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London Quick Take - 26 Aug - Straitened out? Bond yields and oil down on Hormuz hopes, PCE inflation and Nvidia earnings on tap
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
“The way I see it, if you want the rainbow, you gotta put up with the rain!” - Dolly Parton
The rain has been coming hard for months since the US first struck Iran. Stock investors have persisted in looking at the rainbow throughout. That's mainly down to AI and the vast capex involved in the buildout. Nvidia earnings today put the thesis to the test.
Oil prices tumbled on hopes Iran and Oman can do a deal to reopen the Strait of Hormuz in a durable, lasting fashion. De-escalation trades (short oil) were boosted by US sanctions on Iran announced Monday being way less than feared, as Washington stopped short of secondary sanctions, while Pakistan has talked up progress in talks. There seems to be emerging hope for a deal that leads to a permanent arrangement to administer the Strait. Even if the US and Iran remain at loggerheads, ensuring safe passage for tankers will keep oil down. Qatar said its mediation continues, while Russian agency RIA reported that the US and Iran are close to a ceasefire deal that would include ensuring freedom of navigation in the Strait of Hormuz. Geopolitical risk premia fades, allowing Brent to drop back below $87, testing a two-week low.
Macro relief: lower oil prices mean lower bond yields because of the inflation impact. A week since Treasury Secretary Scott Bessent intervened, long-end rates at about 15bps lower. The 30yr long bond is around 5.18% from last week’s 19-year high at 5.339%. The 10yr trades about 10bps lower around 4.65% from a high of 4.752%. Yesterday's suggestion that making buybacks at the long end using the $1tn Treasury General Account maybe eased some concerns about fiscal dominance and showed Treasury is doubling down on the buyback plan. The worry would be that Treasury suppresses yields at the long end by issuing more shorter-dated bonds and the Fed keeps front end yields down in a kind of Treasury-Fed pact that would diminish confidence in both institutions, the bond market and the US dollar. Lower yields may be a reflection of the move in oil more than confidence in Treasury.
Today’s big test for the bond market is the US core PCE index, the Fed’s (still) preferred gauge of inflation. Headline PCE inflation is forecast to decline slightly to +3.6% YoY, while core PCE is seen holding steady at +3.3%, rising +0.2% on the month. June's PCE reading, declining –0.11% on the month, was the first negative month on month print since 2020 – is this the start of a trend? I doubt it.
Lower bond yields and inflation risks halted the rally in gold, with spot retracing this morning to $4,625 after nearing $4,700 yesterday, looking perhaps to test the lows hit in yesterday’s pullback around $4,605. If this $4,600 holds we can see a bullish consolidation phase, but the reality is this hangs on the bond market and sentiment towards the US dollar, which is facing a range of challenges that the strength of its economy and Fed policy don’t betray. Bitcoin, which has also been rallying since the Treasury buyback announcement, pulled back below $79k after briefly hitting $81k.
Any PCE print with a 3-handle ought to keep the September FOMC meeting in play for a rate hike. Three dissenters called for a hike in July but minutes of that meeting revealed a more hawkish lean among policymakers. While CPI inflation leant softer, leading markets to trim rate hike bets, the PCE could swing things in the other direction. The bigger test for yields and the dollar, and gold and Bitcoin, is Friday’s Jackson Hole speech from Kevin Warsh, the Fed chair. I fail to see how he’ll be less reticent than previously. A 7yr auction tomorrow is also worth watching – a similar auction of UK 7yr gilts yesterday got off at the highest yield in years. Meanwhile the US and Canada are slapping tariffs on each other, which is inflationary and disruptive. Canada imposed 15%–50% tariffs on about $20 billion of US imports after trade talks collapsed, while the US plans 50% tariffs on Canadian autos, parts and steel from 1 January, 2027.
European markets were mixed despite the big macro relief from the drop in oil, with the FTSE 100 sliding because of it and the DAX a shade lower while the CAC in Paris rose +0.5%. A hawkish sounding European Central Bank perhaps weighs. The ECB's Isabel Schnabel said the central bank might need to characterise growth risks to the upside, such has been the resilience of the Eurozone economy in the teeth of the US-Iran war. Germany’s economy grew 0.3% in Q2 2026, revised up from 0.2% but down from 0.4% in Q1. Exports rose 2.0%, outpacing 1.5% import growth, while domestic demand edged up 0.1% after a 0.3% fall.
The FTSE 100 recorded its fifth straight day of gains and ticked up 0.3 per cent on Tuesday to 10,886, closing in on its record high. It looks like investors are content to scale the wall of worry despite no shortage of risks on the macro front – not least the ongoing stalemate between the US and Iran, escalating trade tensions, higher bond yields and a threat by China to retaliate against US plans to broaden its secondary sanctions regime against Tehran. Eventually the 11k barrier will break and trigger new momentum-based buying.
Nvidia earnings have the potential to move the market as the biggest AI bellwether in town. Raymond James increased its price target on Nvidia ahead of Wednesday evening’s earnings report to $352 from $330, implying almost 70% upside. This is the bit that will be of interest in the earnings update tonight – how far is CPU business is gaining traction? Shares of Nvidia snapped a losing streak to rally 2%, while AMD gained +5% as RJ upgraded the stock. Watch for third-quarter sales guidance, forecast +82.8% to $104.2bn, on adjusted gross margin near 75%.
Oil prices tumbled on hopes Iran and Oman can do a deal to reopen the Strait of Hormuz in a durable, lasting fashion. De-escalation trades (short oil) were boosted by US sanctions on Iran announced Monday being way less than feared, as Washington stopped short of secondary sanctions, while Pakistan has talked up progress in talks. There seems to be emerging hope for a deal that leads to a permanent arrangement to administer the Strait. Even if the US and Iran remain at loggerheads, ensuring safe passage for tankers will keep oil down. Qatar said its mediation continues, while Russian agency RIA reported that the US and Iran are close to a ceasefire deal that would include ensuring freedom of navigation in the Strait of Hormuz. Geopolitical risk premia fades, allowing Brent to drop back below $87, testing a two-week low.
Macro relief: lower oil prices mean lower bond yields because of the inflation impact. A week since Treasury Secretary Scott Bessent intervened, long-end rates at about 15bps lower. The 30yr long bond is around 5.18% from last week’s 19-year high at 5.339%. The 10yr trades about 10bps lower around 4.65% from a high of 4.752%. Yesterday's suggestion that making buybacks at the long end using the $1tn Treasury General Account maybe eased some concerns about fiscal dominance and showed Treasury is doubling down on the buyback plan. The worry would be that Treasury suppresses yields at the long end by issuing more shorter-dated bonds and the Fed keeps front end yields down in a kind of Treasury-Fed pact that would diminish confidence in both institutions, the bond market and the US dollar. Lower yields may be a reflection of the move in oil more than confidence in Treasury.
Today’s big test for the bond market is the US core PCE index, the Fed’s (still) preferred gauge of inflation. Headline PCE inflation is forecast to decline slightly to +3.6% YoY, while core PCE is seen holding steady at +3.3%, rising +0.2% on the month. June's PCE reading, declining –0.11% on the month, was the first negative month on month print since 2020 – is this the start of a trend? I doubt it.
Lower bond yields and inflation risks halted the rally in gold, with spot retracing this morning to $4,625 after nearing $4,700 yesterday, looking perhaps to test the lows hit in yesterday’s pullback around $4,605. If this $4,600 holds we can see a bullish consolidation phase, but the reality is this hangs on the bond market and sentiment towards the US dollar, which is facing a range of challenges that the strength of its economy and Fed policy don’t betray. Bitcoin, which has also been rallying since the Treasury buyback announcement, pulled back below $79k after briefly hitting $81k.
Any PCE print with a 3-handle ought to keep the September FOMC meeting in play for a rate hike. Three dissenters called for a hike in July but minutes of that meeting revealed a more hawkish lean among policymakers. While CPI inflation leant softer, leading markets to trim rate hike bets, the PCE could swing things in the other direction. The bigger test for yields and the dollar, and gold and Bitcoin, is Friday’s Jackson Hole speech from Kevin Warsh, the Fed chair. I fail to see how he’ll be less reticent than previously. A 7yr auction tomorrow is also worth watching – a similar auction of UK 7yr gilts yesterday got off at the highest yield in years. Meanwhile the US and Canada are slapping tariffs on each other, which is inflationary and disruptive. Canada imposed 15%–50% tariffs on about $20 billion of US imports after trade talks collapsed, while the US plans 50% tariffs on Canadian autos, parts and steel from 1 January, 2027.
European markets were mixed despite the big macro relief from the drop in oil, with the FTSE 100 sliding because of it and the DAX a shade lower while the CAC in Paris rose +0.5%. A hawkish sounding European Central Bank perhaps weighs. The ECB's Isabel Schnabel said the central bank might need to characterise growth risks to the upside, such has been the resilience of the Eurozone economy in the teeth of the US-Iran war. Germany’s economy grew 0.3% in Q2 2026, revised up from 0.2% but down from 0.4% in Q1. Exports rose 2.0%, outpacing 1.5% import growth, while domestic demand edged up 0.1% after a 0.3% fall.
The FTSE 100 recorded its fifth straight day of gains and ticked up 0.3 per cent on Tuesday to 10,886, closing in on its record high. It looks like investors are content to scale the wall of worry despite no shortage of risks on the macro front – not least the ongoing stalemate between the US and Iran, escalating trade tensions, higher bond yields and a threat by China to retaliate against US plans to broaden its secondary sanctions regime against Tehran. Eventually the 11k barrier will break and trigger new momentum-based buying.
Nvidia earnings have the potential to move the market as the biggest AI bellwether in town. Raymond James increased its price target on Nvidia ahead of Wednesday evening’s earnings report to $352 from $330, implying almost 70% upside. This is the bit that will be of interest in the earnings update tonight – how far is CPU business is gaining traction? Shares of Nvidia snapped a losing streak to rally 2%, while AMD gained +5% as RJ upgraded the stock. Watch for third-quarter sales guidance, forecast +82.8% to $104.2bn, on adjusted gross margin near 75%.
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