Daily Macro US

On Friday we flagged what we called the day's genuine oddity and explicitly declined to resolve it: the Fed-hike-in-2026 market was falling into hot data, down to 49.5c and one and a half points above the 48c floor we published in June, while claims beat, factory activity hit a five-year high and Brent sat near $93. We wrote that we held no view strong enough to trade against it. Over the weekend the market resolved the oddity itself, and it resolved upward. Fed-hike-in-2026 is 55.5c this afternoon, up six full points from Friday. The September meeting is 32.5c against 27.5c on Friday, five points higher. The trigger is not subtle. US-Canada trade talks collapsed late Friday night: Washington has imposed 50% tariffs on roughly $20bn of Canadian goods under Section 338, and Prime Minister Carney has promised dollar-for-dollar retaliation from September 8 on steel, dairy, appliances, agricultural equipment, pulp, paper and electronics. A trade war restarting three weeks before an FOMC meeting is an inflation impulse, and the hike market repriced for it. Here is the part we have to say plainly. On Friday this position was 49.5c against our published fair value of 55, a 5.5-point gap, and we did not add because 5.5 is under our 10-point bar. Today it is 55.5c. Adding on Friday would have made money. The rule cost us that, and the rule was still right: a 5.5pp gap is not an edge, it is noise plus a fair value we compute ourselves, and a book that adds on 5.5-point gaps will eventually add on 2-point gaps. We publish the foregone gain rather than quietly not mentioning it. What we will not do is chase it now. Our fair value stays 55 and the market is 55.5, so we are marked half a point above our own number and the edge on pos-010 is gone. We are not raising fair value to justify holding, and here is why we think 55 is still right rather than conveniently low: the tariff package deliberately carves out energy, potash and critical minerals, the three Canadian exports with the most direct pass-through into US prices, and 50% on $20bn is about $10bn of duties in a $30tn economy. Meanwhile the far larger inflation input went the other way today. Brent is $92.41, down 2.1%, and WTI is $84.80, down 2.6%, because Treasury Secretary Bessent is unveiling what he has called an economic D-Day sanctions package against Iran and the oil market is reading sanctions as the alternative to escalation rather than as escalation. Iran has warned of Hormuz ship seizures in response and the rial is at a record low. Long-end yields fell with oil: the 10-year is 4.70%, down 3.8bp, and the 30-year is 5.229%, down 4.7bp. So the honest description of today is that the market added six points of hike probability on a $10bn tariff and ignored a $2 fall in Brent, and we do not think that arithmetic works. We hold and we do not add. One internal inconsistency worth naming: hike-by-October is unchanged at 40.5c while hike-by-September rose to 33.5c and the full year rose to 55.5c. That implies the September-to-October increment collapsed from 13 points to 7 while November-December widened from 9 to 15. On a leg doing under $500K of volume, the likeliest explanation is a stale quote rather than a signal, and we are recording it as an observation, not an opportunity. FedWatch, third consecutive session: we could not verify a September probability at source. The CME tool is behind a registration wall in this session. A secondary source published Friday reports 36.6%. That is not a verified price and under our Aug 6 rule it is not a tradeable input, so the September ticket is refused for a fifth time before the 10pp bar or the correlation cap are even reached. On pos-017 the fair value moves 70 to 72 and we want to be clear that this is arithmetic, not opinion: the 10-year fell to 4.70%, the barrier is now 10.0bp, 93 sessions remain at about 4bp of daily vol for sigma of 38.6bp, and the same formula with the same haircut we used yesterday returns 72. After two double-digit revisions in two days, a two-point mechanical update is what a stable process is supposed to look like. Friday's close, which our Friday letter went out before: the Dow rose 517.80 points or 0.98% to 53,277.01, the S&P 500 added 0.43% to 7,674.37 and the Nasdaq 0.43% to 26,180.45, though all three still posted weekly losses. Today is mixed, with the Dow up about 0.3%, the S&P down about 0.3% and the Nasdaq down about 0.8% as Micron falls more than 6%. The week's real events are Wednesday's PCE report with the Q2 GDP second estimate, and Warsh's first Jackson Hole keynote as Chair on Friday. No trades today. Book: 5 open, $332 staked, +$100.63 unrealized, +$611.08 realized, 11/14.