Sunset

• Core bond markets are currently facing significant pressure due to persistent upside inflation risks driven by a six-month energy supply shock. • The UK British Chambers of Commerce has slightly raised its 2026 growth forecast to 1%, up from the 0.9% projection made in June. • While the UK economy survived the initial impact of the Iran war, businesses remain hesitant to invest, leaving economic growth dependent on consumer spending.

• Global risk sentiment has declined following the return of armed hostilities near the Hormuz Strait, specifically reports that two supertankers were struck. • Stock markets reacted negatively to the escalation, with European markets dropping 0.5% and the US Nasdaq falling 1.2%. • The conflict is driving upward pressure on energy prices, creating volatility in the global commodities market.

• Global markets remained in a "wait-and-see" mode today as investors anticipate a speech by Fed Chair Kevin Warsh at the Jackson Hole symposium tomorrow. • Recent economic indicators included a wider-than-expected US trade deficit for July, weekly jobless claims holding steady at 203k, and a slight increase in German consumer confidence. • Despite these data releases, interest rate markets have not adjusted their current positioning, viewing the upcoming Fed event as the primary driver of volatility.

• The US released economic data for July focusing on the Personal Consumption Expenditures (PCE) deflators. • As the Federal Reserve's preferred gauge for inflation, the PCE is closely monitored despite being less timely than Consumer Price Index (CPI) indicators. • Current data suggests that inflationary pressures stemming from the conflict in Iran have not yet manifested in the PCE figures.

• Global markets began the trading week with a calm, "wait-and-see" approach as investors anticipate several high-risk events scheduled for later this week. • US Treasury yields saw slight declines, dropping between 1.5 basis points for the 2-year note and 4.2 basis points for the 30-year bond. • The 30-year yield currently holds at 5.23%, remaining close to its recent multi-year peak of 5.33%.

• The US Treasury announced it is at least doubling the size of liquidity support buyback operations for longer-dated nominal coupon securities (10y to 20y and 20y to 30y). • The maximum size per operation will increase from $2 billion to at least $4 billion. • This policy change takes effect on September 9 and will remain in place through the end of the current refunding quarter on November 4.

• US core bonds are experiencing bear steepening pressures, with the 30-year Treasury note remaining near year-to-date highs, the highest levels seen since 2007. • China's industrial production growth slowed to 4.5% year-over-year, down from 5.3%, while year-to-date growth dipped slightly to 5.3%. • A significant economic divergence has emerged in China, where strength in the AI and advanced manufacturing sectors is contrasting with widespread weakness across the rest of the economy.

• Energy markets are experiencing significant volatility following an escalation of conflict in the Middle East. • Key drivers include the United States expanding the scope of its airstrikes and Houthi rebels, allied with Iran, implementing a maritime blockade in the Bab-el-Mandeb Strait. • Brent crude oil prices reacted sharply to the instability, reaching an intraday high of $95.5 before settling slightly lower at $94.5.

• The US-Iran conflict has entered its sixth consecutive day of escalating hostilities, with both nations intensifying their military strikes. • Iran has targeted critical infrastructure in Kuwait, specifically attacking power generation and water desalination plants, while maintaining a strategic grip on the Strait of Hormuz. • The situation is critical due to the potential for the conflict to expand, with threats remaining that Houthi rebels and the Bab-al-Mandab strait will be drawn into the fighting.

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• Oil prices dominated market attention today due to a lack of other significant economic drivers. • The focus remains on the collapse of a ceasefire, raising concerns that the US and Iran are far from a permanent agreement. • A primary point of contention is the need to ensure safe and unhindered maritime passage through the strategically vital Strait of Hormuz.

• US investors returned to trading following the Independence Day long weekend, though their return provided little new momentum to overall market dynamics. • European and UK yields remained stable, fluctuating by less than 1.5 basis points due to a lack of significant EMU economic data. • 10-year spreads versus swaps for Italy (72 bps), France (73 bps), Belgium (51 bps), and Spain (43 bps) have shifted from levels seen prior to the US-Iran conflict.

• Belgium and Spain released their national Harmonized Index of Consumer Prices (HICP) data, marking the start of a series of reports leading up to the full euro area print this Wednesday. • Belgian harmonized CPI showed a significant decrease, dropping from 4.1% in May to 3% in June. • Spanish inflation unexpectedly remained steady at 3.6% annually, defying the 3.4% consensus forecast due to a monthly price increase of 0.6%.

• A rare "3-planet parade" featuring Mercury, Venus, and Jupiter will occur on June 12. • The planets will align low on the western horizon, becoming visible shortly after sunset. • This event offers a brief but striking visual spectacle for stargazers to observe the planetary alignment.