Another week has passed, yet the Strait of Hormuz remains closed. As mentioned in previous Thoughts, Iranian storage facilities are getting full. The country is therefore increasingly forced to rely on old tankers as floating storage for the oil that continues to be produced but cannot be exported.
After all, you can’t simply turn off an oil field like a faucet. If production is abruptly halted, the pressure could collapse. Water or gas could seep into the geological formation, making a later resumption of production very expensive—if it were even possible at all. Iran is therefore trying to cut back production as much as possible while still maintaining it, and at the same time finding additional storage options.
The Financial Times has also covered the topic and reports that, according to the commodities research firm Kpler, 42 million barrels of crude oil are now being stored on Iranian tankers. According to Al Jazeera, the country has storage capacity in the form of floating tanks or ships at anchor totaling around 127 million barrels.
This makes it clear: Iran is indeed under pressure due to the U.S. blockade—though significantly less so than previously assumed in many quarters. The financial markets will likely have to scale back their hopes for a quick solution somewhat. Meanwhile, global oil reserves continue to deplete. Should these reserves be depleted before they can be replenished via a reopened Strait of Hormuz, the oil shock that many experts worldwide are warning about is likely to become a reality. Depending on the country, this could be expected in late summer or fall. However, the financial markets still assume that it won’t come to that. On the contrary: Reports are coming in from Pakistan right now that the Iranian government might be preparing a new offer. Long live hope—as we all know, it still wears water wings even when the tanker is already listing.
Last week, the effects of high energy prices were reflected in the inflation figures—and we discussed them accordingly. The Consumer Price Index rose to three percent, while the Producer Price Index more than doubled to 6.4%. Many market participants now fear once again that the high PPI will feed through to the CPI and cause a sharp spike in the consumer price index within a few months. We refuted this last week—and we’ll reiterate it right away: The PPI is often significantly more volatile than the CPI, but the two move in tandem; there is no lasting time lag observed in the CPI.
Other market participants also see a flaw in the fact that discussions of both inflation metrics usually focus on the core rate, while the development of energy and food prices is excluded. At first glance, this does indeed seem somewhat strange, since consumers are, after all, dependent on energy and food. For macro analysts and market strategists, however, it is crucial to know whether an inflation trend has arisen from the economy itself—and is thus more long-term in nature—or whether it stems from a short-term, usually political, and therefore temporary shock in the food and energy sectors.
The core rate—i.e., excluding the volatile components of energy and food—provides better guidance in this regard. The current inflation fears have, in fact, arisen almost exclusively from higher energy prices. Should the Strait of Hormuz open in the coming days, a global flood of oil is likely to follow. The many tankers could finally head toward their destination ports, and the UAE, which has withdrawn from OPEC, could increase its production by over 50%. The oil price could potentially plummet from the current $100 to $60, resulting in a 40% decline in the inflation calculation over roughly twelve months. However, the Fed is unlikely to base its interest rate policy on these volatile components and therefore prefers to focus on the core components. The seasoned market strategist does the same.
In our outlook for 2026, we did anticipate increased volatility in bonds, but not primarily due to oil-price-driven inflation fears. Market yields on U.S. Treasuries have risen more sharply in recent days, and the fixed-income market is now pricing in a further increase of 3/8 percentage points by summer 2027.
Citi’s US Economic Surprise Index indicates whether recent economic data has come in above or below expectations. Not entirely surprisingly, there is therefore a certain correlation between this indicator and the trend in market yields. In fact, it is becoming apparent that the US economy has recently performed better than expected. This provides some confirmation that market yields have not risen solely because of the oil price.
However, we are also seeing signs that the rise in US market yields could soon lose momentum. The Balance of Power indicator, which measures the strength of bulls and bears, has already reached a very high level.
A second, short-term indicator—the Market Pendulum—provides a similar signal. The nervousness may persist for a few more days, but should then also subside—bringing lower market yields once again.
The rise in market yields over the past few days has also led to some calming on Wall Street. Higher market yields are a negative for growth, which has created a strong headwind for tech stocks, which had recently led the rally. This has caused the bull market to stall somewhat. However, “smart investors” continue to accumulate, meaning Wall Street is likely to remain dominated by the bulls. Today’s upcoming Nvidia earnings could support this scenario—or, if disappointing, cause only a brief stumble.
The rise in market yields has also had a negative impact on precious metals. But let’s remember: if inflation were to rise faster than interest rates, the resulting negative real market yield would be a bullish factor for precious metals. Yet hardly anyone seems to be anticipating that. Precious metals have fallen out of investors’ focus. This lack of interest is evident, among other things, in the number of open futures positions. Open interest in Comex gold futures has recently fallen to its lowest level in over a decade.
And the same picture is evident in silver futures. For contrarian investors who like to invest countercyclically against prevailing market sentiment, this is a particularly interesting indicator. However, this alone is not yet a buy signal. The bearish bond market is likely to generate too much noise at the moment. But let’s keep this point in mind.
