Lack of US-Iran Negotiations Lifts Crude, Yields: Aug. 10, 2026

A lack of US-Iran negotiations is lifting crude and yields as Tehran and Washington over the weekend said they have not held direct communications. The failure of the governments to hold talks is worrying Wall Street participants that the path to an agreement is increasingly narrow against the backdrop of investors thinking last week that a comprehensive deal could be imminent. Despite rising energy prices and climbing rates, stocks are hanging in there for the most part, with 7 of 11 sectors advancing amidst modest gains for the S&P 500 and Nasdaq 100, which have recovered from slight morning losses. The cyclically oriented Dow Jones Industrial and Russell 2000 benchmarks are still in the red, however, as heavier fuel charges and pricier borrowing costs especially hamper those economically sensitive indices. Meanwhile, an empty data calendar today further raises the significance of geopolitical developments, as the fixed-income and currency complexes can’t count on softer-than-expected numbers to loosen financial conditions, like last Friday’s nonfarm payrolls did. In response to the murky Middle East outlook, the greenback is strengthening, the Treasury curve is jumping around 4 basis points throughout maturities and premiums for volatility protection instruments are higher as traders brace for potential turbulence. Elsewhere, cryptocurrencies are falling, but commodities and prediction markets are catching bids across the board.

Middle East Dominates Narrative Until CPI Wednesday

The ongoing Middle East grapple is blocking disinflation from continuing, as sticky energy costs continue to support a Consumer Price Index (CPI) north of 3%. Meanwhile, the approximate 100 basis point gap between the headline and core readings signals that if the geopolitical situation is reconciled, cost pressures will fall within striking distance of the Fed’s 2% target in short order, thanks to sluggish residential valuations and weak rents that together comprise the heaviest weight of the critical indicator. But before Wednesday morning, the narrative will be dominated by geopolitics, as the lion’s share of high-impact earnings reports are behind us and market-moving economic data isn’t scheduled until later in the week, which additionally include wholesale charges, retail sales and a preliminary look at shopper sentiment from the University of Michigan. I think bonds make a tremendous amount of sense for investors here because subdued ex-fuel inflation combined with labor fragility justify 20- and 30-year yields beneath 5%, rather than 0.24% above that level.

International Roundup

Inflation Slows in China

A decline in energy costs helped ease retail and factory gate price pressures in China in July with the CPI and Producer Price Index (PPI) climbing 0.5% and 3.5% year over year (y/y). Economists anticipated the gauges to post 0.8% and 3.9% ascents following June’s climbs of 1% and 4.1%. The Core CPI, which excludes items food and energy due to their volatile prices, was up 0.9% y/y, slowing slightly from 1% in June.  For the month-over-month (m/m) print, the CPI fell 0.1%, a moderation from June’s 0.3% decline but beneath the economist consensus estimate for a 0.2% increase. The easing price pressures were brought on by decelerating prices for gasoline, which climbed 17% y/y in June but was up only 1% last month. Weak domestic demand also contributed to the soft results. China’s factories suffered from a more than three-year period of deflation that ended in March. However, the July readings have triggered renewed concerns that weak domestic consumption could trigger future price declines despite the country experiencing strong export demand.

BoJ Says AI Product Demand Counters Headwinds

Demand for AI technology has supported economic growth in Japan and has mitigated the adverse impacts of both supply chain disruptions and higher energy costs from the Middle East Crisis, according to a summary of the Bank of Japan’s (BoJ) July meeting. Despite the overall economy recovering moderately, some weaknesses remain in certain sectors. Policymakers, furthermore, believe attention is warranted to the possibility of the economy weakening if AI-related profits fall and the stock market experiences adjustments. Regarding inflation, the CPI is likely to increase gradually as wage expansion continues. Policymakers supported the decision to hold so that the central bank could assess the impact of the previous meeting’s rate hike. Policymakers believe that it may take 18 months for the full impact of the rate hike to influence the economy.

Japan Economy Strengthens

Companies that interact directly with customers, including retailers, restaurants and livery operators, believe current economic conditions have strengthened and are likely to continue improving, according to the Cabinet Office’s Economy Watchers indices. The gauge of current conditions moved up 0.4 points in June to 44.4. Household activity weakened with stronger services activity failing to offset a contraction in the food and beverage category. On a more positive note, the non-manufacturing sectors contributed to employment and corporate activity providing a positive contribution to the current conditions print. Also during June, the view of future economic conditions ascended 5 points to 45.7. In summarizing the survey’s findings, the Cabinet Office says business believe the economy has shown signs of picking up but is still facing the headwinds of declining economic sentiment as a result of the Middle East war. Businesses, however, anticipate that uncertainty regarding the troubled region will ease in the future.

But Loan Growth Slows

The value of outstanding debt issued by banks and trusts was 5.4% y/y in July, a smaller gain than June’s 5.7% expansion and below the economist consensus expectation of a repeat of the preceding month’s print.