US-Iran Pause Paired With 50-Month ISM High Sends Equities Soaring: Aug. 3, 2026

Stocks are inching closer to new record highs after President Trump decided to cancel a fresh round of attacks on Iran over the weekend. Oil prices plunged as much as 9% on the news, almost tumbling below $78 on WTI, as the commander in chief’s turnaround strengthens optimism that neither side has the appetite for a re-escalation in hostilities. Cheapening energy costs are sinking inflation expectations, which are sending long-end yields to the basement because the path to softening price pressures is widening materially. But the Treasury complex is descending in bull-flattening motion led by duration, as rates on the shorter tenors are dropping only modestly, reflecting a Fed that remains behind the curve against the backdrop of bond vigilantes demanding hikes. Meanwhile, animal spirits are buoyant to begin the month, having received support from the economic calendar, as the ISM-manufacturing gauge depicted the strongest level of factory activity in 50 months, signaling an AI build out that appears to be in its early innings. Ten of eleven equity sectors are advancing with the gains especially concentrated in the Magnificent 7 names, as the ISM beat and recent earnings calls boost confidence that capital return prospects could impress amidst valuations that became substantially cheaper during the deep tech selloff. Elsewhere, cryptocurrencies, the greenback and prediction markets are catching bids while commodities are falling and volatility protection instruments see lightening premiums, a result of a risk-on Wall Street session.

Manufacturing Grows At Fastest Pace Since May of ‘22

The manufacturing sector expanded for its seventh consecutive month in July and achieved its strongest period of growth since May 2022 as the industry fired on all cylinders. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index posted a big beat of 55.6, flying past the median estimate of 54 and June’s 53.3. Progress was evident across categories, as production, orders, backlogs, exports and employment accelerated to scores of 58.5, 56.7, 55, 53 and 52.8 from 52.2, 56, 50.5, 48.5 and 49.7 with robust demand having incentivized heavier output and faster hiring. Deliveries slowed and prices rose as workloads increased and producers and buyers remained worried about volatile commodity markets, supply chain disruptions and geopolitical uncertainties, which supported loftier costs.

Jobs Data Pivotal for Treasuries This Week

An ailing Treasury complex can catch a boost from a plethora of labor data this week, as fixed-income watchers await a buffet of publications scheduled for the next four days. Indeed, the economic calendar has job openings, ADP’s monthly, unemployment claims, Challenger, Gray & Christmas and the government’s employment situation report to finish off the week on Friday. Expectations for the prints are quite strong, offering holders of duration a chance at meaningful capital appreciation if numbers fail to meet those lofty projections after a few weeks of painful losses. Conversely, statistics that exceed estimates could additionally embolden the bond vigilantes that have been protesting confusion at the Fed, with hawkish messaging being blunted by ongoing pauses and a lack of forward guidance. Equities and credit would struggle if the results reflect that the US central bank is even further behind the curve than what analysts thought last week, as Wall Street wonders what Chair Kevin Warsh is waiting for to hike considering that his own communications signal an unwavering commitment to bring costs back to the monetary policy institution’s 2% target.

International Roundup

Chinese Manufacturing Expansion Slows

China’s manufacturing expansion continued in July but at a slower rate than in the preceding month, according to the RatingDog China General Manufacturing PMI from S&P Global. While many conditions improved last month, production and orders expanded at a softer pace than in June, pulling the gauge down from 51.7 to 50.9 and moving it closer to the no-change level of 50. The release comes after the Chinese government reported on Friday that its Composite PMI, which is more heavily weighted toward larger companies, slipped from 50.6 to 49.3. Within the government provided composite, the manufacturing component sank from 51.4 to 49.9.The RatingDog headline was a four-month low and below the economist consensus estimate of 51.9. Nevertheless, all five components of the survey provided positive contributions and new orders climbed for the fourteenth consecutive month while output completed its eighth straight month of expansion.

Order strength was driven by a jump in international requests, new business channels, additional capacity and improved product quality. With higher order volumes, businesses added workers. Indeed, job creation hit its highest level since August 2023. Despite the payroll expansions, outstanding work increased for the sixth consecutive month but at a slower pacer than in June. In other areas, input price inflation eased for the third straight month, but output prices were largely unchanged. Also in July, manufacturers remained optimistic in their 12-month outlooks and sentiment improved from June.

Australia Data Point to Inflation Exceeding Policymakers’ Goal

Inflation accelerated from 3.9% year over year (y/y) in June to 4% y/y last month, according to the Melbourne Institute Inflation Gauge, which is viewed as a leading indicator of the Consumer Price Index (CPI). As such, the new data point to inflation accelerating and exceeding the Reserve Bank of Australia’s 2-3% target.  The central bank meets later this month and will announce the outcome of its rate-setting deliberations on August 11. Its current cash rate target is 4.35% and the next release of the CPI is on August 26. The most recent CPI depicted a 3.8% y/y rate for June.