The latest Market Talks covering Energy markets. Published exclusively on Dow Jones Newswires throughout the day.
0805 ET - Bahrain is likely to receive additional financial support from Gulf neighbors if the renewed closure of the Strait of Hormuz persists, Capital Economics says. The consultancy says Bahrain's foreign-exchange reserves fell to just over $2 billion in June from $6 billion in March, leaving policymakers with limited room to defend the dollar peg or support the balance of payments. While a prolonged Hormuz closure would raise the risk of devaluation and sovereign default, Saudi Arabia or the UAE would probably step in to prevent broader concerns over Gulf dollar pegs, the consultancy says. (farhan.rafid@wsj.com)
0729 ET - Saudi Arabia's economy is becoming more dependent on government spending as the Iran war weakens private-sector momentum, EFG Hermes says. Public consumption rose 11% and public investment surged 52% in real terms in the first quarter, while non-oil private investment contracted 1.4% and overall fixed investment fell 7.6%. The investment bank forecasts the economy will contract by 1% in 2026, with oil GDP shrinking around 11% and non-oil growth slowing to 2%, as conflict-related uncertainty weighs on investment, hiring and exports. (farhan.rafid@wsj.com)
0722 ET - Saudi Arabia's temporary oil windfall is unlikely to eliminate mounting fiscal pressures, increasing the need for another round of spending reprioritization, EFG Hermes says. The investment bank forecasts government expenditure will reach SAR1.5 trillion ($400 billion) in 2026, about 14% above budget, while the fiscal deficit narrows only marginally to 5.6% of GDP, versus the government's 2.3% target. The Iran war has raised spending requirements in areas including food security and critical infrastructure and could also make the foreign private capital needed to fund investment harder to attract, the firm says. (farhan.rafid@wsj.com)
0544 ET - While production and new orders rose in July, U.K. manufacturers are starting to feel the strain of higher energy prices, Matt Swannell at the ITEM Club says in a note. The manufacturing PMI fell to 51.9 in the month, from 52.5 in June. "We think the breakdown of the U.S.-Iran ceasefire early in the month and the uncertainty surrounding the future of the conflict has been a key drag on manufacturers' optimism," he says. Higher energy costs will likely weigh on the sector in the second half, despite output price inflation easing to a four-month low in July. "Just as with the wider economy, we anticipate that this relief will be temporary," he says. (don.forbes@wsj.com)
0543 ET - The U.K. manufacturing sector remained on a solid footing in July, analysts at RSM UK says in a note. The manufacturing PMI fell to 51.9, from 52.5 in June, but signaled continued expansion as it remained above 50. Stronger new orders suggest the recovery extends beyond stockpiling ahead of the Iran war, the analysts say. "The manufacturing sector has grown roughly twice as fast as the rest of the economy since last summer." Meanwhile lower input-cost inflation has eased pressure on manufacturers, although renewed energy-price rises could weigh on growth ahead. Activity should expand further, supported by AI investment and rising global defense spending, alongside plans for reindustrialization and regional growth from Prime Minister Andy Burnham, they say. (don.forbes@wsj.com)
0543 ET - U.K. short-dated government bonds, or gilts, are more favorable than their long-dated peers due to inflation concerns, RBC BlueBay Asset Management's Mark Dowding says in a note. Short-term yields look attractive given that BOE interest rates remain restrictive, reducing the possibility of a rate increase in the near term, Dowding says. Still, the risk of higher U.K. inflation from elevated energy costs and fiscal pressures could weigh on long-dated gilts, he says. Ten-year gilt yields fall 6.6 basis points to last trade at 4.971%, Tradeweb data show. U.K. 30-year gilt yields drop 6bps to 5.702%. (miriam.mukuru@wsj.com)
0541 ET - U.S. Treasury yields and the dollar fall in European trade. President Trump's decision to resume diplomatic talks with Iran causes oil prices to drop, lowering yields as inflation worries ease. The dollar falls on reduced demand for safe-haven assets, and also following U.S.-Japanese coordinated currency intervention to firm the yen. "The prospect of renewed coordinated action could cap any recovery in the greenback [dollar] against the yen," said Exness' Dat Tong.The 10-year Treasury yield declines 5.7 basis points to 4.687%, according to Tradeweb. The DXY dollar index falls 0.1% to 99.823. (emese.bartha@wsj.com)
0536 ET - Indonesia's external trade performance is expected to remain under pressure in 2H, with monthly trade deficits likely to persist as imports continue to outpace exports, RHB economist Wong Xian Yong says in a note. The outlook is expected to be shaped by three key factors: an uneven recovery in global commodity markets, evolving U.S. trade policies and tighter domestic supply management, he says. Coal and palm oil should remain relatively resilient, supported by regional demand and Indonesia's B50 biodiesel mandate, while nickel exports are likely to remain constrained by global oversupply, he reckons. Wong expects domestic policies to play a larger role in shaping export performance for the rest of the year. (yingxian.wong@wsj.com)
0536 ET - The euro should probably be stronger versus the dollar given recent solid eurozone data, lower oil prices and dollar selling from Japan as part of joint interventions with the U.S. to support the yen, ING's Chris Turner says. This is probably due to media reports that U.S. authorities were checking rates in, and possibly selling, the euro versus the yen on Friday, he says. The U.S. Treasury might have sold euro-yen to avoid having to explain why it was selling the dollar, Turner says. The euro trades flat against the dollar at $1.1525, having hit a six-week high of $1.1558 overnight, according to LSEG. The euro falls 0.7% to 180.85 yen after reaching an eight-month low of 179.36 yen overnight.(renae.dyer@wsj.com)By Emese Bartha and Renae Dyer Treasury yields and the dollar fell after President Trump abandoned plans to strike Iran and said talks with the country will resume Monday, while the currency was also hit by a U.S.-Japanese joint intervention to strengthen the yen.
Key to any success in the talks will be whether the Strait of Hormuz can be reopened for safe shipping, paving the way for eventual talks on Iran's nuclear program.
"Markets are starting August with a rare dose of geopolitical relief, as Trump's decision to restart talks with Iran has knocked a large chunk out of the oil-risk premium and given bonds room to rally," Patrick Munnelly, market strategist at the Tickmill Group, said in a note.
The fresh de-escalation in the Middle East prompted a sharp fall in oil prices. Brent crude last traded 4% lower at $84.41 a barrel. This helped Treasury yields to decline by up to 6 basis points across the curve. The two-year Treasury yield fell 3.9 basis points to 4.251% and the 10-year yield declined 5.5 basis points to 4.689%.
"But the move is not a full all-clear: reopening the Strait of Hormuz is still a negotiation rather than a fact," Munnelly said.
European bond yields fell along with their U.S. counterparts. The 10-year German Bund yield dropped 4.4 basis points to 3.157%, while the 10-year U.K. gilt yield fell 7 basis points to 4.976%, according to LSEG data.
The DXY index, which measures the dollar against a basket of currencies, fell 0.1% to 99.805, having hit a seven-week low of 99.418 overnight, as progress in the Middle East reduced demand for safe havens. The dollar was also pushed lower by U.S. and Japanese authorities confirming joint intervention to support the yen last week.
The Japanese-U.S. intervention, the first joint move to shore up the yen since 1998, has discouraged investors from betting on the Japanese currency weakening and bought time, strategists at Morgan Stanley said in a note.
"But it is unlikely to reverse broad yen weakness without lower U.S. rates and weak financial conditions simultaneously," they said.
The dollar's decline Monday was relatively contained as markets continued to bet on the Federal Reserve raising interest rates by year-end.
Pricing for a September U.S. rate rise recovered to 17 basis points Monday from 10 basis points after the Fed's meeting last week damped expectations for a hike, according to LSEG data. A 25 basis-point increase by December was fully priced.
This week's data will be key to shape the Fed's next step. The release of the all-important U.S. nonfarm payrolls report on Friday will be preceded by other labor market data and ISM surveys beforehand.
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