Brent Recovers As CENTCOM Completes Another Round of Strikes

In the news, a senior Iranian official told Reuters that Tehran has received a proposal from mediators for a 10-day ceasefire, aimed at reviving the agreement signed on 17 June and paving the way for a longer-term deal to end the war that began with US-Israeli strikes on Iran in late February. The diplomatic push follows another night of US strikes on Iranian cities and Iranian attacks on US military assets across the region, with US Central Command later confirming it had launched another round of strikes on Iran. Elsewhere in the US, Chevron is shutting in production at its Petronius platform in the US Gulf and evacuating all personnel onshore ahead of Tropical Depression Two. The company is also removing non-essential staff from its Tubular Bells and Blind Faith facilities, while production at its other Gulf assets remains unchanged. The storm is expected to strengthen into Tropical Storm Bertha, with forecasts pointing to heavy rainfall along the Gulf Coast and potential disruption to offshore operations. Earth Science Associates estimates the storm could temporarily take around 2mb of US Gulf oil production offline. Related, US Strategic Petroleum Reserve (SPR) inventories fell by 5.1mb last week to 311.4mb, the lowest level since March 1983, according to the Department of Energy. Since the Iran war began in late February, SPR stocks have declined by 104mb, while total US crude inventories, including commercial and SPR stocks, have fallen by 129mb to their lowest level since 1984. In other news, Indian Oil Corp (IOC) has cancelled a planned 2mb Iraqi crude lifting from Basrah due to the deteriorating security situation in the Strait of Hormuz, according to Reuters sources. Mangalore Refinery has also cancelled a separate Iraqi cargo. Separately, India has advised shipowners not to deploy Indian seafarers on vessels transiting Hormuz and has instructed vessels operating in the region to maintain heightened security vigilance. Finally, as of the time of writing, the front-month (Sep/Oct) and 6-month (Sep/Mar’27) Brent futures spreads are at $1.86/bbl and $8.82/bbl, respectively.

A strong start to the day on VLSFO. Sing spreads traded up throughout the morning, with Aug/Sep trading up to $43.00/mt from $39.50/mt. The crack was better bid as a result of spread strength as well as buying on x-arbs and 0.5 E/W. The Aug Sing crack traded up to $21.30/bbl from $20.10/bbl. Euro spreads were well bid off the back of the cross-arb buying being bid up to $27.25/mt. The Euro crack was also implied higher off the back of Sing crack strength, closing the morning in August around $8.45/bbl.

In HSFO, 380 saw a fair amount of strength this morning. 380 spreads were well bid which lent support to the front 380 crack. Aug/Sep 380 traded up to $18.75/mt on higher crude. This supported the crack which traded up to -$2.00/bbl from last night's levels of -$3.50/bbl. Liquidity on barges remained fairly low with the barge crack up a touch due to 380 cracks trading up, closing the morning around -$7.80/bbl. Aug/Sep barges were also a touch stronger trading up to $10.00/mt.

It was a weak morning overall in gasoline. The East remained supported, with Aug cracks trading up from $23.30/bbl to $23.75/bbl, with Q4 bid up to $13.60/bbl. Spreads were stronger as well, with Aug/Sep firming from $6/bbl to highs of $6.25/bbl before softening during the window. E/W rallied aggressively, trading up from -$13.40/bbl to -$11.85/bbl in Aug as EBOB came off. EBOB cracks got sold down from $36.70/bbl to $35.80/bbl but Q4 cracks still had buyside interest around $16.85/bbl. This put pressure on spreads, with Aug/Sep getting offered down from $73/mt to $68.50/mt.

This morning in naphtha, MOC better bid with Aug and Sep MOC both getting lifted +5c by trade house. E/W stronger this morning, seeing some sell-side resistance at $56.75/mt with trade house sell side, but continues to trade higher seeing Aug E/W getting lifted by majors at $57/mt, bid on. Europe crack also stronger this morning, trading up from last night's trading level of -$2.20/bbl in Aug to highs of -$1.20/bbl shortly post window, with buying in Q1 naphtha crack post window at -$7.15/bbl.

This morning in NGLs, Aug LST/FEI opened trading at -$328/mt, having closed last night at -$325/mt. As FEI drifted between offered and bid, Aug LST/FEI traded up to -$324/mt, before coming back off to -$328/mt end window. FEI spreads opened slightly stronger than yesterday’s closing levels, with Aug/Sep at $42/mt and Sep/Oct trading at $24/mt. There was some pronap buying out of Nov at -$133/mt, which eventually weakened to -$136/mt end window. There was an Aug/Sep FEI/CP box buyer at $8.50/mt, and the Aug/Sep C3CP was trading at $35/mt. End window, the Q1'27/ Cal'27 arb box traded at -$23/mt, and Aug FEI/MOPJ lifted at -$88/mt. On screen, Aug FEI flat price lifted at $727/mt.

Gold breaks higher +1.7 and out of the converging price range while silver jumps +3.8%.

The UK 30-year bond yield jumps 7bp, now just 10bp off cycle highs as UK’s 7th PM in 10 years arrives. Burnham has floated raising the income tax personal allowance, boosting social care spending, increasing defence spending (with Healey as Chancellor), keeping the triple lock, and sticking to the fiscal rules, among other things. Either he can't deliver all of this, or it means substantial tax hikes are coming. The bond market WILL test the new government.

Meanwhile with mortgage rates higher house prices continues to fall. Since September 2021, house prices in the Southeast have fallen 17.4% (ONS).

South Korea’s Exports Jump to July Record on AI-Led Gains

On the surface, credit spreads sit at all-time lows with unusually low sector dispersion, as structural buyers (insurers, pension funds, and ETF/mutual fund inflows) keep a powerful, steady bid under investment grade and high yield bonds. But underneath that calm surface, stress is building in credit's riskiest, most levered corner: CLO equity tranches, the first-loss layer of the $1.3 trillion CLO market, just returned -15% in Q1 2026, their worst quarter since the 2020 pandemic crash and worse than the -12% drop in Q2 2022, hit by falling software loan prices and a slowdown in new loan issuance that's shrinking the pool of attractive assets for CLO managers. This divergence shows the tightness in headline spreads isn't a sign that everything is fine, it reflects heavy structural demand for senior, investor grade risk while leveraged, lower-quality pockets already show real cracks, so carry should still be collected prudently, with an eye on a sharp rate drop or broader risk-off event that could force a repricing across the whole market.

Two historical cycles that markets aren't pricing are about to overlap. Every midterm election year since 1974 has produced an SPX drawdown, ten for ten, averaging around -20%, and all 12 new Fed chairs over the past 90 years have faced an equity drawdown within their first nine months as markets test their reaction function. The last time these two cycles coincided was 2018, Powell's first year and a midterm year that ended in a -20% Q4, and 2026 brings the same overlap with less cushion: a hawkish-leaning new chair, a midterm calendar, and a starting CAPE above 40.

The South Korean and US AI trades are becoming increasingly synchronized: The 60-day correlation between the KOSPI and Nasdaq 100 index is up to +0.46, the highest since July 2024. This marks a sharp reversal from a negative correlation of -0.20 recorded in March.

Hedge funds are selling US tech stocks at “record pace” in last 2 months Hedge funds are selling off companies that build AI technology, computer chips, and data centers.

Jamie Dimon says he wouldn't buy stocks or long-dated bonds at current levels, arguing the 10-year should be higher given rate fundamentals, and warns that geopolitical risks are bigger than markets appreciate - a view shaped partly by his 2020 health scare, which left him with no regrets given his family and career. On the UK, he wants Andy Burnham and the country to succeed but stresses growth requires the right policies, while criticizing the bank levy as an unfair, principle-lacking tax on JP Morgan that has cost shareholders billions despite the bank's strong UK presence.

Google is developing a new AI chip that could run Gemini models 6x to 10x more efficiently than its latest TPUs, per The Information. The chip, internally called “Frozen v2”.

Chinese AI models are taking record share among U.S. firms on OpenRouter. The proportion of tokens used by American companies running through Chinese models has climbed to roughly 58%, a record high.

Apple is now trading at nearly 11x sales, the highest valuation level in company history.

SpaceX shares are now trading at $120, almost 50% below the peak price of $225.

Russia's Finance Ministry has announced it will stop issuing government bonds "to facilitate market stabilization". Russian financial markets have been crashing in recent months, with 10year bond rates now close to 17%.