Weekly Good Reads: Dollar Weakness and Oil Surge While Central Banks React Slowly
US Dollar vs Bond Yield Diversion, Geopolitics Uncertainty on Oil, Gold, Hosts Who Don’t Cook, Vibe-Coding, ChatGPT Mobile
Welcome to a new Weekly Good Reads by Marianne, a 25-year investment practitioner sharing something interesting and topical in investing, the economy, wellness, and AI/productivity.
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Long-time readers may notice a title change for a more descriptive name of the current Weekly—hope you like it.
Sharing the quote of the week:
The only way to make sense out of change is to plunge into it, move with it, and join the dance.
~ Alan Watts
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Market and Data Comment
Markets have been increasingly on edge, and the dollar and oil prices have been reacting swiftly to macro and geopolitical events lately. VIX is up 4% to almost 21%, WTI oil prices shot up 13%, while the S&P 500 lost 0.4%, and the US 10y government bond yield fell 11bp to 4.4% during the week. Gold surged 3.7% this past week to $3,432 (more on gold in the Finance/Wealth link and One Chart).
The US dollar has declined to its weakest level in three years and was down 1% this past week, largely caused by Trump’s intention to declare tariff rates on nations in two weeks before the expiry of the “reciprocal tariffs” pause early next month (see Econ/Invest #2).
US tariffs are supposed to strengthen the dollar as a smaller trade deficit should restrict the supply of dollars, but the Dollar has depreciated by 9.5% YTD. One reason is that tariffs are like a consumption tax on US citizens, and fiscal consolidation usually weakens the domestic currency. Wreckless US tariffs policies have also introduced a risk premium into the US Dollar.
The Dollar is weakening while the US 10y Treasury yield has been trading between the 4.5 to 5% level, signifying fiscal and trade policy uncertainty and trust in US debt and US institutional integrity (especially the Dollar) are being called into question.
The May US headline CPI came in at 0.1% (2.4% y/y) and the core CPI rose 0.1% (2.8% y/y)— lower than expected—helped by lower inflation rate in durable goods, including new and used car prices, and services (an indicator of consumer insecurity). May PPI also rose lower than expected (+0.1% for May and 2.6% y/y).
Weekly jobless claims are at an 8-month high this week at 248,000. The Quarterly Census of Employment and Wages (QCEW) may report much slower job growth during April 2024 to March 2025, by as much as 65-95K per month during the period. This measure of employment, while a lagging indicator, is based on employers’ reports to the state unemployment insurance programs.
Bloomberg expects May core PCE (white line below, to be released on June 27), and it will be a little lower at 2.5% y/y.
Over 70% of economists expect the Fed to maintain interest rates next week, as 90% of the economists recently surveyed said clarity of tariffs’ impact on the economy won’t come until at least September. As of the date of writing, the futures market has priced in a 57% chance of a 25bp rate cut in September. The Fed will update its dot plot this coming week during FOMC, with economists expecting a markup in the inflation rate and lower economic growth in 2025. The Fed looks to prioritize mitigating inflationary expectations, so it is holding the interest rate steady.
Market was nevertheless holding up better than expected amidst trade talk uncertainty and Israel-Iran strikes, with traders attributing that to momentum. The Societe Generale SA index, which tracks cross-asset momentum, has staged one of its sharpest reversals on record, with 9 out of 11 components flashing bullish signals. Trends from fixed income, equities, and currencies were all flashing green at the same time as Israel’s “pre-emptive” attack on Iran’s nuclear and ballistic missiles infrastructure.
Oil has reacted by surging 13% this week, but analysts are saying that Iranian drop in oil production is hardly priced in, let alone the worst-case scenario if energy flows through the Strait of Hormuz are disrupted, in which case, we can see oil price jumping to $120 (see Econ/Invest #3). So oil prices, and therefore inflation risks, are skewed to the upside.
From the graph below, the retail “buy-the-dip” mentality has kept going, while institutional clients have been selling since mid-May—it is Main Street vs. Wall Street, as the Kolbeissi Letter said.
At the same time, US investors continue to diversify internationally, taking out $29 billion from US equities in May but adding $10 billion to Europe.
Next week, we may get more clarity what the US Senate tax bill may look like—one hot debate item was on the SALT deduction (state and local tax deduction is capped at $10,000 per household currently, and the House wants to increase to $40,000—benefitting more the high income households as they would be incentivized to take itemized deductions rather than the standard deduction). This cap will likely be lowered. From economist Justin Wolfer’s tweet below, the budget passed by the House is the largest income redistribution from the poor to the rich in American history!
This coming week, we will monitor the G7 talk in Calgary, Canada (June 15-17), the US May retail sales, import prices, and industrial production on Tuesday, housing starts on Wednesday and the FOMC decision on Wednesday as well, the Bank of Japan rate decision on Tuesday, the Bank of England monetary policy decision on Thursday, and China’s May retail sales, industrial production, and fixed asset investment (YTD) on Monday. As of now, no Iran-US nuclear talks will take place on Sunday.
Economy and Investments (Links)
Trump Ripping Up the Free Trade Playbook Comes With $1 Trillion Costs (Bloomberg)
By 2030, Bloomberg Economics forecasts, if Trump’s current tariff regime endures, the global economy will be $1 trillion smaller than it would have been had the US remained in the TPP [Trans-Pacific Partnership]. More than a third of that loss would come because of a smaller US economy, the analysis finds, with the US share of global trade tumbling even as China’s stays steady. The consequence for Americans: 690,000 fewer jobs.
Dollar Sinks to 3-year Low on Trump Tariff Threat (FT or Archive)
The dollar was dragged lower after the US president told reporters he would send letters to trading partners outlining new tariff rates in the next couple of weeks, as the end of the 90-day pause on so-called “reciprocal” levies approaches next month…
“[Trump’s] comment certainly points to renewed escalation in trade tensions ahead of the official deadline date,” said Derek Halpenny, an analyst at MUFG.
Investors were also digesting a trade truce between US and China announced on Wednesday, and rising tensions between the US, Israel and Iran, with the Trump administration authorising dependants of military personnel to leave the Middle East.
+ Related: Why Didn’t Tariffs Push up the U.S. Dollar? (Council on Foreign Relations)
How the Israel-Iran War Could Play Out for Oil (Barron’s)
Brent crude, the international benchmark, was up 7% on Friday to $74.23 per barrel after rising more than 10% shortly after the attack. Analysts say oil prices could surge to more than $100, and perhaps as high as $120, if the conflict grows substantially. That would cause gasoline prices and inflation to spike.
Whether that happens depends on how the war escalates. Israel didn’t directly strike Iran’s main oil-export hub, which sits on an island in the Persian Gulf, but some analysts expect Israel to hit those facilities if the war continues. Iran, for its part, is in a position to disrupt oil shipments in the region, which could cause prices to spike even more.
Finance/Wealth (Link):
How Gold Became the World’s Refuge from Uncertainty (FT or Archive)
New data released this week showed that gold passed the euro last year to become the world’s second-largest reserve asset among global central banks, following a record buying spree…
As investors question the health of the dollar, still the de facto reserve currency, and the outlook for US government bonds, the world’s traditional haven asset is having its day.
The key reason for gold’s rally? “It’s Trump, in a word,” says John Reade, chief market strategist at the World Gold Council. “It’s the risk and uncertainty from the new US administration.”
Wellness and Idea (Link):
For Hosts Who Don’t Cook (
)Wild Raspberries [a “satirical” cookbook drawn by Andy Warhol before he became famous] pokes fun at a particular kind of entertaining, but at its heart, it celebrates the ritual of hosting. It is a reminder that dinner doesn't need to be perfect to be meaningful. That bringing people together is an art in itself. That beauty and humor go hand-in-hand.
One Chart You Should Not Miss: Gold is Winning
One Term to Know: Vibe-Coding
When Emily Chang, the Bloomberg host who was about to interview the CEO of Replit, asked the audience at the recent Bloomberg Technology Summit, “Has anyone tried vibe-coding?” a considerable number of hands were raised. But I didn’t because I have no clue. I thought it was related to actual coding, but it is not.
Google’s AI Mode said that it is like telling the AI your "vibe" or idea for the software, and it translates that vibe into the actual code. Vibe coding shifts the focus from the technical details of writing code to the higher-level vision and desired functionality of the software. You get to describe what you want to somebody skilled to generate the work.
Andrej Karpathy, one of the founders of OpenAI, a previous Computer Vision lead at Tesla, and now founder of EurekaLabs (builder of an “AI Native” school), said:
“Vibe coding” (Replit) means “Vibe coding refers to the practice of instructing AI agents to write code based on natural language prompts to create software, like apps or websites. It's not about being lazy—it's about focusing your time and energy on the creative aspects of app development rather than getting stuck in technical details.” It is a way of democratising app creation for anyone, technical or not.
Replit Agent can transform concepts expressed in plain English into working apps so non-technical entrepreneurs and creators do not need to learn programming languages or syntax, understand complex technical concepts, or choose which technologies to use. Instead, they can concentrate on solving real problems and creating value for users.
Many non-technical persons I spoke with have already used Replit for building apps and websites, designing namecards that are consistent with company themes, etc.
🌻Things I learned About AI/Productivity
Wang will head up an artificial intelligence research lab at Meta to pursue Zuckerberg’s dream of “superintelligence,” a hypothetical A.I. system that exceeds the powers of the human brain.
As a founder of one of the most prominent AI startups, Wang has built a reputation as an ambitious leader who both understands AI’s technical complexities and how to build a business that’s not merely focused on research, according to two former Meta AI employees who agreed to speak on the condition of anonymity. Zuckerberg will be counting on Wang to better execute Meta’s AI ambitions following the lukewarm launch of the company’s latest Llama AI models.
10 Mind-Blowing Things You Can Do with the ChatGPT Mobile App (Kevin Stratvert)
🔸Free on mobiles🔸Real-Time Vision Input 🔸Real-time language translation🔸Change AI Voice in settings (top left menu) 🔸Write and edit emails on voice prompts 🔸Add AI visual effects to Photos 🔸Get questions answered anytime🔸 Summarize long-form documents 🔸Syn chat history 🔸 Access to o3 Pro model (deeper search and thinking)
[It is not easy to beat ChatGPT with these productivity tools on the go!]
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Thank you for including my story on Andy Warhol’s cookbook!