Peace talks have collapsed. Trump has issued a blockade deadline for Iranian ports and WTI is back above $100. Hungary has voted out Orban in a historic landslide. Last week's data was broadly cold with the exception of inflation expectations, which continue to tick higher. Bitcoin is holding above $70k despite the geopolitical noise, call vol is trading at a discount to ATM for the first time in memory, and Ethena has announced a significant and potentially consequential revamp of the USDe reserve asset structure.
Geopolitics: Iran Blockade Threat
Pakistan Talks Collapse
The peace talks hosted by Pakistan have collapsed. The US attributes the breakdown to nuclear concerns, a characterisation we are sceptical of. Trump has issued a new deadline of 10:00am Eastern today for the US to begin blockading Iranian ports if conditions are not met. WTI was already up 9-10% at the time of the call, trading at approximately $104 per barrel, back above $100 for the first time in several weeks.
Iran Cannot Reroute: The Caspian Dead End
A blockade of Iran's southern ports cannot be circumvented via the Caspian Sea. Iran's refining and export infrastructure sits on the Persian Gulf side of the Strait of Hormuz. The Caspian is underdeveloped, primarily used for oil swaps rather than exports, and surrounded by competing producers including Russia and Kazakhstan. A northward reroute via Kazakhstan or Russia is not commercially or logistically viable at the volumes required. Expect oil to remain bid until the situation materially improves.
Hungary: Orban Out, Europe Redrawn
Peter Magyar's Tisza party won a landslide majority in Hungary: 138 seats to Fidesz's 55, with record voter turnout. Viktor Orban, who had become the EU's primary internal spoiler on Ukraine policy, is out. The EUR 90 billion Ukraine loan he had blocked will now move forward. The EUR 17 billion EU capital allocation for Hungarian infrastructure, stalled under Orban, is also cleared. Hungary will pivot decisively away from Moscow and toward Brussels and Kyiv, removing a persistent veto threat from within the EU on Ukraine support.
Last Week's Data: Broadly Cold
US: Near-Universal Misses
| Indicator | Actual | Expected / Prior | Read |
|---|---|---|---|
| ISM | 54 | 55 expected | Cold / Miss |
| Durable Goods | -1.4% | -0.5% expected | Cold / Miss |
| PCE | In line | Neutral | |
| PCE Price Index | 3.0% | In line | Neutral |
| GDP | 0.5% | 0.7% expected | Miss |
| CPI (headline) | 0.9% | In line vs 3.3% prior | In line |
| CPI ex Food & Energy | 0.2% | 0.3% expected | One tenth cold |
| Michigan Sentiment | 47.6 | 52.0 exp / 53.3 prior | Big miss; below 50 |
| Inflation Expectations | 3.4% KEY | 3.2% expected | Hawkish beat |
Michigan Sentiment at 47.6 is below 50, which Russell flags as the threshold for a contracting economy. Combined with the GDP miss and the durable goods decline, the growth picture is weakening. The data as a whole is dovish for the Fed, which is exactly what you would expect heading into an oil shock. The single hawkish outlier remains inflation expectations at 3.4% vs 3.2% expected, the number we and the Fed watch most closely.
As I keep saying every week, the most important number the Fed looks at is inflation expectations. It came in quite hot at 3.4 against 3.2 expected. That really flew in the face of a great deal of bearish, dovish numbers on the inflation side of things.
On oil-driven inflation, we reiterate our structural view: higher oil prices are disinflationary in the medium term rather than inflationary. The Fed has historically looked through commodity-driven inflation spikes. Private credit is also showing early signs of stress, with several redemption gates having been applied. We are watching this carefully.
UK and Europe: No Case for Hikes
| Region / Indicator | Result | Hilbert View |
|---|---|---|
| European CPI | In line | ECB will not hike; rate cut thesis intact |
| UK CPI (headline) | Bang in line | Short Sterling / short Gilts trade maintained |
| UK House Prices | -0.5% vs +0.1% expected | Sterling crisis thesis reinforced |
| UK Politics | Worsening economic backdrop | Starmer leadership challenge within next quarter |
Rates and Markets
Fed Funds: Drifting Dovish
With 16 days until the next FOMC meeting, Fed fund futures are pricing 96.4% hold for April. For December, the market now prices 81.9% no change, 3.2% for higher rates and 15% for one cut or more. The direction of travel has shifted back toward the dovish side, which we view as sensible given the data. Last week's FOMC minutes contained nothing particularly noteworthy.
Rates: Bear Steepener Underway
| Instrument | Level | Change (w/w) |
|---|---|---|
| US 10-Year Treasury | 4.35% | Broadly flat |
| US 2-Year Treasury | 3.89% | Broadly flat |
| 2s10s Spread | 51.5bp | +11.5bp (was 40bp) |
The yield curve has been bear steepening: the 2s10s spread moved from 40bp to 51.5bp on the week, driven by the long end rising faster than the short end. This is a classic bear steepener, typically associated with rising inflation expectations or supply concerns at the back end of the curve, consistent with the oil shock environment.
Markets Snapshot
| Asset | Level | Change (w/w) |
|---|---|---|
| Nasdaq | ~25,000 | +1,000 pts |
| S&P 500 | 6,775 | +200 pts |
| Gold | $4,727 | +$100 |
| WTI Crude | ~$104 | +9–10% this morning |
| European Nat Gas (Dutch) | ~43.5 EUR/MWh | -10% on week (but up today) |
| US Dollar Index (DXY) | 99 | -1% (dollar slightly weaker) |
Equities are holding in despite the macro pressure, up on the week. WTI's return above $100 is the most significant move this morning, driven directly by the collapse of the Iran talks. Private credit stress is building in the background, with redemption gates being applied at several managers; this is flagged as a watch item rather than a crisis, for now.
Crypto: ETF Inflows Return, Vol Compresses
ETF Flows: Half a Billion in a Week
Last week saw approximately $500 million in net ETF inflows into crypto, a material number after several weeks of flat or subdued flow data. Morgan Stanley launched its own crypto ETF, taking in $64 million of that total. The return of institutional ETF demand is a significant positive signal, suggesting that some allocators are using the current price weakness as a buying opportunity rather than an exit point.
Volatility: Compressing Sharply
| Metric | This Week | Last Week |
|---|---|---|
| Realized Vol | ~41% | ~39% |
| Implied Vol (ATM) | 43–44% | ~45% |
| Implied vs Realized Premium | ~3pts | 6–7pts |
| DVol Indicator | 44.5 (Feb lows) | 2-month low |
| 5-delta Calls (wings) | ~41% | ~45% |
| 5-delta Puts (wings) | 56–57% | ~61% |
| Put / Call Premium | ~14–15pts | ~16pts |
| Call wings vs ATM | -3.5pts (discount) | Flat |
Bitcoin Technical Levels
Bitcoin is holding well given the geopolitical backdrop. There was a push through $73k at the start of the peace talks; BTC is now trading at approximately $70,800, down from those highs but still above $70k. Short-term momentum indicators remain bullish above the $70k level.
| Level | Price | Notes |
|---|---|---|
| Current price | ~$70,800 | Short-term indicators bullish above $70k |
| First resistance | $76,000 | Key near-term cap; gamma kicks in $72–75k |
| Second resistance | $84,000 | Daily close needed here to turn medium-term bullish |
| Third resistance | $88,000 | Above $84k, next meaningful level |
| First support | $70,000 | Key short-term floor |
| Second support | $66,000 | Next level below $70k |
| Triple bottom support | $60,000 | Lots of negative gamma here; break = nasty |
Gamma Structure
On the upside, gamma kicks in at $72k to $75k, meaning market makers will need to start delta-hedging (buying) if Bitcoin pushes through this range, potentially accelerating any move higher. On the downside, gamma becomes significant at $62k and there is heavy negative gamma at $60k: a break of $60k would trigger forced selling from market makers, potentially accelerating a move lower very quickly. Open interest sits at 243,000 contracts (versus 245,000 last week), squarely in the mid-to-low range, suggesting leverage in the system is modest.
Ethena: A Major Reserve Restructuring
WATCH
What Is Changing
Ethena has announced a significant revamp of the asset backing structure underpinning USDe. The current model, which generates yield primarily through the basis trade on Ethereum/Bitcoin perpetuals and US Treasury bills as reserve, is being diversified across four new categories. TVL has edged down slightly to $5.8bn from $5.9bn last week; USDtb sits at $940m.
| New Reserve Category | Details | Status |
|---|---|---|
| Overcollateralized stablecoin lending | Lending from USDe reserves; triparty with Anchorage, Maple, Coinbase | Planned |
| Overcollateralized prime lending | Prime lending to trading firms | Planned |
| Real world assets | IG corporate funds, short-term credit, structured credit; first: AAA CLOs (~120bp over Treasuries) | Planned |
| Commodity basis trades | Gold, silver, oil perpetuals on Hyperliquid; gold/silver basis currently mid-20s | Planned |
Hilbert's Concerns
We view the Ethena changes with informed caution. The expansion into overcollateralized lending and commodity basis trades introduces risks that are qualitatively different from the original structure. There is the Gemini precedent: overcollateralized lending works until it does not. It should also be noted that the commodity basis trade can move very sharply. Ethena has established a risk committee to oversee the new structure, which we view as a positive step but not sufficient on its own.
The nature of the risk from being a quite simple asset-backed structure, through doing the basis trade in Ethereum, and then being slowly expanded into things like T-bills, is going to dramatically change over the next few months. We have a professional obligation to keep an eye on how that might change the underlying exposures, particularly as we use this coin as one of our main collateralized stablecoins.
Clarity Act: Banking Committee Markup in April
The broad agreement between stablecoin issuers and banks on the Tillis-Alsobrooks language is holding. The banking committee markup needs to complete in April for Clarity to have any realistic chance of passing before the summer recess. Our view is unchanged: if it does not pass before the recess, it is dead until the next election cycle. The call was brief on this topic given the detailed coverage in the prior week's quarterly CIO call.
