Oil prices stay elevated as Iran supply fears overshadow Russia measures
The U.S. economy will hit 6% annual GDP growth in 2026 due to (1) tax cuts, (2) continued strong consumer spending, (3) data center expansion, and (4) the housing sector becoming less of a drag on GDP growth as existing home sales improve. The Commerce Department on Thursday revised its third-quarter GDP calculation to a 4.4% annual pace, up from 4.3% previously estimated. The Atlanta Fed on Wednesday revised its fourth-quarter GDP estimate to an annual pace of 5.4%, up from 5.3% previously estimated.
The head of Israel’s Mossad intelligence services was recently in Washington, D.C., and a military strike may still be in the works, especially since Iran threatened U.S. bases in the Middle East. So even though crude oil prices have settled down, sanctions remain, and military strikes against Iranian security forces and their leadership remain possible. Whatever President Trump intends to do, it is expected to be quick and decisive, since that is his trademark.
President Trump addressed the Davos crowd on Wednesday and bragged that U.S. economic growth is leading the world and will also boost the global economy. As expected, Trump talked about NATO, Greenland, and striving to end the Ukraine/Russia war and bring peace to the world. I personally liked that President Trump said that the stock market would double after the correction on Tuesday in the wake of the Greenland gossip.
In the meantime, the bond vigilantes have taken the diplomatic chaos as an excuse to cause global bond yields to rise. Japan, Britain and France remain the primary targets of the bond vigilantes, since their demographic decline (fewer households) is anticipated to impede their ability to pay the interest on their government debt.
U.S. Treasury bond yields have also risen, but to (1) higher real interest rates, (2) strong GDP growth and (3) better demographics compared to the rest of the world, I am expecting that the U.S. dollar will strengthen and that the 10-year Treasury bond yield will decline to 3.5% (down from almost 4.3%) once the rest of the world realizes that President Trump is serious about his global ambitions.