Wk37 MacroTechnicals - Sleeping VIXy

The outlook on the Iran-front is not looking any better than it was a week ago, or even a month ago. Other than for some tit-for-tat missile strikes and retaliatory attacks, the past week has not seen any real 'significant' escalation. Iran has failed to cause much damage with their missile strikes at nearby US bases and 2 US Navy ships which Centcom reports have been successfully evaded, and the US continues to apply economic pressure.

And yet, these “nuisances” are clearly having an impact across the energy and shipping complex. Bloomberg Petroleum index was up 8.1% last week to what I believe is all-time high for the index, 3-2-1 Crack spreads continued to push all-time high last week, and Crude oil charts look bullish A-F.

Meanwhile, the VIX is sitting at levels that look ridiculously comfortable for the macro backdrop in front of us: real yields tugging higher, the uptrend in the 2027 SOFR spread reflecting expectations of a more hawkish Fed next year, mid-terms looking increasingly difficult for Trump, and seasonality hardly pointing to smooth sailing conditions like the VIX would suggest (reached its lowest level since the end of last year on Friday).

So, while it remains unclear how and when the Iran conflict resolves, its ability to complicate the current macro setup is already visible. Energy and shipping markets are quick to price in the stresses and premiums, but equity markets look as though it needs one. Perhaps a hot CPI will wake the sleeping volatility? That is the glaring complacency gap I’m seeing in stocks right now.

Let's get on with our weekly digest of macrotechnicals and trading strategy for the week ahead...