Key Highlights

• U.S. imposes new tariffs of up to 12.5% on 60 trading partners under Section 301.
• U.S. Treasury puts ten economies on currency monitoring list.
• Brent dips back below $100/barrel despite fears of further U.S. escalation in Iran.

Chart of the Day

Energy flows picking up amid re-escalation

^{Source: BNY}

Institutional energy flows have shifted decisively from liquidation to re-accumulation, and July is the clear inflection point. The sector has moved through three phases since March: heavy selling into the first oil shock, a recovery phase during May and June, and a sharper July rebuild as energy risk returned. U.S. energy flows now show high-conviction buying, with the latest weekly reading at the 83rd percentile and monthly flow at the 90th percentile. Volumes are also elevated, which suggests real directional demand rather than passive rotation or short-term churn.

The key point is that flows are accelerating from a depleted base. Energy holdings remain only at the 17th percentile of the March-July window, well below the early-March peak. That creates an important divergence: investors are buying aggressively, but positioning has not yet been rebuilt to crowded levels. Cross-border holdings are broadly in line with total holdings, so this is not just a domestic flow story. Breadth is also positive, pointing to broader participation rather than concentrated buying in a narrow set of names.

The macro backdrop explains the timing, but the flow signal comes first. Brent’s move back toward $100, renewed disruption in the Red Sea and Strait of Hormuz, U.S.-Iranian escalation and Kazakhstan’s export halt have revived the supply risk premium. Brent’s large gains since March confirm the strength of the move, but the flows show the more important point: institutions are rebuilding energy exposure, and the trade is not yet overcrowded.

What's Changed?

Apprehension, not disorder: Asia has absorbed the biggest risk-off move: the KOSPI fell by 5.7%, the Nikkei by 2.7% and the Hang Seng by 1.4% after oil briefly crossed $100 and U.S. tech weakness spilled over into regional semiconductors. Europe has been steadier at the open, but the bounce lacks conviction. Investors are focused on whether the Middle East shock is broadening from oil and shipping into a deeper hit to inflation and growth.

Weekend escalation risk: President Trump has told Axios he is close to deciding whether to launch a “massive attack” on Iran, while the Wall Street Journal reports Washington is moving more troops, medics and weapons to the region. No final order has been given, but markets cannot ignore the risk of a larger operation, especially after attacks on Saudi tankers and further disruption around the Strait of Hormuz and Bab el-Mandeb. Brent has eased below $100 this morning, but the weekly rise remains large.

Tariff pressure is priced in: The USTR has imposed duties of 10% to 12.5% on 60 economies as temporary levies expired. The new framework is broad, but much of the effective tariff burden was already expected, meaning that the market reaction has been limited. The move matters more as another drag on trade and margins than as today’s main catalyst.

Data is complicating European rate paths: The Eurozone composite PMI rose to 51.9 points from 50.0, the first expansion in four months, while U.K. composite PMI reached 52.1 and June retail sales rose 1.0%, beating expectations. That is supportive for growth, but with oil still elevated it also keeps rate hike risk alive. Stronger activity may help equities at the margin, but it may also pressure Bunds and gilts and keep broader sentiment fragile.

Bottom line: This is an apprehensive market, despite tech earnings resilience. The immediate risk is escalation, while strong data and high oil are limiting the relief that bonds would normally provide.

What You Need to Know

Oil prices are hovering near $100 a barrel after briefly topping that level for the first time since May. This came after President Trump said he was weighing a massive attack on Iran and Houthi strikes on Saudi tankers in the Red Sea raised fears of a wider energy shock. Brent eased to around $99 after reaching $102, but markets remain focused on the risk that Red Sea disruption and the closure of the Strait of Hormuz might force more flows through vulnerable routes such as Bab al-Mandab. The oil surge is feeding directly into inflation and interest rate anxiety, with U.S. and German yields climbing as investors price in greater central bank pressure. The broader risk is that military escalation will now turn into a macro shock through energy, bonds and equities. Brent -2.156% to 98.52, WTI -1.964% to 90.38, Omani crude +9.269% to 97.5, Dubai crude +3.127% to 80.114.

Asian equities fell sharply as markets were hit by a combination of renewed Middle East escalation, oil climbing back above $100 and growing doubts over AI investment returns. The selloff followed heavy losses on Wall Street, where major technology stocks came under pressure after investors questioned whether huge AI capex plans can translate into sustainable earnings. The pressure spread across regional chip and hardware names, with South Korea and Japan leading the declines. At the same time, fresh U.S.-Iranian tensions and Houthi attacks on Saudi shipping in the Red Sea pushed Brent back above $100, reviving inflation and interest rate concerns. The broader message is that investors are no longer facing isolated risks: oil, bond yields and AI valuations are now reinforcing each other.

The U.S. Treasury’s semiannual report to Congress reviewed major trading partners’ macroeconomic and foreign exchange policies over the four quarters to December 2025. The Treasury said no major U.S. trading partner had manipulated its currency to gain unfair competitive advantage in trade during the period, and none met all three criteria for enhanced analysis under the 2015 law. Ten economies remained on the Monitoring List: China, Japan, South Korea, Taiwan, Thailand, Singapore, Vietnam, Germany, Ireland and Switzerland, unchanged from the January 2026 report. The Treasury said it will continue strengthened scrutiny of trading partners and intensify evaluation when warranted. Treasury also highlighted China’s limited transparency around exchange rate policy, warning this would not prevent future designation if evidence showed intervention to resist RMB appreciation. S&P Mini +0.17% to 7458, DXY -0.113% to 101.33, 10y UST +0.5bp to 4.697%.

The Trump administration has announced new tariffs of up to 12.5% on 60 trading partners, effective Friday, to avoid a lapse in import duties as a temporary program expires. The move reflects the White House’s determination to preserve its tariff agenda following legal challenges and the Supreme Court’s ruling limiting IEEPA-based tariffs. The new duties are rooted in a Section 301 investigation launched in March into trading partners’ failure to block goods made with forced labor; the USTR ruled in June that the practices represent a burden on U.S. commerce. Countries with formal forced labor bans but weak enforcement will face 10%, while others will face 12.5%. India qualifies for the lower rate after adopting prohibitions. Oil and gas, certain fertilizers and some food products are exempt. The administration is also exploring further tariffs over excess manufacturing.

What We’re Watching

U.S. July preliminary S&P Global Manufacturing PMI is forecast to rise to 54.4 points vs. 53.9. Services PMI is forecast at 51.5 vs. 51.2.

U.S. June new home sales are forecast to rise to 606k vs. 580k.

Canada June industrial product prices are forecast at -0.4% m/m vs. 1.2% m/m.

Canada June raw materials price index is forecast at -1.3% m/m vs. 0.7% m/m.

What iFlow is Showing Us

Mood: Risk appetite remained constructive. Demand for global equities strengthened, while buying of core sovereign bonds persisted. iFlow Mood improved slightly to -0.140.

FX: USD attracted the strongest inflows as investors sold GBP and CAD most aggressively, followed by selected LatAm currencies. Flows across EMEA and APAC currencies were generally light and mixed.

FI: Buying remained concentrated in major G10 sovereign bonds and Chinese government bonds. Selling was selective, led by Poland and Malaysia.

Equities: LatAm and APAC equities attracted the strongest inflows, while flows across G10 and EMEA were mixed. Selling was concentrated in Hungary, the Eurozone and Japan.

Quotes of the Day

“According as circumstances are favorable, one should modify one’s plans.” – Sun Tzu

“Everything is very simple in war, but the simplest thing is difficult.” – Carl von Clausewitz

Economic Details

Eurozone flash PMI rose back into expansion territory in July, with the composite output index increasing to a five-month high of 51.9 points from 50.0 – the first rise in business activity in four months. Manufacturing led the improvement, with output rising to a 52-month high of 53.0 points from 51.7, while the manufacturing PMI increased to 52.0 from 51.4. Services also recovered, with business activity rising to 51.6 from 49.4, supported by renewed growth in new orders, the first increase in five months. Employment rose for the first time this year, though Germany and France still reported job losses. Input and output price inflation both eased, while supply chain disruption moderated and input stocks rose for the first time in 41 months. Euro Stoxx 50 +0.76% to 6257, EURUSD +0.044% to 1.1382, BBG AGG Euro Government High Grade EUR +2.3bp to 3.458%.

Germany’s flash manufacturing data improved significantly in July, with the manufacturing PMI rising to 52.2 points from 50.3 and manufacturing output increasing to a 53-month high of 54.7 from 51.6. The strength was supported by firmer goods demand, faster export order growth and some frontloading. The flash composite PMI rose to 51.2 from 49.5, moving back above the 50.0 growth threshold for the first time in 4 months. Services remained slightly weak but also improved, with the business activity index rising to 49.6 from 48.6, the mildest contraction in four months. New business rose overall for the first time since February, job losses eased and confidence improved, while input cost inflation picked up even as output price inflation slowed. DAX +0.51% to 24889, EURUSD +0.097% to 1.1388, 10y Bund -0.9bp to 3.194%.

The German consumer climate for August slipped to a very weak -29.6 points from a revised -29.3, as lower income expectations and higher saving intentions outweighed modest improvements in buying appetite and economic expectations. Income expectations fell 2.3 points to -14.5, suggesting households remain pessimistic about their financial position over the next 12 months, while willingness to save rose 3.1 points to 17.0, far above the ten-year average of around -24. Willingness to buy improved by 3.5 points to -9.9 but remained subdued, showing continued caution on major purchases. Economic expectations rose for a third month to -6.3, though most consumers still expect deterioration, while price expectations increased to -2.1 after fuel subsidies expired.

France’s flash composite PMI for July rose to 49.6 points from 47.2. This is a five-month high and close to the 50.0 no-change mark, signaling only a marginal contraction in private sector activity. The improvement was led by services, where the business activity index climbed to a seven-month high of 49.8 from 46.8 and new business rose for the first time since November. Manufacturing softened, with output down to 48.8 from 49.1 and the manufacturing PMI easing to 50.0 from 51.2. Employment fell for a third successive month, backlogs shrank and business confidence stayed weak. Price pressures eased for the second month in a row, but renewed oil and gas pressure is keeping inflation and ECB tightening risks alive. CAC 40 +0.39% to 8331, EURUSD +0.044% to 1.1382, 10y OAT -2.3bp to 3.993%.

U.K. retail sales for June rose 1.0% m/m, following a 1.2% increase in May, while volumes were up 4.2% y/y and 0.9% above the pre-pandemic level. The three-month picture was also constructive, with sales volumes rising 0.6% q/q and 2.8% y/y in Q2. The strength was led by non-store retailers and non-food stores, supported by warm weather and sales promotions, with clothing sales up 1.9% m/m in the largest monthly rise since September 2025. Online spending was particularly firm, rising 2.8% m/m and 14.4% y/y and lifting the channel’s share of total sales to 29.4%, the highest since April 2021. FTSE 100 +0.23% to 10663, GBPUSD +0.151% to 1.3335, 10y gilt -2.8bp to 5.074%.

U.K. consumer confidence improved across the board in July 2026, with the GfK index rising six points to -17 in the biggest monthly gain since November 2023. The rise was driven mainly by a stronger assessment of the broader economy. Views on the general economic situation over the past 12 months improved by 10 points to -39, while expectations for the next 12 months rose 8 points to -28. Personal finances also improved, but more modestly: the past 12 months measure rose 2 points to -8, and the 12-month outlook increased by 3 points to 1. Major purchase intentions strengthened by 8 points to -12, and the savings index jumped 7 points to 27. Despite the broad-based improvement, confidence remains firmly negative and has not returned to positive territory in a decade.

U.K. flash PMI rose back into expansion territory in July, with the composite output index increasing to 52.1 points from 49.3. This represents a three-month high and the first reading above 50 since April. Manufacturing led the improvement, with output rising to a 22-month high of 53.6 from 52.6, and the manufacturing PMI edging up to 52.8 from 52.5, helped by stronger orders, exports, AI-related demand and defense spending. Services also recovered, with business activity at 51.8 from 48.8, supported by hospitality demand linked to the FIFA World Cup and domestic holidays. New work rose only marginally, employment fell again and backlogs shrank. Input cost inflation eased to a five-month low, but Middle East risks kept price pressures elevated.

Sweden’s Producer Price Index for June rose 0.1% m/m, leaving the annual rate higher at 7.4% y/y from 6.6% in May. This points to a stronger y/y price trend despite limited m/m movement. Domestic producer prices fell 0.3% m/m, while export prices rose 0.6% and import prices dropped 1.2%, mainly due to lower crude oil prices, which subtracted 1.7 percentage points from the import index. Refined petroleum products also fell across all markets, helping to contain monthly price pressure. However, annual price growth remained elevated, with domestic prices up 8.9% y/y, export prices up 5.9% and import prices up 7.0%. Energy-related goods rose 37.7% y/y, while PPI excluding energy increased by 3.3%. OMX +0.67% to 3173, EURSEK +0.111% to 11.077, 10y Swedish GB +1bp to 3.016%.

Japan’s June CPI data showed headline inflation at 1.7% y/y, up from 1.5% in May, while CPI excluding fresh food rose 1.6% y/y, also accelerating from 1.4%. CPI excluding fresh food and energy eased to 1.7% y/y from 1.8% in May, suggesting that some underlying pressure remains but is not broadening out further. The publication noted that the decline in energy prices narrowed sharply, with electricity, city gas, and gasoline all falling less than before. Food prices climbed 3.2% y/y, led by fresh food at 3.7%, while energy prices fell 0.1% y/y, cushioning the overall index. Transportation and communication rose 2.4% y/y, while housing and clothing also posted modest gains. Overall, June inflation remained above zero and slightly firmer on the headline and core measures, supported by a smaller drag from energy, while food inflation eased. Nikkei -2.73% to 66423, USDJPY +0.129% to 163.36, 10y JGB +2.8bp to 2.79%.

Japan’s S&P Global Flash PMI for July pointed to stronger private sector expansion, with the composite output index at 53.1 points, climbing from 52.8 in June in the biggest increase since February. Growth was led by manufacturing, where output jumped to 56.1 from 54.3 and the manufacturing PMI was broadly steady at 54.7 (54.8). Services activity eased slightly to 51.9 from 52.2. New business growth moderated overall, though export orders rose at the fastest pace in four months, supported by stronger goods demand. Hiring continued for a 34th straight month, while backlogs rose at the fastest rate since February. Input cost inflation remained elevated but slowed to a three-month low, while selling prices rose faster, especially in services. Confidence softened overall amid Middle East war-related supply chain and energy cost concerns.

Australia’s S&P Global Flash PMI data for July showed a firmer private sector recovery. The Composite Output Index rose to 52.6 points from 50.4 in June, signaling a second straight month of expansion and the strongest reading since the start of the year. Services led the improvement, with activity at 53.0 (June: 50.5), while manufacturing remained in growth territory at 51.7 (June: 51.5); manufacturing output was broadly flat at 49.9 (June: 49.5). New business expanded for the first time in five months, supporting higher output, stronger hiring and a rise in backlogs. Cost inflation eased to its softest level since February, helped by slower input cost pressures, though fuel, oil, raw materials and wages remained key drivers. Export sales weakened further, and business confidence remained subdued despite a slight uptick. ASX -0.02% to 5763, AUDUSD +0.043% to 0.7, 10y ACGB +1.6bp to 4.991%.

India’s July flash PMI signaled a further loss of momentum in private sector activity, with the composite output index falling to 54.3 points from 57.1 in June, in the weakest expansion since March 2022. Services slowed sharply to 53.1 from 57.4, while manufacturing remained firmer, with output at 57.0 from 56.3 and the headline manufacturing PMI at 53.9 from 54.2. New orders and output growth eased to their lowest level in nearly four and a half years, hurt by tougher market conditions, competition, cancellations, weaker client inquiries and raw material shortages. Export orders strengthened, especially in manufacturing. Employment rose for a successive seventh month, but only modestly. Inflationary pressures intensified as input costs accelerated, driven by fuel, labor, materials and transportation, while output price inflation quickened to the fastest pace since April. Business confidence slipped to a six-month low. SENSEX -0.53% to 76346, USDINR -0.012% to 96.5612, 10y INGB +1.8bp to 6.819%.

Malaysia has said it is reviewing its strategic petroleum reserve models to strengthen energy security and extend supply resilience beyond the current operational period. The Ministry of Economy said existing stocks in the commercial supply chain are limited, with retail and petrol station inventories lasting about three days and trading company crude commitments covering about two months. The government’s contingency plan to secure oil supply beyond August 2026 includes diversifying supply sources, optimizing domestic fuel through biodiesel and strengthening leak control, enforcement and data-driven monitoring. It is also assessing fiscal costs, governance and operational needs for a strategic petroleum reserve, while balancing resilience, cost-effectiveness and market structure. The ministry added that a 20-year fuel supply deal with Russia is intended as a domestic safety net and is complementary to the National Energy Transition Roadmap. KLCI -0.7% to 1712, USDMYR +0.071% to 4.0897, 10y MGB +1.4bp to 3.67%.

Singapore’s URA released real estate statistics for Q2, showing that the private residential price index rose 0.5% q/q (vs. 0.9% in Q1) and slowed to 1.4% in H1 from 1.8% in H1 2025. Landed prices climbed 2.5% q/q, while non-landed prices slipped 0.1% q/q; non-landed prices rose 1.8% q/q in the Core Central Region (CCR), while the Rest of Central Region (RCR) and Outside Central Region (OCR) posted falls of 1.2% and 0.1% q/q, respectively. Private residential rentals increased by 0.7% q/q, with landed rentals up 2.7% q/q and non-landed rentals up 0.4% q/q. Developers sold 2,141 units, above the 2,013 units in Q1, while launches eased to 1,783 units. Resale activity rose to 3,813 transactions, and completions totaled 1,212 units. Office and retail prices and rentals also increased, while vacancy rates edged up in the office and retail segments. STI -0.42% to 5572, USDSGD -0.031% to 1.2908, 10y SGB +6.2bp to 2.297%.

South Korea has announced that it will extend reduced fuel tax rates until September 30, citing renewed geopolitical tensions in the Middle East and continued oil price volatility. The current tax cuts – 15% on gasoline and 25% on diesel and butane – were due to expire at the end of July but will stay in place for two more months. The finance ministry said the move is intended to preserve room for future fuel tax adjustments if oil market volatility worsens. It also said the extension should help ease energy cost pressures, especially for diesel used in logistics and butane used by small trucks. The announcement underscores the government’s focus on cushioning households and transport-related costs in the face of external energy shocks. KOSPI -5.72% to 7097, USDKRW -0.43% to 1472, 10y KTB +5.5bp to 4.385%.

Thailand’s June trade data beat forecasts, with exports rising 20.8% y/y to $34.66bn and imports jumping 50.3% y/y to $41.19bn, both driven by frontloading ahead of tariff and Middle East risks and by stronger electronics demand. The Commerce Ministry said the export outlook continues to be supported by the global AI infrastructure and data center buildout, while higher imports reflected raw materials for electronics shipments and elevated gold purchases. The trade balance swung to a $6.535bn deficit. Officials said around half of exports are not subject to the 12.5% U.S. tariff, limiting the impact of Section 301 probes. Export growth for 2026 is still seen at 8%, though second-half shipments are expected to slow as frontloading fades. H1 exports rose by 17.6% y/y and imports by 38% y/y. SET -0.2% to 1638, USDTHB +0.066% to 33.827, 10y TGN +1.8bp to 2.033%.