OIL: Crude Trends Lower After Initial Spike, Already Contains Risk Premium
Oil prices spiked at the start of today’s trading after the US struck Iranian nuclear facilities. The market is nervous about how Iran will respond and is concerned by a further escalation in the conflict that could significantly impact oil infrastructure in the region. Since the initial reaction though, crude has trended lower as prices already contain a risk premium. WTI is at $74.70/bbl following a peak of $78.40 to be up 1.2% today and Brent is 1.4% higher at $78.07/bbl after rising to $81.40. The USD index is up 0.3%.
- Iranian TV reported that parliament voted to close the Strait of Hormuz but Bloomberg notes that would ultimately require Ayatollah Khamenei’s approval. Even a brief disruption could drive oil prices sharply higher.
- The Greek government warned its shipping to reassess the need to travel through Hormuz and suggested vessels wait for clarification, according to Bloomberg. The EU and Joint Maritime Information Center have increased the risk level of an attack in the region.
- Around 30% of seaborne crude travels through the Strait and shipping rates have risen and some firms are not taking new bookings. Two tankers had to reverse course and head south again as they entered Hormuz as the US attacked Iran.
- Goldman Sachs believes that if seaborne traffic through Hormuz were cut in half then Brent could reach $110/bbl, reported by Bloomberg.
- Later the Fed’s Waller, Bowman, Goolsbee, Williams and Kugler as well ECB President Lagarde speak. US and European preliminary S&P Global/HCOB June PMIs are released.
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JGB TECHS: (M5) Rallies off Lows
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 141.48/142.95 - High May 2 / High Apr 7
- PRICE: 139.40 @ 15:42 GMT May 23
- SUP 1: 138.54 - Low May 22
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs have rallied off recent lows and for now, however a bearish theme remains intact following the reversal that started Apr 7. A continuation lower would signal scope for an extension towards 136.57, a Fibonacci projection. On the upside, a reversal higher would instead refocus attention on 142.95, the Apr 7 high. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal.
US FISCAL: Total Tariff Income Jumping In May As New Rates Hit
Treasury reported a record $16.5B in customs/excise taxes on May 22, reflecting the large increase in tariff rates that went into effect in April.
- Today's report is important because it represents the largest tariff collections of the month which are typically on a due date around the 22nd, when most corporate importers make their payments.
- Thursday's one-day collection is a record, and the month has already set a new record. Tariff revenues have totaled $22.3B so far in May, and are came in at $17.4B in April (after averaging $8.1B/month in 2024).
- For the fiscal year as a whole so far, customs duties have totaled just under $93B, per the Treasury Daily Statement.
US FISCAL: Extraordinary Measures Continue To Dissipate Alongside Treasury Cash
Treasury's latest estimate of the size of "extraordinary measures" available to use "in order to prevent the United States from defaulting on its obligations as Congress deliberate[s] on increasing the debt limit" is down to $67B on May 21 (of an available $299B), vs $82B a week earlier.
- The amount hit the 2nd lowest level since the debt limit impasse started, at $46B, on May 20 (the low was $34B on Feb 24).
- With $476B in cash in the Treasury General Account on May 21, that left the total resources available to Treasury at $543B, the least since April 14 - the day before the annual April 15 tax deadline.
- Treasury Sec Bessent warned Congress earlier this month that "there is a reasonable probability that the federal government's cash and extraordinary measures will be exhausted in August while Congress is scheduled to be in recess. Therefore, I respectfully urge Congress to increase or suspend the debt limit by mid-July".
