A wild geopolitical ride and other notable stuff

That was a wild geopolitical ride (and just maybe the Middle East now is the safest it's been in many generations) but proving yet again that geopolitical events tend to have a fleeting impact on markets and the economy UNLESS there is an actual disruption to the supply of goods/commodities. Now maybe we can get back to the underlying global economic fundamentals. With respect to crude oil, I'll post this chart again from a Dallas Fed oil and gas survey in March that showed where the breakevens are for US shale and non-shale onshore drillers and you can see why oil in the low $60s will be tough to break below.

Note that this is to the question, "What WTI oil price does your firm need to profitably drill a new well?" For existing wells, the breakevens are in the $30s and $40s.

After Michelle Bowman yesterday shared her dovish stance with colleague Chris Waller, the fed funds futures are now fully pricing in a 100% of two cuts this year and a 16% chance of a 3rd vs 100% of one and about 70% of a second after Powell spoke last week. With respect to the July meeting that Bowman and Waller seem open to cutting, rate cut odds are at just 22% though and we'll of course see if Jay Powell today sounds like he did last week which would likely keep the odds low. On the other hand, any bend in his thoughts over the past week similar to what his colleagues expressed and of course markets will pull forward the odds of a cut.

Either way, I still think what we're looking at, for now, is more of a rate tweaking cycle with still risk that longer term rates stay elevated and even go higher again as we saw after the initial 100 bps of rate cuts.