By Anna Szymanski
July 10 (Reuters) –
From the Editor
Hello Morning Bid readers!
The Strait of Hormuz briefly faded from the spotlight in recent weeks amid chip stock ructions, World Cup drama, and heat waves, but another round of tit-for-tat strikes between the U.S. and Iran this week put the narrow waterway back at center stage.
Markets’ response to the latest attacks has been relatively calm, however, suggesting investors have seen this movie before and believe the ultimate result will be a return to talks – not all-out war.
The first wave of U.S. strikes against Iranian targets came on Tuesday, along with the revocation of sanctions waivers on Iranian oil, after repeated attacks on shipping in the strait. Tehran responded by launching strikes on U.S. bases in the region, before the two sides traded further blows on Wednesday and Thursday. President Donald Trump initially said at the NATO summit in Ankara, Turkey, on Wednesday that the memorandum of understanding to end the conflict was “over” but later added that he did not expect a return to full-fledged conflict.
This latest escalation is another indication of how emboldened Iran has become during the 60-day negotiating period kicked off with last month’s interim ceasefire deal – and how important control of the strait remains to Tehran. Investors should thus consider not only how this latest spat will be resolved, but also whether sporadic eruptions of violence in the Gulf could be the new normal – which could be a nightmare scenario for the region’s energy producers.
Oil prices jumped to a multi-week high on Wednesday before easing the next day. Brent crude remains well under $80 a barrel for now, having last settled above that level on June 19.
Still, traders are left weighing a complex set of geopolitical and logistical factors to determine how the supply-demand balance in the market will shape up in the coming months.
On the one hand, tanker traffic through Hormuz was at a near standstill once again on Thursday. That’s yet another blow to OPEC+, which recently announced that it would boost its production quotas by 188,000 barrels per day. The big questions now are how much of the oil can actually get out of the Gulf – and who will buy it?
But if traffic through Hormuz recovers, then the market could actually face a potential glut of supply as Gulf producers battle for market share. Indeed, global demand does not seem to be as robust as many expected – at least not in the short term. That has already forced producers, including Saudi Arabia, to offer significant price discounts. The big loser in this race could ultimately be OPEC+ itself.
Staying on the geopolitical front, the NATO summit in Ankara this week may have been dominated initially by Trump’s aggressive comments on Iran and pledge to cut off trade with Spain, but his meeting on Wednesday with Ukrainian President Volodymyr Zelenskiy included a significant revelation: a pledge to grant Kyiv a license to manufacture Patriot missile interceptors. That’s a major win for Ukraine, which has long sought permission to produce the defensive weapons.
Ukraine’s drone attacks on Russia’s energy infrastructure – its Achilles’ heel – are clearly having an impact on the Kremlin. Russia announced on Wednesday that it was banning diesel exports to support its domestic market. That could be a huge blow for the global diesel market, which has limited buffers following the war in the Middle East.
The volatility in crude prices in recent weeks could create more complications for policymakers worldwide attempting to make sense of the inflation outlook.
The Federal Reserve’s meeting minutes from June, released on Wednesday, showed that a “few participants” saw a potential case for immediate rate hikes, while several pointed out that price pressures were becoming “more broad-based” – a sign, perhaps, that energy prices are far from the only source of rising inflation on the radar.
Concerns about price pressures remain widespread, as suggested by a spike in bond yields globally this week that saw Japan’s benchmark 10-year government bond yield hit a 30-year high on Thursday.
However, Japanese government bond yields dropped and the yen rose on Friday after the country’s finance minister said that the government is aiming to steer the country’s vast state pension funds to “substantially” lift investments in domestic assets.
Over in equities, semiconductor stocks remained one of the biggest stories this week, turning highly volatile after their massive run-up in the first half of the year. Shares in Samsung Electronics slumped despite flagging a 19-fold jump in second-quarter operating profit on Tuesday. South Korea’s chip-heavy KOSPI index then entered bear market territory on Wednesday, although it snapped out of that on Friday as chip stocks rallied, and it remains up more than 70% on the year.
It remains to be seen whether we’re seeing a genuine rethink of the AI narrative or simply a rotation following a remarkable quarter – or perhaps a combination of the two.
One sign that AI euphoria remains strong came from Samsung’s rival SK Hynix, whose $26.5 billion U.S. share sale was heavily oversubscribed. The South Korean chipmaker will make its Nasdaq debut today.
This week was light on economic data, but the same is not true next week, as U.S. consumer price inflation data for June is due out on Tuesday. The earnings season will also kick off in earnest with many big banks reporting, including JPMorgan, Bank of America, Goldman Sachs, Wells Fargo and Citigroup.
Let’s see if geopolitics steals the show yet again.
For more data-driven insights on markets and commodities, check out Reuters Open Interest. You can learn:
• What do TAMALES have to do with President Trump and his impact on markets?
• How have batteries gone from a niche technology to being at the heart of the global energy system?
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• How long can global oil refiners’ boom time last?
• What does the return of “zombie smelters” say about the aluminium industry?
• How is China challenging the centrality of the London Metals Exchange?
• Will the White House’s latest attack on clean energy mean higher prices for U.S. consumers? (Spoiler alert: probably yes.)
• How can investors survive a momentum crash?
• What is the next frontier of European climate adaptation? (Hint, it’s not wind or solar).
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(By Anna Szymanski)