Daily Market Outlook, August 3, 2027

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute — Oil Slides, Yen Strikes Back

Markets are starting August with a rare dose of geopolitical relief, as Trump’s decision to restart talks with Iran has knocked a large chunk out of the oil-risk premium and given bonds room to rally. Brent’s sharp fall toward $81.55/bbl has eased the immediate inflation scare, while Treasuries are firmer and US equity futures are higher. But the move is not a full all-clear: reopening the Strait of Hormuz is still a negotiation rather than a fact, Asian chip stocks remain fragile, and FX intervention risk has moved back to the centre of the yen story.

Brent crude fell as much as 7.3% at the open, trading down to $81.55/bbl after ending last week around $90/bbl. The catalyst was Trump’s decision to call off a significant attack on Iran and resume negotiations today, following pressure from Middle Eastern allies including Saudi Arabia. The market reaction is straightforward: less immediate military escalation means a lower probability of a near-term Hormuz disruption, and therefore a smaller geopolitical premium in crude.

That said, there is still a meaningful gap between talks resuming and the Strait of Hormuz fully reopening. A diplomatic process can reduce tail risk quickly, but it does not guarantee supply normalisation on the same timetable. Another small OPEC supply increase also helps at the margin, but only if barrels can be efficiently distributed. If shipping, insurance or regional security constraints remain elevated, extra supply on paper may not translate cleanly into relief at the pump.

Bonds welcomed the oil move. The 10-year US Treasury yield fell around 4–5bps to 4.69%, pulling back from last week’s highs, as lower crude prices reduced the immediate inflation impulse. The rally was broad across Treasuries because the direction of travel in energy matters for almost every central-bank reaction function. If Brent can stay in the low $80s, it gives the Fed, ECB and BoE more room to argue that recent energy volatility can be looked through.

But the rates market is unlikely to declare victory yet. The Fed has just delivered a hold with three hawkish dissents, and Chair Warsh’s communication style has left investors less anchored by forward guidance than under Powell. Lower oil helps, but it does not fully undo the market’s concern about inflation expectations, term premium and the long end. This week’s US Treasury quarterly borrowing estimates and refunding announcement will also matter for duration sentiment, especially after last week’s long-bond pressure.

Equities are getting a tactical lift from lower oil and lower yields. Nasdaq 100 futures rose 0.9%, while European futures also gained around 0.9%. That fits the standard playbook: cheaper energy eases inflation fears, helps margins outside the energy sector and reduces the pressure on discount rates. After last week’s violent AI de-rating, any relief in yields is especially important for long-duration growth stocks.

Asia was less convincing. The MSCI Asia share index fell 0.6%, dragged lower by renewed weakness in South Korean technology. The Kospi dropped more than 5% after Friday’s extraordinary 18% rebound, showing that the chip complex remains unstable rather than healed. South Korea has become the cleanest high-beta proxy for the AI capex trade, and the recent swings suggest positioning is still fragile. Investors are no longer simply buying AI exposure; they are questioning whether the earnings cycle can justify the scale of investment.

The Nikkei also weakened, despite the broader global risk improvement. Japan’s equity market is now having to balance cheaper oil, which is helpful for import costs, against a stronger yen and ongoing intervention risk, which are less helpful for exporters. That trade-off is likely to remain live as long as authorities keep leaning against excessive currency weakness.

The yen was the other major story. USD/JPY fell as low as 155.23, compared with Friday’s trading range around 158–161, after comments from Bessent that the US and Japan would not hesitate to conduct further joint intervention against FX weakness. Japan’s Ministry of Finance confirmed that it conducted yen-buying operations on July 31 US time together with the US Treasury, and signalled readiness for further joint action if needed.

The intervention story has gained credibility because it now has US support. Bessent also noted that Japan could use the Fed’s Foreign and International Monetary Authorities Repo Facility to access liquidity for further yen purchases without selling US Treasury holdings. That is important. It reduces the risk that FX intervention becomes disruptive for the Treasury market and gives Japan a cleaner mechanism to fund further currency operations.

Still, intervention can change the speed of a move more easily than the underlying direction. The yen’s recovery will be more durable if it is accompanied by either lower US yields, clearer BoJ tightening expectations, or a sustained improvement in Japan’s terms of trade from lower energy prices. Today has elements of all three, but none is fully settled.

Gold rose 0.5% to around $4,070/oz, which is notable given the improvement in risk tone. The move suggests investors are not abandoning geopolitical hedges entirely. Lower yields help gold mechanically, but the bid also reflects the reality that diplomacy with Iran is not the same as peace in the region. The market is reducing escalation risk, not erasing it.

China offered a softer macro signal. The July RatingDog manufacturing PMI fell 0.8pts to 50.9, ahead of a broader set of final July manufacturing PMIs due today. The level is still expansionary, but the direction is not encouraging. With global trade facing tariff risk, oil volatility and softer tech sentiment, China’s manufacturing cycle remains vulnerable to any further loss of external demand momentum.

In the UK, the political backdrop is shifting. The FT’s opinion poll tracker shows Labour at 25%, overtaking Reform at 24% for the first time in well over a year. That may ease some immediate political pressure on the Burnham government, but it does not remove the fiscal questions heading into the Autumn Budget. After a run of cost-of-living announcements and tax-raising trial balloons, gilt investors will still want clarity on funding, fiscal-rule treatment and gilt supply.

The UK labour-market tone also remains soft at the entry level. Indeed data show graduate job openings down 7% versus last year, at the lowest level since the pandemic. That fits with the broader picture of an economy where wage pressure is moderating even if headline employment has not fully cracked. For the BoE, this supports the case for patience, especially if lower oil persists. But services inflation and the lagged pass-through from energy bills mean Bailey cannot sound too relaxed.

After last week’s central-bank drama, this week’s calendar is lighter but still important. The main event is Friday’s July US employment report. Ahead of that, markets get June job openings on Tuesday, ADP employment on Wednesday and initial jobless claims on Thursday. The unemployment rate is currently 4.2%, but weak participation has made that look flatteringly low. If participation rebounds, the rate could easily tick up to 4.3% without signalling a genuine deterioration in labour demand.

The broader labour-market narrative is unlikely to shift dramatically. The US still looks close to full capacity, even if payroll growth has cooled and participation noise complicates the read. World Cup-related distortions may add some distraction, but the Fed will be looking for whether wage pressure and labour demand are cooling enough to support patience after July’s hawkish hold.

PMIs are the other main data theme. Final July S&P Global manufacturing PMIs are due today, with services on Wednesday. Given that Middle East tensions and energy prices rose through the month, final readings incorporating later survey responses could come in a little softer than the flash estimates. The US ISM manufacturing report is due today, with services on Wednesday, while the UK construction PMI arrives Thursday.

Fed speakers return after the quiet period, but the summer calendar is light, with Cook scheduled Wednesday and Musalem on Thursday. Their remarks will matter because Warsh’s press conference left markets with more questions than answers. Investors will be watching whether other Fed officials reinforce the hawkish-dissent message or lean into the idea that lower oil and softer inflation justify patience.

Monday’s market message: lower oil has given markets a much-needed reprieve. Brent near $81.55/bbl reduces the immediate inflation shock, supports Treasuries and gives equity futures room to bounce. But this is a relief trade built on diplomacy that has not yet delivered a reopened Hormuz, and the AI complex remains fragile beneath the surface. The yen’s rally is intervention-backed, oil’s fall is negotiation-backed, and the bond rally is inflation-relief-backed. All three are helpful; none is yet self-sustaining.

Overnight Headlines

Trump Holds Off Iran Strikes On Pledge Hormuz Deal Is Close
Gulf States Talked Trump Out Of Iran Strikes
OPEC+ Makes Small Quota Hike To Finish Unwinding 2023 Cuts
Japan FinMin: Won’t Hesitate To Act Again After Joint Yen Intervention With US
Trump Says US Intervention In Yen Was ‘A Signal Of Friendship’
Bessent’s ‘To Do’ List: Buy $5-10B Worth Of Japanese Yen
US Treasury’s Firepower For Yen Support May Be Limited, JPM Says
Fed’s Musalem: Treasury Selloff Signals Need To Bolster Fed Inflation Credibility
Bond Traders Flying Blind On Fed See Risk Yields Spiral Higher
China’s Central Bank Pledges Timely Policy Tool Adjustment
Alibaba Releases AI Model With Performance Rivaling Anthropic
NTT, Toyota Lead Record Year For Japan CapEx With AI, Factory Investments

FX Options Expiries For 10am New York Cut

(1BLN+ represents larger expiries and is more magnetic when trading within the daily ATR.)

USD/JPY: 162.50 ($1.75b), 160.00 ($1.48b), 158.60 ($994.2m)
EUR/USD: 1.1500 (EU1.45b), 1.1400 (EU961.1m), 1.2500 (EU786.4m)
AUD/USD: 0.6950 (AUD1.54b), 0.7000 (AUD674.6m), 0.7145 (AUD321m)
USD/BRL: 5.2500 ($928.4m), 5.2000 ($461.5m), 5.1200 ($320.3m)
USD/CNY: 6.8660 ($900m)

CFTC Positions as of 24/7/26

Equity fund speculators reduced their S&P 500 CME net short position by 28,795 contracts, bringing it to 287,277. Meanwhile, equity fund managers increased their net long position by 12,702 contracts to 939,115. The Bitcoin net long position stands at 3,904 contracts.
In currency positions, the Swiss franc has a net short of -33,462 contracts, the British pound -64,814, the euro -72,447, and the Japanese yen -163,412.
Speculators also decreased their net short positions in various Treasury futures: CBOT US 5-year by 126,929 contracts to 1,146,400; CBOT US 10-year by 3,587 contracts to 876,119; CBOT US 2-year by 30,023 contracts to 1,124,574; and CBOT US UltraBond by 642 contracts to 320,708. However, they increased their net short position in CBOT US Treasury bonds futures by 30,707 contracts to 217,497.

Technical & Trade Views

SP500 - 7485 weekly bull/bear level

Daily VWAP Bullish
Weekly VWAP Bearish>Bullish
Above 7485 Target 7620
Below 7475 Target 7400

DXY - 99 weekly bull/bear level

Daily VWAP Bearish
Weekly VWAP Bearish
Above 99 Target 98
Below 99 Target 100

EURUSD - 1.1550 weekly bull/bear level

Daily VWAP Bullish
Weekly VWAP Bullish
Above 1.1550 Target 1.17
Below 1.1480 Target 1.1420

GBPUSD - 1.3450 weekly bull/bear level

Daily VWAP Bullish
Weekly VWAP Bullish
Above 1.3450 Target 1.3690
Below 1.34 Target 1.33

USDJPY - 160 weekly bull bear level

Daily VWAP Bearish
Weekly VWAP Bearish
Above 155 Target 160
Below 155 Target 152

XAUUSD - 4170 weekly bull bear level

Daily VWAP Bearish
Weekly VWAP Bearish>Bullish
Above 4170 Target 4400
Below 3940 Target 3570

BTCUSD - 64k weekly bull bear level

Daily VWAP Bearish
Weekly VWAP Bullish>Bearish
Above 64k Target 71k
Below 61k Target 52.2k