Markets melt up on Trump's seeming urgency to end war, but ...

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Today’s Links

Again, listen to Robert Pape as well as Trump.
I’ve no idea if he is right, but Pape certainly puts together compelling arguments and has proven right about some aspects of what has unfolded. His chief point is to continue to watch what the military is doing on the ground in terms of building or reducing its presence as a louder signal than anything Trump says. Also, if Trump walks away here, massive questions remain. Pape takes the listener through various escalation paths and asks the critical question of “where is the uranium”? (A side note, in the even that Iran has no nuclear weapon but does want to make a “dirty” nuclear device in an attack, uranium itself is not really suited to this as it has a slow half life. Rather, other nuclear waste materials normally produced in association with fission reactors might be employed for a dirty bomb. I have no idea if and in what quantities Iran possesses these, but the broader question, one Pape emphasizes is the threat of nuclear material as a key known unknown on where it is us and whether it gets used in any fashion.)

Rystad Energy on the buffers in the oil market that are no longer there
Hat-tip to Ole Hansen on this one. Some key points in this piece that make it clear how important it is that the market proves correct in its assumption that oil flows are set to improve very quickly from here, because the enormous oil-market buffers that were so fortunately in place on February 27 before the war in Iran started, are no longer there as from now on “every day matters”.

AI - how much is it getting deployed in end-use software?
Hat tip to Peter Garnry on this fascinating post, which analyzes millions of workflows on a heavily used AI software development platform. It argues that the vast majority of workflows are made on “feature branches” of software that are kind of sandboxes for development, most of which don’t end up on the “main branch” of the software that is actually deployed live to customers. While a small slice of users are getting some of the generative AI work into the main branch, overall main branch development is actually declining for most users, probably because they are spending so much time investigating and developing AI tools that they then are afraid to deploy or aren’t ready for showtime. For overall productivity to increase in software, the ability to propagate changes to the main branch is critical - let’s see where this goes.

Carlyle on how many are “misreading the tea leaves” in the US yield curve.
Hat-tip to FTAlphaville for this link - a clever discussion of the US yield curve, the positioning in the market heading into the conflict, how the market has adjusted and whether it is at all fair to price any rate tightening from the Fed.

Chart of the Day - December Brent

It can be confusing to track the “current” price of crude oil as the front contract month rolls to expiry and the new one becomes the one quoted, one at a much lower price due to the heavy backwardation of the forward curve. So, while the May contract closed yesterday on its expiry day at 118.35 per barrel and spot Brent still trades at 118.29 today on April 1, the June contract trades a stunning 16 dollars lower near 102 per barrel. Further forward, the slope continues lower, showing how quickly the market is priced to normalize. Below I present the December 2026 contract, which is trading near three-week lows. At the price snapshot today near 78.60, hedgers can book forward crude oil at only about 10 dollars more per barrel than when this conflict broke out. The forward curve for crude oil prices explains why we haven’t had a more profound correction across global equity markets. Of course, things can change, and the situation for individual products like jet fuel and diesel has been far more aggravated. Let’s see how this forward curve pricing ages in coming weeks whether a) in the event the US simply pulls up stakes and leaves, which Trump’s words suggest he wants, or b) the US ends up with boots on the ground in Kharg island or elsewhere to prevent Iran’s toll-collecting on ships passing through the Hormuz strait and maybe even reduces Iranian oil flows, or c) other countries step in against Iran’s moves because of a US power vacuum, heightening concerns of an overall escalation on production infrastructure. In the meantime, this war has also drawn down tremendous buffers that were in place in global supply that must be rebuilt in addition to the global economy’s base rate of consumption, suggesting that the old price floor will be much higher for quite some time to come.