Higher Oil Is Positive for US Dollar: 3-Minute MLIV

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00:00Mark, I've been reading your kind of evolving thoughts throughout the morning.

00:03Talk us through kind of where your thinking is right now.

00:07Unsurprisingly, a big move in crude. Is it that big?

00:10What are the ripple effects into other assets as well that we should be watching for?

00:15So the oil move has already halved from the highs this morning.

00:19We're up 12% or 13% in Brent crude earlier.

00:21We're only up about 6.5% when I looked only about a minute ago,

00:25which shows that we're kind of really pairing the initial reaction quite rapidly this time.

00:30But it's interesting, the whole curve is moving a bit,

00:32which shows that people are expecting some kind of sustained disruption,

00:35even if maybe not as dramatic as a few hours ago.

00:37Oil prices much higher is ultimately very good for the U.S.

00:41And I think in context, the initial reaction today was to sell the dollar again.

00:44That is the backdrop theme of this year and shows that will be the macro theme for the very long term.

00:49But I think that all those people who sold in the initial reaction are going to be caught offside

00:53because higher oil prices is good for the U.S.

00:55It is a positive terms of trade shock.

00:57It's good for U.S. businesses on net because it's the world's largest oil producer.

01:01So therefore, I expect a bit of a dollar short squeeze.

01:03That does not change the longer term picture that we're in a dollar downtrend,

01:06but we could get quite a painful short squeeze in the dollar in the short term.

01:09The other probably really interesting takeaway is that U.S. stock for one of the weakest links,

01:14Asia is a much bigger, you know, is a big energy importer.

01:17You'd expect Asian stocks to suffer more on this.

01:19But most Asian stocks traded okay.

01:21So the fact that the weak link was actually U.S. stocks, very surprisingly,

01:25which shouldn't be directly affected by this, should have a more of a positive impact from higher oil prices,

01:30shows where the weak hands were.

01:31I think a lot of people piled into this market in the last week or so expecting fresh records soon.

01:36And so that's where people are getting caught offside.

01:38Mark, you've been talking about this possible squeeze higher in the U.S. dollar.

01:44We're, what, four-tenths of a percent higher this morning.

01:47Put a number on just kind of the short squeeze you're expecting.

01:49The dollar softened by nearly 9 percent since the highs this year.

01:53What kind of a short squeeze could we get?

01:57Yeah, it's a great question, Valerie.

01:58I think it's kind of binary here.

02:00And what I mean by that is that, you know,

02:02I think that we very easily do another, you know, half percent,

02:04something small like that, you know,

02:06kind of just unwind the last leg down, clean out those weak hands.

02:09I think that there is a tail risk here that this starts becoming self-fulfilling,

02:13that we build a new kind of narrative of, hey, the dollar move's gone too far too quickly.

02:17The macro community has front-run the real flows.

02:20So that, you know, I think it's kind of binary.

02:23We either, you know, bounce one percent from the lows or we bounce four or five percent from the lows.

02:28I don't think it's some middle picture.

02:29So it's wondering whether do we kind of get enough momentum that it becomes a self-fulfilling story

02:34and people kind of go, hey, the long-term diversification away from, yes,

02:38those real flows that are driving that are going to play out over three or four years.

02:41And the macro community has really tried to front-run it

02:44because they, as we've talked about a lot in this show,

02:46the dollar bearish trend has multiple prongs to it.

02:48But I think you really need those real flows to kind of substantiate it.

02:52So, yeah, I know it's not a great answer to kind of go one percent or five percent,

02:55but I think it's that fact that the trend line might break.

02:57You start building momentum and you get just purely those momentum.

03:00CTA advisors have to stop out of the trade

03:03and it starts becoming self-fulfilling and runs a few percent higher.

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