By Molly Schwartz, cross-asset macro strategist at Rabobank
After breaking above $100/bbl on Wednesday, the rally in Brent crude oil continued yesterday, climbing almost 7% on the day and closing at $108/bbl, the highest price since May. US Treasury yields followed with a sharp bull-flattening, with the 2-year marking its highest level since July 2024 at 4.58%, and the 10-year making its way up to 4.96%—the highest level since October 2023. Meanwhile, US 30-year Treasury yields jumped 7.3bp to 5.36%, the highest level since 2002 and 2-year inflation expectations soared to 2.6%, their highest level since June and more than 0.71ppt above the July lows.
As the US midterm elections approach, many are anxiously trying to gauge whether GOP will be able to retain control of both houses of Congress. As mentioned in yesterday’s installment, one strategy the Trump administration is trying to use to ensure a victory is the promise of a $5,000 “Trump dividend” issued to every American adult if, and only if, Republicans win both houses. Logistics remain unclear as to how the dividends would be funded or issued, especially given Trump’s “condition” that they could only be spent in America, with Trump saying that “we don’t want you going to Canada to spend the money. We don’t want you going to China, to Germany.” Of course, money is fungible, and a $5,000 “America coupon” allows Americans to spend $5,000 elsewhere, especially on their favorite shiny imports. However, regardless if the midterms mark a turning point in the Trump Administration or not, it is possible that they will at least mark an inflection point in the war overseas.
Brent crude oil prices are stretched in part due to the continued hostilities in the Middle East, but American voters generally care more about gasoline prices than military intervention on the other side of the world, and
