Growth concerns have temporarily wrestled the public eye away from inflation worries; hence, the markets trimmed the Fed's probability of tightening into restrictive territory. However, with oil prices on the boil again, inflation concerns are never far from the spotlight.

Indeed, this can best be encapsulated by the market's reaction to Friday's Non-Farm Payroll number, which should have been a respectable data set for stocks.

NFP is a touch higher, and AHE is steady; the overriding summary here is strong employment and low inflation should auger well for the Fed and risk going forward.

But clearly, there are signs of low conviction even when we were assessing the upper end of the ranges last week, suggesting those investors who are participating are knowingly sifting through the rubble under the premise of bear market conditions.

Amid a brewing global energy crisis, the market has predisposed itself to believe weaker data is for real while discounting upside surprises in so much as the expectations going forward look much gloomier, especially on the consumption front. Hence the market skew is towards softer data in the future.

US yields increased despite lower inflation in the jobs data as recession odds decreased somewhat on the strong NFP headline print. But this also illustrates just how sensitive stock markets are and susceptible to higher rates, even on good data.

The following two FOMC meetings have 50bps of hikes "baked in the cake," even Lael Brainard has her pins on the board. But the September meeting is priced at close to an 80% probability of a 50bp hike. That area of the fund's strip will get the most attention and likely drive cross-asset volatility over the summer.

The NFP continues to lose its punch as a market mover. It screened dovish, but the price action did not move in that direction. Anyone who waited behind the terminal to trade NFP was sorely disappointed and probably questioned their choices in life. I would have been better off catching the 7:15 PM Bangkok showing of Top Gun Maverick.

Oil

What OPEC gave OPEC then takes away. Mere days after opening the spigots a bit wider, Saudi Arabia wasted little time hiking its official selling price for Asia, its primary market.

Saudi Light OSP jumped, seeing knock-on effects at the Futures Open across the oil market spectrum.

OPEC+ production, even after the modest bump in output, is too small to fix the oil market structural deficit and glaringly illustrated last week when the EIA report showed a considerable reduction in US crude stocks, even removing the seasonality effect.

The strong US payrolls will likely reduce concerns about a consumer spending slowdown over the near term, hence less chance of a broader buyer strike at the pump over the summer.

The other good news for oil bulls is China's reopening which might be gradual through the summer, but demand should pick up the slack in Q3 when the US summer driving season ebbs and the Chinese stimulus multiplier effects kick into a higher gear.

An additional surge in core-OPEC production later this summer could weigh on sentiment and crude fundamentals. And so would higher prices at the pump elicit growing concerns around the global end-demand outlook; those views are playing second fiddle to refinery demand for prompt summer barrels and increasing China demand.

Forex

The post NFP currency read via the rebound in Treasury yields screens support for the broad dollar over the near term.

Oddly, the employment report components look aligned towards bond friendly, risk positive, and USD negative on the main. Still, with oil prices on the boil, another can of inflationary, hence recessionary, worms has opened.

A pullback in crude would be crucial for any prolonged risk rally, given implications for inflation expectations. 

It is otherwise hard to see the Fed deliver anything other than a 50 bp hike in September, not to mention the negative consequences for Europe, with the ECB increasingly vocal on hiking aggressively even though the root cause of inflation in Europe is mainly driven by energy.

Indeed, this is vastly different from the supply and demand pressures the Fed is hiking into and might not be a euro-friendly outcome.

JPY is struggling again as US yields and oil prices are up; even more so after the BoJ seems to be embracing a weaker yen after Deputy Governor Wakatabe suggested the bank needs to maintain "powerful" monetary easing."