Refineries are running like it's 2000 and your safe haven is moonlighting as a momentum trade · Daily Briefing

In 30 seconds: US commercial petroleum stocks fell 8.5 million barrels in the latest EIA data, diesel crack spreads swung sharply on a surprise build and political noise around a Russian diesel tanker, while US refinery utilization is running at its highest level for this time of year in at least 25 years. Hedge funds now hold roughly 8.5% of the US Treasury market—about $2.7 trillion—creating systemic risk as their rapid de-grossing during equity volatility causes Treasuries to trade more like risk-on assets rather than safe havens. Economists have persistently forecast a return to 2% inflation within 18-24 months for over five years, but structural shifts including the end of Chinese goods deflation suggest the US is now a 3%+ inflation economy with correspondingly higher yields. French 10-year government bond yields touched 5% for the first time in 24 years, with the spread over German bunds widening to 1.58 percentage points amid growing fiscal concerns.

Every product very low save jet fuel and propane. Extremely low describes diesel inventories specifically. Russian diesel tanker: 300,000. That last item has limited commercial significance. Russian diesel tanker: 300,000. October is when typically many plants go into seasonal maintenance, but that has been delayed due to eye-watering margins and the pressure from Trump.

You buy them precisely because, in a crisis, they rally and cushion the blow. That story gets harder to tell when a major marginal buyer treats them as just another line item to liquidate under stress. Hedge funds de-gross their positions, including USTs, when equity volatility gets too high. This matters enormously for the vast universe of balanced portfolios. When the stock-bond correlation is negative, the 10-year Treasury subtracts volatility from a 60/40 portfolio. That is the whole point of owning them. But when that correlation flips positive, the 10-year Treasury adds about 1.5 points of volatility to a 60/40 portfolio instead of subtracting from it. The concern is that their holding pattern, leveraged and volatility-sensitive, converts what should be a stabilizer into a procyclical accelerant. You wanted a safe haven. You got a momentum trade with a government guarantee on the coupon.

The same Bloomberg story driving the hedge fund Treasury concerns is also a factor in the inflation discussion below.

There is a certain comfort in a forecast that never changes. The WSJ surveyed 71 economists on their inflation outlook. The colored forecast lines keep bending toward the target. Actual inflation keeps not cooperating. The interesting question is why the profession keeps writing the same number on the same line. One explanation is structural. The era of goods deflation from China is over. It's over by choice, as neither political party wants globalization back. The forecasters are not early. They are wrong about the destination. Economists have continuously made the same call as the WSJ survey — in 18 to 24 months inflation will be 2% — and it has been continuously wrong. The question is whether the target still describes reality, or just describes the forecast.

One simple way to gauge whether a country is fiscally sound is to look at what it costs that country to borrow money. 10-year French government bond yield: 5%. The thing about bond yields is that they move slowly and then all at once. You spend months watching the number creep up, telling yourself it is just a repricing of term premium or a global rates story, and then one morning you wake up and the French 10-year government bond spread over Germany has widened to 1.58 percentage points. Another spike in the French bond spread today. At that point you are no longer telling yourself a comforting global story. French 10-year government bond spread over Germany: 1.58 percentage points.