MacroVoices #551 Michael Every: Decoding The Global Geopolitical Puzzle

Episode Summary

Executive Summary: The episode argues that geopolitics—not just traditional macro data—is driving oil, rates, FX, and risk assets. Michael Every says Iran/Russia/Ukraine tensions are more likely to escalate than de-escalate, making a diesel shock plausible and raising the case for energy statecraft, export controls, and bloc-based trade. The market desk then links these risks to higher yields, a stronger dollar, narrow equity leadership, and strategic positioning in oil, gold, copper, uranium, and yen.

Main Topics: Geopolitical escalation and oil price dynamics (Priority: 5/5): Every frames Iran, the Red Sea, Russia/Ukraine, and broader Middle East tensions as interconnected escalation risks. He argues oil's recent pullback reflects hope, not resolution, and that further attacks on pipelines/refineries could quickly restore upside pressure. Diesel as the key macro transmission channel (Priority: 5/5): The discussion shifts from crude headlines to refined products, especially diesel, which affects logistics, farming, food delivery, and industrial activity. A serious diesel shortage is presented as a genuine global risk rather than social-media exaggeration. U.S. energy policy, export controls, and economic statecraft (Priority: 5/5): Every argues the U.S. may use diesel export restrictions, storage mandates, and strategic energy control as geopolitical tools. He suggests a more closed North American energy bloc could emerge, challenging the idea of a permanently integrated global energy market. Russia-Ukraine, Trump, and escalation incentives (Priority: 4/5): The transcript explores why Ukraine struck Russian refinery capacity after Trump warned against it, and whether the aim is to force attention, increase pressure before elections, or provoke broader alignment against Russia. Every sees escalation as more likely than peace. China's strategic response to global fragmentation (Priority: 4/5): China is portrayed as preferring status quo without war, but prepared for conflict through stockpiles and redundancies. Beijing wants Russia and Iran not to lose, avoids direct overcommitment, and may be watching U.S. moves on tariffs and truce extensions for clues. Market implications: yields, dollar, equities, and hedging assets (Priority: 5/5): The market segment ties geopolitics to rising Treasury yields, a stronger dollar, weak breadth beneath headline equity indexes, and mixed signals in gold, copper, uranium, and yen positioning. The message is that macro assets are increasingly driven by war/geopolitical outcomes.

Key Arguments: Oil's recent drop is driven partly by hope and not by a durable improvement in geopolitical fundamentals. Iranian pressure and blockade dynamics may incentivize escalation through proxies or direct action elsewhere. A diesel crisis is more dangerous than a crude spike because it hits logistics, food supply, and industrial distribution. Ukraine's strikes on Russian refineries may reflect deliberate defiance or a broader multi-layered strategy rather than simple tactical logic. The U.S. may respond to energy stress with export controls and strategic allocation rather than relying on free-market price clearing. Global energy markets are likely moving toward blocs and coercive statecraft rather than frictionless integration. Trump may be politically incentivized to escalate abroad if energy prices stay high and domestic political conditions worsen. China benefits most from stability but is preparing for a world where war, tariffs, and fragmentation are persistent. The Greenland-Denmark outcome shows public narratives can reverse quickly while strategic deals proceed quietly. Rates, FX, and equities are all being repriced by geopolitical risk, with narrow mega-cap leadership masking broader weakness.

Data Points: Oil spread during Red Sea/Yanbu disruption: $110 spread - Every cites a temporary spike in oil during Middle East disruption concerns. Diesel refining capacity hit in Russia: ~40% - Referenced as the share of Russian diesel refining capacity reportedly affected by strikes. U.S. 10-year Treasury yield: ~5.10% - Market desk says yields reached the highest level since 2007. U.S. 30-year Treasury yield: ~5.40% - Shown as part of the bond-market repricing higher. 10-year real yield: ~2.7% - Used to explain pressure on equities and gold. Probability of an October Fed hike: ~70% - Fed funds futures were said to be pricing a hike in October. Probability of back-to-back October and December hikes: >50% - Market desk notes more than even odds of two consecutive hikes. Stocks above 50-day moving average: 28% - Used to illustrate weak market breadth beneath headline index strength. USO reference price: $148.30 - Patrick's oil trade setup used the United States Oil Fund as the vehicle. USO bull call spread strikes: 150/180 - Options trade structured around a January 15, 2027 expiration. USO bull call spread net debit: $8.25 - Cost for the $30-wide spread in the trade idea. Spread width: $30 - Used to frame the risk/reward ratio in the oil options trade. Potential crude equivalent at USO $180: ~$120/barrel - Patrick explains the upside target mapping from the ETF to crude. Yen positioning swing: ~92,000 net short to >120,000 net long - Large speculator positioning flipped sharply in the yen. Weekly yen positioning swing: ~110,000 contracts - Described as an extraordinary one-week reversal in futures positioning. Dollar index level: above 101 - Referenced as the dollar broke higher alongside rising yields. EUR/USD downside target discussed: 1.08-1.10 - Used as a potential vulnerable zone for the euro. Copper upside target: 7.0 to 7.25 - Patrick cites potential upside targets for copper if the bull trend holds. URA key level: 40 - A break below this level would suggest more downside in uranium equities. Diesel-related market risk window: Next few weeks through elections - The conversation repeatedly links geopolitical risk to the U.S. election period.

Pivotal Quotes: "if you're an interest rate trader or an FX trader at the moment, you have to be an oil trader. You've got to look at that to understand what bond yields are going to do." — Michael Every: Opening framing of the macro-geopolitical link between energy and rates. "unless you are now pricing for peace in our time ... you are just hoping if you're going to try to start to price in the fact that everything is going to get better." — Michael Every: Every argues markets are prematurely pricing de-escalation in the Middle East and Russia/Ukraine. "the joke at the moment is if you're an interest rate trader or an FX trader at the moment, you have to be an oil trader." — Michael Every: Repeated theme used to explain why energy now drives macro markets.

Implications: Listeners should expect geopolitics to remain a primary driver of oil, yields, FX, and risk assets. The big risk is a diesel-led disruption that forces policy intervention, export controls, or bloc formation, while markets remain vulnerable to sharp reversals in bonds and broad asset correlations.