Morning Wrap: No Breakthrough in the Strait of Hormuz; Investors React to Berkshire Hathaway's Earnings

Iran–US: no breakthrough on the Strait of Hormuz. Iranian Foreign Minister Abbas Araghchi stated that Tehran is not conducting direct negotiations with Washington, but is merely exchanging messages via intermediaries. Iran has set out new, largely repeated conditions for reopening the strait: the complete lifting of sanctions, an end to the naval blockade and a suspension of military operations – in effect, a return to the June agreement. Speaking to Axios, Trump said that the US was “playing it cool” and merely “half-negotiating” with Iran, hoping that economic pressure and high inflation would force Tehran to make concessions.

Escalation on a second front – Yemen and the Persian Gulf. The UAE reported an Iranian missile attack on an ADNOC-linked tanker in the strait, with no casualties. The Yemeni Houthis have claimed responsibility for a drone attack on the Saudi Aramco refinery in Jazan, in retaliation for Saudi drones violating Yemeni airspace – effectively opening a second front alongside the Strait of Hormuz. The US CENTCOM reported that by Sunday, 55 merchant ships had already been diverted (up from 35 the previous week), two had been neutralised and a further two had been searched as part of the naval blockade.

Netanyahu rejects Trump’s plan for Gaza. Speaking to his right-wing cabinet, the Israeli Prime Minister once again rejected Trump’s 15-point plan, saying that the military would not withdraw until Hamas had been disarmed, even though Israel had in fact suspended major operations in Gaza under pressure from Washington. Sources at the White House suggest that the administration regards these remarks as part of the Israeli election campaign, seeing them as no real obstacle to the plan.

The US labour market and expectations regarding the Fed. The weaker-than-expected July NFP report (-23K against expectations of +80K) caused the probability of a Fed rate rise in September to fall from 67% to around 44%, according to CME FedWatch. Markets are now awaiting Wednesday’s key CPI reading, which could once again shift these expectations in either direction. However, the yield on 10-year US Treasuries remains high, at around 4.655%, close to the 4.70% level, suggesting that the bond market has not fully shared the equity market’s enthusiasm.

Wall Street ends the week on record highs, but Friday’s enthusiasm is dampened by weekend uncertainty surrounding the Strait of Hormuz. The S&P 500 closed last week at an all-time high, recording its best week since April, driven by weaker labour market data and hopes that the Fed would hold off on rate rises. However, futures for Monday are mixed in response to Araghchi’s comments – the US500 is up just under 0.2%, whilst the US100 is up 0.25%.

Asia is reacting positively to Friday’s gains on Wall Street, partly ignoring geopolitical tensions. The Nikkei 225 is up by around 1.7–2 per cent, driven by the AI/chip momentum from Wall Street, although uncertainty in the Middle East is limiting further gains. The Kospi is up by around 0.5–0.8% thanks to South Korean chipmakers, whilst the Kosdaq has surged by over 5%, triggering a circuit breaker as short positions were covered. The Hang Seng is up by around 0.7%, whilst the ASX 200 is down slightly; in its summary of the July meeting, the BOJ signalled a growing risk of inflation overshooting, with some members leaning towards a faster pace of interest rate hikes in September.

China: inflation is easing, the economy is under pressure, and on top of that there’s a powerful typhoon. China’s CPI rose by just 0.5% y/y in July, the weakest reading since January and below forecasts (0.8%), whilst producer prices (PPI) rose by 3.5%, also below the consensus estimate of 3.8% – a sign of easing price pressures and domestic demand. On top of this, Typhoon “Dolphin” – the strongest of the year – struck Zhejiang province, forcing the evacuation of over a million people and bringing offshore operations to a halt.

USD/JPY: The pair is recovering from Friday’s fall following the NFP figures, but the direction remains unclear. The exchange rate fell from 158.30 to around 156.70 following a weak labour market report, before rebounding and heading back towards 158.20. The key event of the week will be Wednesday’s US CPI reading – any result below the ‘hot’ scenario will limit further gains for the dollar. The risk of currency intervention is capping gains towards 160, whilst a downward scenario towards 155–156 would require both cooler US inflation and a de-escalation in the Middle East.

Commodities: oil and gas rise on concerns over the Strait of Hormuz; gold nears record highs. Brent crude is up by around 1–2% to around $84.4/bbl, whilst WTI is up by around 1.7–2% to around $78.4–78.8/bbl, after traffic through the Strait of Hormuz fell to just 8 confirmed passages on Friday (-33% day-on-day); Citi has raised its Q3 Brent forecast to $80. Natural gas (NATGAS) is rising the most of all asset classes, up 2.67% to 2.735–2.745, reflecting general energy concerns. Gold is edging lower (-0.12%) to $4,335–4,336 following a seven-week high reached in response to weak labour market data, although UBS highlights short-term risks whilst maintaining its $5,000 target. Silver is rising moderately (+0.45%) to 63.74–63.83.

Companies: Berkshire Hathaway frees up cash, Meta under pressure in India. Berkshire’s new CEO, Greg Abel, ramped up share buybacks to $4.5bn in Q2 (up from $235m in Q1) and, after 14 quarters of being a net seller of shares, became a net buyer with net purchases of nearly $20bn, including $10bn in Alphabet; operating profit rose by 16% to $12.98bn, whilst cash fell from a record $397.4bn to $365.5bn. A parliamentary panel in India has demanded that Mark Zuckerberg apologise within three days for temporarily restricting Prime Minister Modi’s post on Facebook, under threat of revoking Meta’s ‘safe harbour’ immunity – a move which legal experts consider would effectively prevent the platform from operating in the country. Big Oil (Exxon, Chevron, BP, Shell, TotalEnergies) generated a record US$48 billion in profits and nearly US$90 billion in cash in the second quarter on war-driven oil prices, prompting criticism of Trump and renewed calls for a windfall tax, which Portugal has already introduced.

Cryptocurrencies and a summary of the trading session. Bitcoin is down slightly (-0.22%) to between $64,905 and $65,095, lagging behind gains in the equity and commodities markets, suggesting that capital has been flowing more towards oil, gas and Asian tech indices than towards digital assets in recent hours. Today’s European session is likely to be dominated by further developments regarding the Strait of Hormuz and Gaza, as well as anticipation of Wednesday’s US CPI figures – with no major macroeconomic data scheduled for Monday, investors’ attention will also focus on this week’s earnings reports from companies such as On Holding, Cava, Super Micro and CoreWeave.