Crude and bond yields making recent highs as inflation read-through gets repriced

EU mid-market update: Crude and bond yields making recent highs as inflation read-through gets repriced; Home Depot to provide first look into consumer's state this morning.

Notes/observations

- With the 60-day US-Iran MOU lapsing on Monday and the President ruling out an extension, while threatening military action against Oman, the market has shifted from pricing a truce to pricing attrition. Crude pushed to its highest in roughly a month. UKMTO reported the first vessel strike in Hormuz in ten days, this one causing a crew casualty, and transits remain a trickle rather than the normalization the market had assumed. The physical response is more telling than the price move: Saudi Arabia is offering ship-to-ship cargoes from outside the Gulf, two of China's largest tanker owners have withdrawn from both Hormuz and Bab al-Mandeb despite freight rates being their dominant earnings tailwind, Japan is weighing state support for tanker reinsurance, and Russia is considering an aromatics export ban to protect domestic fuel supply. US diesel cracks have printed an all-time high, refining tightness, not crude alone, is the channel into European fuel bills, transport costs and headline inflation.

- For Europe, the shock arrives through the long end and the food basket. Bund yields opened at a fifteen-year high and gilts followed, yet Germany is defying the backup with a syndicated tap of its 2056 line, a real test of long-end appetite. UK labour data was mixed on the surface and soft underneath: unemployment rose against expectations of no change, employment fell, claims dropped but payrolled employees declined, headline earnings came in marginally firmer while private-sector pay was the weakest since late 2020 and productivity growth was a fraction of the upwardly revised prior. That argues for a BoE on hold, with next year's priced hikes vulnerable to being unwound. ECB's Lane sees inflation running clearly above target through year-end with food the 2027 driver and warned against broad subsidy schemes, relevant given grocery inflation is at its lowest since late 2024 but foodservice supply chains remain stressed by heat damage and firmer wheat.

- Kremlin fired Andrei Klepach, the longtime economist and former deputy minister who spent years advocating industrial policy and technological sovereignty, after media finally pulled the politically explosive sentences from his May speech. The machinery built to deliver those goals is now producing their opposite: deepening Chinese industrial dependence, civilian investment crushed by 14 percent rates, and defence demand that starves long-term productivity and capital formation. Sanctions never triggered the expected financial collapse, yet balance-sheet survival has not prevented annual losses in labour, technology and competitiveness while Ukraine—despite its wrecked economy—has shifted much of its fiscal burden onto allies. The implication is stark: other insiders now know the regime still tolerates grim data but will not tolerate connecting it into the claim that Russia can keep fighting for years and still emerge relatively weaker, especially ahead of next month’s parliamentary elections.

- Calendar is dense: Fed minutes and UK CPI tomorrow where services is the swing factor.

- AI Capex pressure has been recently shifting from training clusters to the relentless recomputation of the same long-lived prefixes that agentic systems keep re-reading. OpenRouter data shows more than 85% of agent tokens already come from cache and the figure is heading toward 99%, so the daily cost of running agents is now dominated by how efficiently previously computed state can be kept warm rather than by model size. Exact prefix matching, smaller KV states, keepalive refreshes through tool pauses, residual correction and eventually shared precomputed KV for popular documents can cut input costs by 90% and multiply effective throughput on the same silicon; most production systems still break these rules in small ways and pay full prefill again and again. The implication is binary: teams that finally treat the key-value cache as the primary economic surface will run agents at a fraction of today’s cost, while everyone else will keep buying more GPUs simply to recompute work that should never have been discarded.

- Tail risks to monitor: Further Hormuz incidents and the naval blockade; BHP's port union talks resuming 25 August; the UK's study into the economic cost of losing access to frontier AI models; and Xi's late-September Washington visit.

- Asia closed mixed with Nikkei225 underperforming -2.5%. EU indices -0.7% to +0.1%. US futures -0.1% to -1.1%. Gold -0.6%, DXY +0.1%; Commodity: Brent +0.2%, WTI +0.6%; Crypto: BTC +1.4%, ETH +0.3%.

Asia

- Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 76.5 v 74.7 prior.

- Australia Aug Westpac Consumer Confidence Index: 88.9 v 83.9 prior.

- Japan sold ¥2.5T vs. ¥2.5T indicated in 5-year JGB Bonds; Avg Yield: 2.1630% v 2.0200% prior; Bid-to-cover: 4.15x v 3.43x prior.

Global conflict/tensions

- Prospects for a US-Iran agreement deteriorated; concerns over prolonged disruption to energy flows through the Strait of Hormuz.

- 60-day MOU ceasefire agreement expired between US-Iran; Trump signaled no extension of the interim agreement, intensified pressure on Tehran and criticized Oman's mediation efforts.

Americas

- US Jun Total Net TIC Flows: $133.5B v $131.2B prior; Net Long-term TIC Flows: $172.7 v $231.2B prior.

- Yield on 30-year US Treasuries climbed to around 5.3%, its highest level since 2007.

- Press coverage noting that problem loans within credit portfolio was on the rise and had risen to a level last seen in 2017.

Trade

- USTR Greer stated that Trump was not bluffing about potential 100% tariff on the UK; Not setting artificial timelines for UK to scrap its digital services tax.

- Canadian and US officials continued trade talks ahead of the August 19th deadline for threatened 50% US tariffs on a broad range of Canadian goods.

Energy

- Iran said to have seized a UAE-owned tanker in the Strait.

- UKMTO report of another attack on a ship near Oman.

- Kpler shipping data showing just six ships transiting the Strait of Hormuz on Monday with none of them VLCC or LNG tankers (**Note: 10-day average of 11 ships).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE -0.07% at 10,712.40, DAX -0.52% at 26,233.11, CAC-40 -0.54% at 8,533.14, IBEX-35 +0.13% at 20,007.88, FTSE MIB -0.61% at 53,261.00, SMI -0.18% at 14,277.00, S&P 500 Futures -0.51%].

Market Focal Points/Key Themes: European equities extended their selloff on Tuesday, with the Stoxx Europe 600 slipping 0.2% to a two-week low and its sixth straight decline—the longest losing streak since late 2025—while the DAX dropped 0.4% and the CAC 40 and FTSE 100 held roughly flat amid a sharp escalation in Middle East tensions. Iran’s reported pivot to a fully offensive military posture, after Washington refused to extend an expiring temporary ceasefire, reignited fears of strikes on energy infrastructure and shipping lanes, pushing Brent crude up 0.8% to $91.49, its highest since late July, and raising the risk of renewed cost-push inflation that could constrain autumn rate cuts. With the strong Q2 earnings season now largely complete, markets lacked the earlier micro catalysts from banks, luxury and energy to offset the geopolitical shock, leaving valuations exposed as the equity risk premium sits near 25-year lows. Standout movers included Kainos Group surging over 20% on raised FY27 guidance, BHP gaining 1.5% after a profit beat and higher dividend, energy names such as BP, Shell, EnQuest and Harbour Energy rising 1.5–3.5% with the oil spike, while LANXESS fell 5% on a broker downgrade and semiconductor stocks including Aixtron, ASML, Infineon and STMicroelectronics dropped 3–5% on broader risk-off flows.

Equities

- Consumer discretionary: Sixt [SIX2.DE] +3.5% (Berenberg upgraded to Buy from Hold and raised PT to €91 from €83 following last week's record H1), Dr. Martens [DOCS.UK] –4.5% (no clear fresh catalyst identified after the dedicated RNS, broker-action and cross-market checks).

- Energy: EnQuest [ENQ.UK] +3.5%, Harbour Energy [HBR.UK] +2.5%, Ithaca Energy [ITH.UK] +2.5%, Tullow Oil [TLW.UK] +2.5%, BP [BP.UK] +1.5%, Shell [SHEL.UK] +1.5%, Repsol [REP.ES] +1.5% (oil-price/Middle East read-through as Brent holds above $91 with U.S.-Iran diplomacy stalling and renewed escalation risk supporting European energy).

- Healthcare: Schott Pharma [1SXP.DE] +3.5% (Barclays upgraded Equal Weight → Overweight and lifted PT €16 → €27, arguing earnings expectations can finally inflect higher as renegotiated contracts become a catalyst).

- Technology: Aixtron [AIXA.DE] –5.0%, Siltronic [WAF.DE] –4.0%, SUSS MicroTec [SMHN.DE] –3.5%, Elmos Semiconductor [ELG.DE] –3.5%, STMicroelectronics [STMPA.FR] –3.0%, Infineon [IFX.DE] –3.0%, ASML [ASML.NL] –3.0% (likely global semiconductor risk-off/read-through; Asian chip/equipment names weakened overnight, European yields rose and U.S. overnight semiconductor indications reversed sharply lower after Monday’s rally), Kainos Group [KNOS.UK] +20.5% (open +15.5% → now +20.5%; [L━━━━━●H]; FY27 revenue and adjusted PBT now expected comfortably ahead of market expectations of ~£509.3m/~£77.1m).

- Materials: BHP [BHP.UK] +1.5% (FY underlying profit $13.2B vs $12.7B consensus; copper overtook iron ore as the largest earnings contributor and the $1.72 FY dividend is the highest in four years), Endeavour Mining [EDV.UK] –1.5%, Hochschild Mining [HOC.UK] –1.5% (gold/mining read-through as bullion falls and higher yields pressure precious-metals names), LANXESS [LXS.DE] –5.0% (Exane BNP Paribas cut to Underperform from Neutral and PT to €12 from €15).

Speakers

- ECB’s Lane (Ireland, chief economist) stated that inflation to hover around 3% for rest of 2026 (above ECB’s 2% target); Food inflation to be a key inflation driver in 2027. European economy was growing and was 'not too bad'.
German ZEW Economists comments noted that the economy continued to benefit from govt infrastructure program. It cautioned that the record low level on Rhine River presented additional acute risk to activity.

- Iran Parliamentary Speaker Qalibaf (lead negotiator) reiterated stance that the Strait of Hormuz would remain close until US met the interim deal conditions.

Currencies

- Continued uncertainty over the Mid-East fueled inflation fears thus prompting higher oil prices and bond yields. Sentiment was quite cautious for risk appetite as a result.

- EUR/USD at 1.1570 and little phased by better German ZEW data.

- GBP/USD at 1.3530 and little phased by mixed employment and wage data from the session.

- USD/JPY at 159.70 as the yen tested a two-and-a-half-week low.

- The 10-year German Bund yield last at 3.26%, France 10-year Oat at 4.11% and 10-year Gilt yield at 5.10%; 10-year Treasury yield: 4.74%; 10-year JGB: 2.93%.

Economic data

- (UK) July Jobless Claims Change: -11.0K v +6.7K prior; Claimant Count Rate: 4.3% v 4.4% prior; Payrolled Employees Monthly Change: +84K v +130Ke.

- (UK) Jun Average Weekly Earnings 3M/Y: 4.1% v 4.0%e; Weekly Earnings (ex-bonus) 3M/Y: 3.5% v 3.4%e; Private Earnings (ex-bonus) 3M/Y: 2.8% v 2.8%e.

- (UK) Jun ILO Unemployment Rate: 4.9% v 4.8%e; Employment Change 3M/3M: -13K v +0Ke.

- (ES) Spain Jun Trade Balance: -€7.7B v -€8.2B prior.

- (UK) Q2 Output Per Hour Y/Y: -0.2% v +0.5% prior.

- (DE) Germany Aug ZEW Current Situation Survey: -61.1 v -69.3e; Expectations Survey: 34.2 v 30.0e.

- (EU) Euro Zone Aug ZEW Expectations Survey: 31.4 v 23.4 prior.

- CA) Canada July Existing Home Sales M/M: 0.5% v 0.5% prior.

Fixed income issuance

- (DE) Germany opened its book to sell EUR-denominated Aug 2056 Bunds via syndicate; guidance seen at +0.4bps over 2054 bund.

- (UK) DMO sold £4.0B in 4.875% July 2036 Gilts; Avg Yield: 5.155% v 5.040% prior; bid-to-cover:3.65 x v 3.13x prior; Tail: 0.1bps v 0.1bps prior.

- (SE) Sweden sold SEK12.5B vs. SEK12.5B in 6-month Bills.

Looking ahead

- (IL) Israel Aug 12-month CPI Forecast: No est v 1.9% prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa July SACCI Business Confidence: No est v 124.1 prior.

- 05:25 (CH) Switzerland to sell 3-month Bills.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (ZA) South Africa to sell combined ZAR2.55B in 2033, 2038 and 2040 bonds.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

- 06:00 (IE) Ireland Jun Trade Balance: No est v €3.5B prior.

- 06:00 (PT) Portugal July PPI M/M: No est v 0.8% prior; Y/Y: No est v 5.0% prior.

- 06:30 (TR) Turkey to sell Bonds.

- 07:45 (IE) ECB’s Lane (Ireland, chief economist).

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (CA) Canada July Annualized Housing Starts: 250.0Ke v 239.0K prior.

- 08:15 (US) ADP Preliminary Employment Change for 4-weeks ending Aug 1st: No est v +8.3K prior.

- 08:30 (US) July Import Price Index M/M: 0.1%e v 0.3% prior; Y/Y: 6.7%e v 7.1% prior; Import Price Index (ex-petroleum) M/M: 0.1%e v 0.5% prior.

- 08:30 (US) July Export Price Index M/M: 0.0%e v -0.6% prior; Y/Y: No est v 10.2% prior.

- 08:30 (US) July Housing Starts: 1.345Me v 1.427M prior; Building Permits: 1.375Me v 1.374 prior.

- 08:30 (US) July Housing Starts M/M: -5.9%e v +19.0% prior; Building Permits M/M: +0.6%e v -3.0% prior.

- 08:30 (US) Aug New York Fed Services Business Activity: No est v 8.7 prior.

- 08:30 (CL) Chile Q2 GDP Q/Q: +0.3%e v -0.3% prior; Y/Y: +0.1%e v -0.5% prior.

- 08:30 (CL) Chile Q2 Current Account Balance: -$2.5Be v +$1.9B prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:15 (US) July Industrial Production M/M: 0.3%e v 0.1% prior; Manufacturing Production M/M: 0.2%e v 0.0% prior; Capacity Utilization: 76.3%e v 76.1% prior.

- 10:00 (US) July Pending Home Sales M/M: 0.0%e v -5.4% prior; Y/Y: 1.1%e v 2.3% prior.

- 11:00 (CO) Colombia Q2 GDP Q/Q: 1.2%e v 0.6% prior; Y/Y: 3.3%e v 2.2% prior.

- 11:00 (CO) Colombia Jun Economic Activity Index (Monthly GDP) Y/Y: 3.3%e v 4.1% prior.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 16:30 (US) Weekly API Crude Oil Inventories.

- 18:45 (NZ) New Zealand Q2 PPI Input Q/Q: No est v 1.4% prior; PPI Output Q/Q: No est v 0.8% prior.

- 19:50 (JP) Japan Jun Core Machine Orders M/M: +7.2%e v -12.4% prior; Y/Y: 9.6%e v -1.9% prior.

- 21:10 (KR) Bank of Korea to sell KRW600B in 3.34% 3-Year Bonds.

- 21:30 (AU) Australia Q2 Wage Price Index Q/Q: 0.8%e v 0.8% prior; Y/Y: 3.2%e v 3.3% prior.

- 22:35 (CN) China to sell 20-Year Additional Bonds.

- 22:35 (CN) China to sell 3-month and 6-month bills.

- 22:45 (AU) RBA’s Hauser.

- 23:00 (KR) South Korea Q2 Household Credit (KRW): No est v 1.993T prior.

- 23:30 (JP) Japan to sell 12-Month Bills.

- (US) Primary Elections: Florida, Alaska, Wyoming.