“There’s no clean TACO off-ramp.”
That’s what the ER doctor says when you show up at 2:30 in the morning begging for Zofran after eating too much cheap Tex-Mex.
It’s also what Nomura’s Charlie McElligott said on Friday, while warning that both macro tail risks — i.e., near-term monetary policy tightening to preempt the inflationary read-across from triple-digit crude prices and medium-term rate cuts to cope with the ramifications of that tightening for aggregate, ex-energy demand — have picked up meaningful delta in recent days.
“The ‘inflation shock –> policy tightening hawkish tail is obviously ‘bid’ and now essentially ITM, but at the same time, the ‘forced tightening into a supply shock’ dynamic when the global economy is so wildly fragile has now seen the ‘demand destruction –> recession –> deep cuts’ trade” likewise garner interest, he wrote.
As the figure below shows, markets were at one point Thursday pricing better-than-even odds of a Fed hike by November. That pricing came off a bit Friday amid more losses for equities and a tentative bid for the US front-end.
“Death is but a door, time is but a window, I’ll be back — at the October FOMC meeting,” declared Ali Khamenei. (Any Ghostbusters 2 fans out there?)
What does it mean when the outlook for inflation is uncertain and the distribution of monetary policy outcomes commensurately wide? It means rates vol, and as McElligott reminded investors for at least the third time in two weeks, “every asset class is short rate vol.”
Remember what I said last week? No? Me neither. That’s what happens post-40. But I vaguely remember saying something succinct about this last Sunday, so I looked it up. On March 22, I wrote, “rampant inflation uncertainty stemming from Trump’s Mideast melee can’t help but show up as rates vol, and where there’s rates vol there’s trouble.”
The figures above, from Nomura, illustrate the point(s). On the left is cross-asset beta to a strategy that benefits from high rates vol. On the right is average VIX level by CPI quintile.
So far, the US equity selloff’s a slow-burning affair and that’s allowed Donald Trump to more or less ignore it. But small declines add up and after five weeks of losses, we were looking at SPX 6370 by Friday’s close.
Trump probably (doubtlessly) thought his early-week pretensions to peacemaking would be enough to stanch the bleeding, but that TACO effort fell flat as the missiles kept flying and Bagher Ghalibaf refused to publicly acknowledge the negotiations.
News that Iran blocked two Chinese ships from transiting the Strait didn’t help, nor did reports of additional US troop deployments.
As discussed at some length in the new Weekly, I think there is an off-ramp that’s cleaner than a lot of people give it credit for, but “clean” is an (extremely) relative term in this context. And there’s no guarantee Trump’s interlocutor in Tehran even understands what’s implicitly on offer, nor is there any guarantee Benjamin Netanyahu won’t close that off-ramp by blowing it up like a bridge over the Litani.
The ambiguity leaves markets in a very uncomfortable spot, as traders fret that central bankers are being forced to tighten their respective economies into a slowdown. Or even into a recession. As McElligott put it, “The perverse endgame [is that] the hawkish tail eventually feeds the dovish tail.”
On an index level the drawdown indeed seems modest, but certain sectors have gone way faster than others. 10 yr also high and not helping mortgage rates. Combined with elevated gas prices, me thinks Trump won’t sleep very well this weekend.
Or he might be getting together with Miguel this weekend.
Where’s Howard Lutnick in the midst of this financial market turmoil? I hope that the president and Scott Bessent still have access to his wise counsel.
In that regard, do the betting markets show any odds on whether DJT will close financial markets on the basis of some emergency? Just like post-9/11?
Wall Street is tired of TACOs, and Trump hates eating crow. What a predicament.
It feels, as this week has gone on, that the mkt is paying less attention to the presidents’ utterances as they are deemed to be his usual hyperbole and bombast (or simply bs). The wild gyrations in the European STIR mkts are still evident, and whilst volatility is high, the mkt has completely repriced and is leaving the sharp moves to the event traders (trading fatigue or paricipants just fed up getting whipsawed – who knows). I heard chris rokos’ hedge fund have been decent sellers of ATM straddles throughout the week (in euribor) and theres been good selling of sofr straddles since Wednesday (vol selling) – instigators unknown. As tdog stated, wall street tired of tacos?
I hope (assume) Trump’s been explicit in his conversations with Netanyahu about holding off on assassinating Ghalibaf and/or Araghchi. Because if they don’t make it to Monday, Sunday’s open could be rough.
I really expected Trump to try to talk up the market today. Surprised he did not make the effort.
Why bother when they plan to “suspend” the markets on Sunday night??
He can’t do that? Really??
I don’t think he will if he can. But ask again at SPX 6000.
I’m imagining something like this:
Sorry, my bad. It was supposed to be the “Chicken Run” scene from “Rebel Without a Cause.” The link actually works if you care to sign-in to YouTube and/or confirm your age, but why bother now.
Liddle Marco says 2-4 more weeks. I would take the over. So when to step in? 6250? 5900? Lower? Oil Prices have about a 60/bbl standard deviation. The whiplash will have wti at 30$ inflation below 2% and funds at 2% next year. Rinse and repeat….
What are the odds that trump will close financial markets on some kind of emergrnce (like 9/11)?
4:49 PM
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This is a genuinely interesting question that sits at the intersection of history, law, and current politics. Here’s a grounded breakdown:
Historical precedent for market closures
Markets have been closed for emergencies before — most famously after 9/11 (4 trading days), and briefly during COVID in 2020 (circuit breakers, not full closure). The President doesn’t actually have the unilateral power to close markets — that authority lies with the SEC, the exchanges themselves, and regulators. But a president can strongly pressure them or declare states of emergency that create the conditions for it.
What we know about Trump’s current approach
Trump has already shown willingness to use emergency powers aggressively — he declared the U.S. trade deficit a “national emergency” under IEEPA to impose sweeping tariffs in 2025, which caused major market turmoil.
Wikipedia
So the precedent for stretching emergency declarations is already established in this administration.
The S&P 500 fell nearly 20% in seven weeks around the April 2025 “Liberation Day” tariff announcement, though it subsequently rebounded 32% from its April low and is currently down about 5% year-to-date as of late March 2026.
U.S. Bank
Current risk environment
Several new stress factors are present: the U.S.-Iran war has effectively closed the Strait of Hormuz (which carries 20% of global oil supply), Brent crude has surged over 40% to $103/barrel, and tariffs have coincided with weak GDP and jobs growth.
Yahoo Finance
These are exactly the kinds of conditions that could theoretically trigger an emergency response.
So what are the actual odds?
Honestly, no one can put a precise number on it, but here’s a reasonable framework:
Low but non-trivial. A full market closure (like post-9/11) requires a severe, acute shock — not just volatility. Markets stayed open through the entire 2025 tariff chaos.
The more likely “emergency” scenario would be the Fed intervening massively (buying Treasuries, emergency rate cuts) or circuit breakers halting trading temporarily — both of which are within existing rules and don’t require a presidential declaration.
The wildcard is a genuine external shock (major cyberattack, military escalation beyond Iran, a banking crisis). Trump’s use of emergency powers has already been expansive, so the guardrails are thinner than they once seemed.
Bottom line: a 9/11-style full market closure is probably a low-single-digit probability in any given year, but the combination of geopolitical stress, market volatility, and this administration’s demonstrated willingness to use emergency powers makes it meaningfully higher than it would have been under more conventional presidencies.
I get it was over 100 years ago, but the US market closed in 1914 for over 4 MONTHS after the outbreak of WWI in Europe. It was a completely different era and I’m not sure who authorized it.
HeyJoe! Thanks for all of that spadework.
As of 5:11, it does not look like he’ll be exercising that option tonight.