Written Commentary
Persian Gulf developments and JPY FX intervention to the fore; Manufacturing PMIs, US Auto Sales and Construction Spending likely to be little more than a momentary distraction.
- PMIs: sharp contrast between accelerated fall in China against broad upturn in rest of Asia; Eurozone improves but demand still weak.
- Persian Gulf: contradictory messaging from US and Iran, but Iran/Oman negotiations on Hormuz traffic offer hope of regional solution, though details remain key.
EVENTS PREVIEW
The messaging around negotiations between the USA and Iran continues to be contradictory and ambiguous. Decoding what has been said by both sides and other GCC countries, it appears that Iran and Oman are close to an agreement to reopen and manage Strait of Hormuz traffic, though the details will be important – the key aspect remains that it is local countries rather than the RoW that are working towards an agreement. There are third-party negotiations between the US and Iran, though whether these amount to anything more than ‘back channel’ messaging is unclear. The US claims negotiations on Hormuz and the far more difficult nuclear issue are starting today, but an Iranian official channel denies this; the various parts of the Iranian regime has all too often sent different messages.
Equally, will any agreement amount to anything more substantial or sustainable than the failed MoU?
The debate around AI investment continues to run hot and has definitely altered strategic fund flows from outright ‘buy the dip’ and FOMO, to frequently violent rotations and diversification.
Into this mix we now also have JPY volatility and the first joint US/Japan intervention since the Asian/Russian crises of 1998, with the notable wrinkle being that the US sold EUR for JPY, which adds a layer of complexity, while Japan probably liquidated USD deposits at the NY Fed rather than selling down US Treasury holdings. Both US and Japan have threatened to do more, but ultimately intervention will not be a game changer for the medium-term direction of the JPY unless the BoJ speeds up rate hikes, with plenty of speculation now about a September rate hike.
The day’s schedule is totally dominated by Manufacturing PMIs, with the overnight Asian run contrasting a relatively sharp fall in China echoing the official NBS readings, while a broad improvement was seen in Asia ex-China PMIs. Otherwise, there are US Construction Spending and Auto Sales, but in this rather fevered environment, and against the backdrop of a lot of scepticism about Warsh’s Fed leadership and lower summer holiday trading volumes, let alone developments in the Middle East, it is difficult to see this statistical run being anything more than a momentary distraction.
RECAP: The Week Ahead – Highlights:
- All eyes still on volatile and frequently ambiguous political rhetoric on the Persian Gulf; Red Sea and Black Sea tensions also in view, along with AI/tech sector-paced equity volatility.
- Fed speakers plentiful as markets take sceptical view on Warsh leadership.
- Very typical first week of month data schedule: US labour indicators. (Payrolls, JOLTS, ADP, Challenger Layoffs) front and centre; PMIs get the week under way; German Orders, Production and Trade; China Trade; Japan Wages & Household Spending.
- Latest heatwaves in Europe taking heavy toll via wildfires; low water levels on major rivers hitting transport, nuclear power and tourism; Americas and Asia also seeing extreme weather events.
- SpaceX, AMD, Infineon, Softbank, Western Digital headline tech earnings.
- BP, Eneos, Inpex, Marathon, Occidental, Petrobras, Phillips 66 feature in energy sector.
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