TACO back on the menu

A Reuters Open Interest newsletter

Oil plunges 10%

By Jamie McGeever, Markets Columnist 

Oil sank and U.S. stocks rose on Monday on hopes that an end to the Middle East war could be in sight after U.S. President Donald Trump delayed military strikes on Iran's power plants and indicated that early talks with Tehran have been held. 

In my column today I look at why, for now at least, U.S. consumers can cope with $100-a-barrel oil - household balance sheets are in rude health and, perhaps surprisingly, gasoline and energy products account for a mere 2% of total consumption. 

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

*  TACO bell rings

Whether the U.S. postponing strikes on Iran's energy complex marks the beginning of the end of the war or has a lasting market impact remains to be seen. But Monday's sudden rebound in risk appetite shows how much investors are hoping it proves to be the latest 'Trump Always Chickens Out' signal to buy.

The natural bias toward 'TACO' trades is understandable, although in this case, caution is still rquired. The damage done to oil and LNG supply, facilities, and refining capacity will take months to fully heal, and the world will be living with high energy costs for even longer. 

* Safe-haven, where art thou?

Gold's plunge since the Middle East conflict erupted nearly a month ago has been remarkable, and raises an uncomfortable question for investors: is there such a thing as a safe-haven asset any more? 

If gold can't shine amid war, a global oil shock, falling stock markets and rising inflation, where can investors turn? Perhaps gold has become just another speculative asset, and the 'one size fits all' concept of a safe haven is gone. In times of crisis, investors now have to be more nimble, flexible, and think outside the box.    

*  Sound and revision

As the global energy shock rolls into its fourth week, revised growth and inflation forecasts are starting to trickle in. The trajectories are no surprise, but the numbers do highlight the tough position central bankers find themselves in.

"3% inflation is here to stay", say BNP Paribas economists, raising their 2026 U.S. core and headline forecasts to 3.2% and 3.3%, respectively. Goldman's economists reckon high oil and gas prices will add 1 percentage point to global headline inflation over the next year, and subtract 0.4pp from global GDP growth. 

No one likes expensive oil, especially in the U.S., where driving, spending, and energy-intensive economic activity are on such a vast scale. But despite fears to the contrary, the average U.S. consumer has never been better equipped to deal with $100-a-barrel oil. 

U.S. households are the richest they've ever been in nominal terms. They've rarely been better in relative terms either. Unemployment is also historically low, and, perhaps most importantly, gas and energy account for a historically small share of consumption.

Find ROI on the Reuters website, and join the debate on LinkedIn and X.