From the Editor

The U.S. president Donald Trump initially said that the Iran war would only last for four to five weeks. But we are now approaching the six-month mark. The financial markets' resilience in the face of what was thought to be an impending doomsday - a multi-month blockage of the Strait of Hormuz - is most surprising.

Since February 28, the critical trade artery through which approximately 20% of global energy flow used to pass has been effectively closed. Uncertainty surrounds the amount of oil that is being transported. Tracking data suggests that while U.S. Energy Sec. Chris Wright claimed on Friday that more than 8 million?barrels of oil per day are leaving the Gulf, it's actually closer to?5million bpd. Asia's low crude imports for August suggests that it is closer to the latter. It's obvious, however, that we are nowhere near the volumes before the conflict.

Brent crude oil is currently priced at less than $90 per barrel. This is above the pre-war level but still far below the triple-digit prices that many were afraid we would see if the Strait was not fully reopened before the end of the summer. The global economy is currently more concerned about refined products than crude oil. Prices are alarming. The European diesel profit margins have reached record levels, and the refined products and gas markets also show signs of tightness.

The oil price did drop early in the week, however, after some positive diplomatic signals from the Middle East. Iran and Oman have reported that, while talks between Washington DC and Tehran are still stalled and the current agreement regarding control of the Strait remains unfinished, they are currently working on finalizing the details. Qatar met with senior Iranian officials on Thursday in Tehran to discuss the conditions of normalizing transit along the waterway.

These actions followed U.S. Treasury secretary Scott Bessent’s "economic D-Day," which took place on Monday. Bessent claimed that he was going to announce "the toughest sanction in history" and many feared that Chinese banks would be targeted. However, he only announced sanctions against Iranian entities. He also threatened secondary sanctions should other countries not completely cut off ties with Tehran. The renewed diplomatic efforts show that the U.S.'s shift to economic warfare is still having an effect on Iranian strategy.

The protracted conflict seems to be stuck in a trench war, with only small changes on either side but no major actions that would move the needle.

Canada was the target of the U.S.'s economic ire this week, and not the Middle East. Last Friday, the U.S. Canada trade agreement that Trump had previously claimed was resolved fell apart. This meant that 50 percent tariffs were imposed on approximately $20 billion worth of goods including lumber and dairy products. Mark Carney, the Canadian Prime Minister, did not back down and responded with "dollar-for-dollar" tariffs. The White House then stepped up the ante, threatening to impose 50% tariffs on cars, trucks and parts at the start of next year?if no new deal was reached.

This spat, even though the two neighbours are likely to reach an agreement before then, could have wide-ranging consequences, as Canada is America's largest trading partner. This rancor could have a negative impact on the USMCA trade agreement, which is between the U.S. and Canada, as well as Mexico, America's largest trading partner.

Wall Street saw the AI boom get a boost on Wednesday, when the $5 trillion chip giant Nvidia's quarterly results surpassed expectations that were already high. The company forecasted a 70% increase in revenue for the next fiscal year to highlight the demand for AI chips. The Information reported on Thursday that Jensen Huang’s company had agreed to spend nearly $13 billion for AI platform Hugging Face. The software sector gave a boost to U.S. stocks. On Wednesday, Salesforce raised its revenue and profit estimates while launching a new plug in with Anthropic. CrowdStrike, a cybersecurity software provider also raised its revenue forecast after exceeding second-quarter earnings expectations. Meta Platforms, a tech company, settled Wednesday lawsuits filed by many U.S. state governments over its role in children's addiction to social media. Meta Platforms agreed to pay $18 billion in the next decade, and to place strict limits on teens' use of Facebook or Instagram. For more information on Meta, read this fascinating article on how Mark Zuckerberg’s plan to replace the staff of the company with AI failed. Today, the Federal Reserve will kick off its annual Jackson Hole Symposium. The PCE inflation index for July, the Fed’s preferred measure of inflation, came in slightly higher that expected. The 0.2% increase in headline inflation month-on-month, or 0.3% if you use the 'unrounded' figure, was higher than the 0.1% expected, and the 3.7% annual increase was slightly higher than the consensus expectation.

The 10-year bond yield remained elevated and increased slightly on the news. It is currently hovering at around 4.7%. The news caps off a tough week for Treasury secretary Bessent. His recent attempts to reduce government borrowing costs through an announcement of a larger increase in bond purchases were criticised by his former colleagues Stanley Druckenmiller and others who said that such actions could undermine the Treasury's reputation.

Fed Chair Kevin Warsh, when he gives his first major speech at Jackson Hole today, will need to be very careful with his words. Many Fed-watchers were displeased with his press conference following the last Fed meeting, arguing that it raised doubts about his commitment to the bank's inflation goal. Warsh is not a fan excessive communication and is expected to focus on task forces that he is creating to reform the Fed.

Please be aware that Morning Bid is closed on Monday, due to a UK bank holiday. Mike Dolan and myself will instead enjoy the last days of summer.

Can U.S. refiners survive their historic stress test? Is the crumbling of U.S. government finances a real problem? How will the U.S. deal with its growing aluminum problem? Why should yen "bears" re-calibrate their expectations? What problems will European traders have when they return from their bank holiday? What could China do to help zinc-bearers at the LME market? Can U.S. LNG production keep up its rapid pace? How is the AI boom related to the U.S. financial hole?

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(source: Reuters)