Oil traded the war today. Almost nothing else did.
The Correlation That Broke Today
A fresh escalation in the Strait of Hormuz sent crude sharply higher this session, and nearly everything downstream of that story moved the opposite way from what the story would predict. West Texas Intermediate settled at $103.10, up from $100.05 Friday, after an Iranian vessel was struck Sunday and a drone attack damaged Saudi Arabia''s East to West pipeline. That is a real supply shock, and oil priced it correctly.
What did not follow the usual script is everything else. The TSX, an index with heavy energy weight, fell 50.96 points to 35,646.53 even as its own energy shares rallied on the same oil move, according to The Canadian Press. The Canadian dollar, which typically firms alongside oil, slipped to 71.82 cents US from 72.12 cents Friday. The S&P 500 fell 0.67 per cent and the Nasdaq fell 0.81 per cent. None of that is what a Hormuz-driven oil spike has produced on prior days in this same conflict.
WTI has climbed from the low eighties in mid-August to above one hundred three dollars by September 14, with the steepest single leg following Sunday''s tanker and pipeline strikes. The data shows a market that absorbed six weeks of gradual escalation, then repriced sharply the moment two separate attacks landed on the same weekend.
WTI has climbed from the low eighties in mid-August to above one hundred three dollars by September 14, with the steepest single leg following Sunday''s tanker and pipeline strikes. Source: Investing.com.
The mechanism pulling everything except oil in the other direction is not the war. It is Wednesday. The Federal Reserve meets Tuesday and Wednesday this week, and prediction markets now price roughly an 80 per cent chance of a 25 basis point hike, the first since 2023, following Chair Kevin Warsh''s hawkish Jackson Hole remarks and a hot run of August inflation data. The U.S. 10-year yield is pressing toward 5 per cent. That single number is setting the direction for equities, the loonie and gold this session, regardless of what happened over the weekend in the Gulf.
The Gold Signal Keeps Getting Louder
Gold fell $85.90 to $4,323.00 today, the sharpest single-day decline of this entire run of Hormuz escalations. A war intensifying is normally the easiest setup for a safe-haven bid that exists. Instead bullion sold off nearly two per cent on the same session WTI jumped more than two and a half per cent.
This is not a new pattern this week. It is the same pattern this desk has flagged through prior escalations, sharpening further. Real yields, not headlines, have been setting gold''s direction through this conflict, and the Government of Canada 10-year yield closing at 3.95 per cent today, tracking the U.S. move toward 5 per cent, points to the same force. A rate environment pulling higher into Wednesday leaves gold less room to price war risk on its own terms.
Measured against Friday''s close, WTI is the only one of the seven assets shown that moved in the direction a fresh Hormuz escalation would normally produce. Every other line in the chart points to a market already positioned for Wednesday, not for the weekend.
Moves are measured against Friday''s close. WTI is the only one of the seven assets shown that moved in the direction a fresh Hormuz escalation would normally produce. Source: The Canadian Press.
The oil price is the headline coming out of this weekend. The Fed decision landing Wednesday afternoon is the mechanism actually moving every other market this week, and it will keep doing so regardless of what happens next in the Gulf.