Sunset Market

• 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.

• 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%.