Edward Meir's week in review and thoughts for the week of May 4, 2026

But for all the back and forth, the two sides are still very, very far apart on a host of critical issues. Trump also warned over the weekend that he would consider resuming military strikes if Iran were to “misbehave”. Meanwhile, transit through the Strait of Hormuz remains minimal with two “dueling blockades” are in place. Iran requires vessels to ask permission before crossing through the narrowest point of the Gulf. And the US prevents ships from leaving Iranian ports.

Oil and gasoline up (again)

These developments don’t sit well with energy markets. Brent soared to a fresh four-year high of $126 per barrel (bbl) on Thursday before reversing course to settle at about $108/bbl on Friday, up by $3/bbl on the week. WTI gained roughly $7/bbl on the week, getting to a high of $103.34/bbl at one point before ending Friday at around $102/bbl.

Gasoline futures tacked on 10 cents per gallon on the week. Prices at the pump are pushing up almost in tandem with futures. Diesel ended $0.06/gallon higher. But US natural gas prices were subdued, trading under $2.80 per MMBtu for much of the week.

As a result of relentless price increases in oil, one estimate we came across calculates that US consumers spent $81 billion more on gas and energy in March than they otherwise would have. The April numbers will likely be higher.

Automotive’s house of pain

US companies are increasingly feeling the pain as well. The Financial Times reported over the weekend that GM, Ford, and Stellantis warned the financial hit from higher commodity prices could cost them $5 billion collectively this year if they do not get any relief soon. All three firms reported significant pricing pressures from a variety of inputs, from aluminum and plastics to paint.

Consultancy AlixPartners estimates the rise in aluminum alone could add between $500 and $1,500 to the cost of a vehicle if carmakers decide to pass this cost on. So far, they have not. But we are on borrowed time.

One company that became a casualty of higher jet fuel is Spirit Airlines, which had been in business for more than 40 years. After a rescue package fell apart last week, the airline ceased operations over the weekend.

Base, precious metals slip as steel gains

In base metals, we saw modest declines set in across the board last week. But trading was quiet because China has gone on a one-week break.

Copper, aluminum, and nickel each ended down by roughly 2% on the week. Zinc was off by nearly 3.7%. We had a 1.8% decline in tin, and lead eased by 0.7%. US steel prices moved higher in various categories.

Finally, gold and silver ended with modest declines despite the general dollar index losing ground. However, the bulk of the dollar’s decline was attributable to the significant rally we saw in the Japanese yen. The Bank of Japan finally intervened to support the currency after watching it plunge to two-year lows on Thursday.

US equity markets: ‘What, me worry?’

US equity markets are pretty much ignoring the energy spike and continue to power to fresh highs. The S&P 500 and NASDAQ each tacked on roughly 1% on the week. The Dow ended up 0.6%. Year-to-date, the three indices are up by 15%, 8%, and 3%, respectively.

Solid earnings growth (projected to be a whopping 19% higher y/y in Q1) and selective mega-cap strength helped offset concerns about the Iran war and uncertainties about the macro outlook.

In the treasury markets, the two-year yield settled up 11 basis points on the week to 3.89%. The 10-year yield added seven basis points to finish at 4.38%. Although the bond market is concerned about the spike in oil, interest rates have been relatively well behaved thus far.

Fed update: Powell sticks around

We also had the Federal Reserve statement out on Wednesday followed by Chair Jerome Powell’s last news conference. The Fed held the federal funds rate unchanged within its 3.5%-3.75% band and made no changes to policy language either. But in an eight to four vote, three governors wanted to remove the existing reference to possible easing, while one governor wanted to cut rates. But the majority prevailed, keeping the language and the outlook the same. It will now fall to incoming Chair Kevin Warsh to try and cobble together a more unified board.

At his news conference, Powell reiterated his view that the US economy has performed admirably despite a series of unexpected developments, including Covid, the Russia-Ukraine war, tariffs, and more recently, the Iran war. Each of these made returning inflation to the Fed’s 2% target much harder. In fact, Powell admitted inflation was currently “misbehaving”. That is putting it mildly in our view. However, Powell said he believed markets are sure the Fed is eventually going to get to its 2% target, and so the bank will need to stay the course.

Powell also announced he would stay on as Fed Board Governor through January 2028, when his term expires. He noted the central bank was getting “battered” by unprecedented legal attacks on its independence, and so it was important for him to stay. His presence takes away President Trump’s ability to nominate a new board member. But Powell reassured the media he was not interested in being a “dissident” or a “Shadow Chair”. He will merely revert to being a governor, a post he held before he became chair.

Macro readings and other news from the past week

• In a startling development, the United Arab Emirates (UAE) announced it is leaving OPEC. The UAE said it is more important for the country to pursue its national interests for now as opposed to adhering to the collective goals of OPEC. A UAE spokesperson also criticized the Arab response to the Iranian attacks. Although that was not the main reason for the UAE’s withdrawal, we have to suspect it was an important variable.

• The US economy grew by 2% in Q1 as higher business investment (mainly AI-related) offset the drag caused by a government shutdown. In fact, gross private domestic investment contributed 1.48% to the overall GDP number, while personal consumption expenditures (spending) added 1.1%. Most other categories were net negative. Not to be overlooked, though, was the fact that the Q1 PCE price index—an important inflation indicator within the GDP report—was up by a hefty 4.5% y/y, while the core PCE price index was up 4.3%.

• The March PCE inflation number on its own was up by 0.7% month over month (m/m), a little lower than expected but almost double February’s increase. The annual inflation PCE rate rose to 3.5% from February’s 2.8% level. It is now running at its fastest pace since May 2023. Core PCE was up by 0.3% from February and is running at a 3.2% annual rate.

• Personal income for March increased 0.6% m/m (ahead of estimates). The more important personal spending category jumped by 0.9% m/m (more than double estimates) following a 0.6% increase in February. Judging from the recent March retail sales and personal spending numbers, the US consumer is holding up well.

• Weekly jobless claims surprised, decreasing by 26,000 to 189,000. Continuing claims decreased by 23,000 to 1.785 million. As one analyst put it, the numbers are simply “not consistent with a labor market that is falling apart—far (very far) from it.”

• US housing starts rose by nearly 11% in March to a seasonally adjusted annual rate of 1.502 million units. Building permits declined 10.8% m/m to an annual rate of 1.372 million units. (Permits are a better indicator of upcoming housing activity because they are a leading indicator of what is in the pipeline.) Separately, the February FHFA housing price index came in unchanged from +0.2% in the previous month. The February S&P Case-Shiller home price index rose by 0.9% year over year (y/y). The weekly MBA mortgage applications index fell by 1.6% after increasing by nearly 8% in the prior week.

• Durable goods orders increased 0.8% m/m in March following a 1.2% decline in February. Excluding transportation, orders were up by 0.9% m/m. The key takeaway here was the big jump (+3.3%) in new orders for non-defense capital goods, excluding aircraft. This is a proxy for business spending and reflects, in part, the pickup in capital expenditures for AI initiatives.

• The April ISM manufacturing index came in at 52.7%, slightly below estimates, but unchanged from last month. There was a contraction in employment and a stark increase in the prices paid index, which is now up 25 points in the last three months alone. Unlike the positive growth reading for the ISM, the regional Chicago PMI manufacturing reading dipped into contraction territory (to 49.2 from the prior reading of 52.8.)

• In trade news, the US informed Canada and Mexico that some relief from 50% Section 232 tariffs on imported steel and aluminum could be obtained if the countries (or their companies) pledge to invest more in the US. The new tariff under such a scenario would drop to 25%. But the statement came via a post in the Federal Register. It appears to be far from being legal policy because key details have yet to be spelled out.

• President Trump said on Friday said that he would be raising tariffs on automobiles from the EU to 25% from 15% under Section 232. Trump claimed the EU was not complying with a trade agreement it signed last year. Note that Section 232 is exempt from the recent Supreme Court ruling against Trump’s International Emergency Economic Act (IEEPA) tariffs. As things currently stand, the European Parliament is preparing to pass the legislation. But certain countries want language in the protocol providing the EU with safeguards in case the Trump administration does not honor its commitments. In any event, nothing official has been put out yet on the increase. Moreover, there is no start date either, and so it remains to be seen how this plays out. As an aside, European car sales represent only a fraction of total US auto sales. About 700,000 units out of more than 16 million cars sold in the US were imported from Europe last year. Nevertheless, the US is an important sales outlet for many European carmakers.

• China’s manufacturing sector remained in expansion mode in April thanks to surging new orders. It’s like what we saw during the pandemic. This time, the blockage in the Persian Gulf is throwing China’s export machine into overdrive as businesses stock up ahead of future price increases and/or logistical delays. Chinese input prices remain elevated, analogous to what we are seeing in the US. China’s non-manufacturing PMI, which includes services and construction, dropped to 49.4 from 50.1 in March.

• Out of Europe, Germany’s economy grew by 0.3% in Q1, more than expected. But April unemployment rose above the three-million mark. Reuters notes that “Europe’s largest economy has struggled to regain momentum since the COVID-19 pandemic, as rising competition from China and higher energy prices have strained its export-driven model. The surge in energy prices triggered by the Iran war now poses a further threat to its long-awaited recovery.” Separately, Eurozone inflation rose to 3% in April, slightly ahead of consensus. It also came in higher than the 2.6% reading we saw in March. Other data showed Eurozone growth slowing to an anemic 0.1% in Q1.

• The World Steel Association (WSA) expects global steel demand to rise by just 0.3% in 2026. But the demand profile varies by country. WSA expects the strongest growth to come from India (at 7.4% y/y) thanks to robust infrastructure spending. The association projects African steel demand to increase by 3.8%. The US, Canada, and Mexico should grow at 2.1% each. WSA expects Europe, combined with the UK and ASEAN countries, to see growth of 1.3%. Middle East steel consumption is expected to plunge by 7.4%. No surprise here, and even that may be too optimistic. In the US, the WSA notes that residential activity will be subdued, but steel demand should be stronger in infrastructure, power, and data center projects. China remains the main drag on steel demand. There has been no meaningful recovery in Chinese real estate the WSA notes, and most key metrics continue to deteriorate. To wit, residential floor space sold last year fell by 13% y/y, while commercial floor space dropped by 10.4%. On the supply side, global steel production reached 1.85 billion tons in 2025, equal to pre-pandemic levels. The association has not furnished a 2026 supply forecast yet.

• Shipments from Nucor’s steel mills segment exceeded 7 million tons in Q1. “The highest quarterly shipment volume in Nucor’s history, reflecting strong execution across our 26 steel mills and growing contributions from recently completed projects,” company CEO Leon Topalian said during an investor call. Nucor’s backlog stood at 4.7 million tons at the end of Q1, a 20% increase from Q4 levels. “Our structural [product] backlogs are beyond numbers that we’ve ever seen. Our customers in the non-residential sector, the structural fabricators, are incredibly busy,” Topalian said. The company’s net earnings rose to $743 million on sales of $9.5 billion. Net income was 17% higher than guidance of $2.70-2.80 per share and also beat the Wall Street consensus estimate.

• ArcelorMittal posted Q1 2026 net earnings of $1.68 billion, up 5.4% from Q4 2025 levels based on a strong performance in North America. Q1 steel production in North America increased by 18% to 2.1 million tons compared to Q4 2025 levels, “primarily driven by the successful restart of the Mexico long products blast furnace following preventive maintenance.”

• Reuters reports that Zhejiang Huayou Cobalt’s Indonesian unit will slash about half of the plant’s nickel output as of May 1 on account of rising sulfur prices that are contributing to a margin squeeze. The company did not state how long the outage would last. Reuters notes that “spot prices for sulfur delivered to Indonesia have risen above $800/ton as the Iran war disrupted production and shipping. … The region produces about a quarter of global sulfur supply and about 75% of Indonesia’s supply.”

This week’s US macro readings

We get March factory orders on Monday. Tuesday brings us the March trade balance (expected at $60 billion, last $57.4 billion), along with March job openings (6.8 million expected, last 6.9 million.) We also get new home sales for both February and March, expected at 630,000 and 660,000, respectively. The April ISM services number also is out (expected at 54.3, last 54).

Wednesday brings us ADP payrolls (expected at 98,000, last 62,000). On Thursday, we get weekly initial jobless claims (expected at 205,000, last 189,000) followed by Q1 productivity readings (expected at 1.5%, last 1.8%), along with construction spending for both February and March (expected at -0.1% and +.4%, respectively). March consumer credit also comes Thursday (expected at $12.5 billion, last $9.5 billion).

Friday brings us the non-farm payrolls (expected at 53,000, last 178,000) while unemployment is expected to be unchanged at 4.3%. Hourly wages are seen increasing by 3.8%. May consumer sentiment also comes out Friday (expected at 49.5, last 49.8).

We wish all our readers all the best for the upcoming week.