC DISSENT AND WARSH MONETARY POLICY

The Federal Reserve has entered a new era, and the FOMC couldn’t be more divided.

First, a former Chairman who refused to resign when asked to by the President will remain on the committee.

This is not only awkward, it’s also unprecedented. Powell said he would keep a low profile, but there is no chance he will not do something to influence debates and possibly even subvert Warsh’s leadership.

Second, following a narrow 54-45 Senate confirmation vote on May 13, 2026, the most divisive in modern central banking history, Kevin Warsh was sworn in as the 17th Chair of the Federal Reserve Board.

Source: WSJ

This is a picture from his confirmation hearing, not his official swearing-in ceremony, but he probably raised the same hand, so just roll with it.

The last FOMC minutes show the mess Warsh is walking into. The FOMC is full of strong and opposing views on monetary policy.

The committee voted to hold the federal funds rate at 3.75%, but four members dissented.

Four.

This is the highest number of dissenting votes in a single FOMC session since October 1992.

This makes it clear the Fed is split. They are not just debating if they should lower rates or by how much.

The committee now actively disagrees about raising or lowering rates. The central bank of the United States is split on monetary policy:

The Dovish Bloc: Led by now former Governor Stephen Miran (who vacated his seat on May 15 for Warsh), this group advocated for a 25 basis point rate cut, pointing to signs of softening in the labor market and tightening credit conditions.
The Hawkish Bloc: Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan supported the hold but explicitly rejected the statement's easing bias. They argued that sticky inflation (with April CPI at 3.8%) and escalating Middle East supply-chain shocks require a structural commitment to restrictive policy.

Okay, so the fight over interest rates is getting more divisive at the Fed.

The key thing here, in my opinion, is reopening the Strait of Hormuz. This will mean that energy commodities will start moving onto the market again. This will help bring down energy inflation, which is the big reason the Hawks want to raise rates.

If this happens soon, it seems likely that Kevin will be able to convince the committee to lean back towards lowering rates further.

However, if the Strait remains closed another month, the Doves will lose, and we might see rate hikes that could end the bull run in risk assets.

Time is short. Trump’s really gotta make a deal soon though, otherwise Warsh might have a mutiny on his hands.

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GLOBAL CHOKEPOINT AND SECONDARY MACRO SHOCKS

I know I keep saying this, but at this point, I think it’s important to keep saying it.

The military conflict involving the United States, Israel, and Iran has triggered the largest supply disruption in the history of the global oil market.

This is a crisis. Full stop.

The market is dealing with it through extreme measures and by tapping reserves, but this simply cannot continue much longer without putting the global economy at risk of collapse.

Approximately 20% of global oil supplies and liquefied natural gas (LNG) volumes are stranded.

Oil production across major Middle Eastern producers, specifically Kuwait, Iraq, Saudi Arabia, and the United Arab Emirates, collapsed by a cumulative 10M barrels per day (depending on who you ask and when).

Vitol CEO Russell Hardy has estimated that the war will result in a loss of over 1B barrels of cumulative oil production, with current losses already tracking between 600 and 700M barrels.

Personally, I think Russell is low-balling this. A lot. I think by the time this is over, the loss is going to be closer to 2B barrels.

Do I have evidence to back that up?

No.

Does Russell?

Also no.

My point here is that even the experts are making estimates and educated guesses. There is a wide range of answers on this because no one is exactly sure right now.

So, what?

Well, for one thing, the global economy needs energy to function and this shortage is directly destroying economic activity.

Source: News Articulated

The United Nations has downgraded its 2026 global GDP growth forecast to 2.5%, warning that an extended conflict could trigger an adverse scenario, dragging growth to 2.1%.

This would be one of the weakest economic expansions of the 21st century outside of systemic crises (the pandemic).

At the same time, they raised their global inflation projections to 3.9%. The International Monetary Fund (IMF) has echoed these warnings, stating that the global economy is moving rapidly into an "adverse" scenario where up to twelve countries may require urgent financial assistance, with total support needs estimated between $20B and $50B.

That isn’t a lot of money if you live in the United States and you’re used to people talking about spending dollars by the trillions, but if you live in one of those twelve countries, that is a huge, big, jumbo amount of money.

This situation shows how a local blockade in the Strait of Hormuz has evolved into a global economic crisis, forcing governments to deploy emergency reserves, implement price controls, ration energy, and even request international support to manage supply-chain pressures.

With the market pumping, it’s easy to ignore this situation, but this situation can’t go on much longer without severe consequences beyond just depleting oil reserves.

NVIDIA EARNINGS AND AI BOTTLENECKS

NVIDIA reported its Q1 FY2027 earnings (ended April 26, 2026) on May 20, 2026, after market close. It was another blowout quarter driven by AI demand.

Major announcements:

$80B additional share repurchase authorization.
Quarterly dividend raised from $0.01 to $0.25 per share. This is a 25x increase and a major step in returning capital to shareholders.
Q2 FY2027 guidance: Revenue of $91.0B ± 2% (well above consensus ~$87B). No Data Center revenue assumed from China (yet).

Source: NY Times

Key takeaways

1. AI demand remains extremely strong:

Data Center revenue (AI GPUs, systems, and networking) nearly doubled year-over-year and made up the vast majority of sales.
CEO Jensen Huang described the buildout of “AI factories” as one of the largest infrastructure expansions in human history. Demand continues to be driven by hyperscalers and the shift toward agentic AI.

2. Clean beat + strong guidance:

NVIDIA beat expectations on both revenue and earnings.
Q2 guidance came in comfortably above Wall Street forecasts, showing continued momentum into the Blackwell ramp and beyond.

3. Capital returns are accelerating:

The combination of a massive new buyback authorization and a huge dividend increase signals that NVIDIA now generates so much cash that it can aggressively reward shareholders while still investing heavily in growth.

4. China remains a headwind:

NVIDIA explicitly said it is assuming zero Data Center compute revenue from China in its outlook due to U.S. export restrictions. Management has previously noted this would have been a very large opportunity otherwise.
This may change as Trump’s trade deal talks with China continue. Jensen went to China with Trump this month and was very positive about the meeting.

5. Stock followed a familiar pattern:

Despite the strong earnings, shares were slightly down.
NVIDIA is priced to perfection. Even excellent beats have led to muted or negative reactions at these levels.

Source: CNBC

NVIDIA continues to deliver exceptional growth. The quarter reinforced its dominant position. Strong cash flow is now translating into much more aggressive shareholder returns. Guidance suggests the growth runway remains intact for the near term.

THEREFORE, it seems like the bull run will continue despite the economic headwinds posed by the largest energy crisis in history.

Wild times.

If you want to see how the other Milk Road PRO analysts and I are navigating all of this in our portfolios, try Milk Road PRO for a buck, here.

Wrapping up

The Federal Reserve transition, the energy blockade, and the AI juggernaut point to a highly dispersed, two-speed market environment.

Headline equity indices remain propped up by massive capital concentration in a select few artificial intelligence companies.

The underlying economy is showing clear signs of strain from rising energy costs.

For institutional asset allocators, navigating this macroeconomic landscape requires a defensive and highly targeted capital deployment strategy:

Honestly, we remain long on risk assets, but this is not a bad time to have some cash.

This bull run is not over, but the volatility is historic and not likely to end soon. It doesn’t hurt to have a safety net behind you while you ride this rocket higher, just in case we suddenly, literally run out of fuel.

Source: NPR

I hope that pun was worth reading all of this, haha.

STAY SAFE, STAY EDUCATED, AND STAY BULLISH!

THE BOND BULL IS DEAD 📉

In today's episode, we sat down with Andreas Steno Larsen, macro strategist at Real Vision, to talk about the structural regime shift reshaping bonds, liquidity, and risk assets heading into a potential 2026 blow-off top.

Here's what you'll hear:

Why we may have entered a structural bond bear market, and how that breaks classic recession signals like yield-curve inversion.
How ESLR reform unlocked ~$1.2T of bank balance-sheet capacity, fueling a massive repo-driven liquidity wave into risk assets.
Why semiconductors remain the most crowded trade, and the South Korean export data Andreas watches to time the exit.
How the Strait of Hormuz, sticky CPI shelter prints, and a packed IPO calendar could shape the Fed's next move.

Don't sleep on this one 👇️