Weekly Macro Note: The August Lull and the Illusion of Abundance

In this Weekly Macro Note - we discuss the August lull that's underway across markets, the relative calm in the Middle East, continued closure of the Strait of Hormuz, and the illusion of abundance...

Don Johnson (@DonMiami3), Chief Economist

Good Sunday evening MacroEdge Readers & Community,

This weekend was almost unusually quiet - but this is to be expected now, heading into midterms, with almost disastrous GOP polling/prediction market data rolling through - and the President trapped in a predicament regarding the Strait of Hormuz and Bab-el-Mandeb (also to be expected) as projected by many, including us here at MacroEdge, from before the war even started. We continue to sleepwalk toward a much more significant energy and commodity-related crisis (including the food-basket commodities) the longer both Straits remain impeded. On Tuesday evening, we’ll discuss the food-focused commodities in greater detail - but for the time being, I expect that the Trump Administration is going to start to get increasingly panicky about the Strait as we approach September. October is really the month of greatest return - but with the SPR approaching a sub-290mmb reading - we will soon be at another reading where they will have to announce an additional allocation for sale to the market - which I expect them to do now. After the DoE comments of last month about being able to run the SPR down to 70mmb (completely laughable without total structural destruction of the cavern infrastructure) - this is something that could, of course, occur as we head into the October timeframe with little sign of any Hormuz traffic flows.

(Hormuz traffic flows through 8/15).

In the overnight markets - which I would take with an absolute grain of salt given the low volume and final vacation week for most that’s ahead before school season gets into full swing - markets are flat across the board - with the Nasdaq up .15%, WTI spot up .5%, Bitcoin flat, and the Dow down slightly. Not much action in natural gas either - but that’s to be expected given current forecasts through the end of August.

We’ve got a lot of fantastic updates and strategy notes in the report pipeline this week - so stay tuned for everything in store.

For the evening - we cover the report schedule for the week, take a look at the macro week ahead - including what’s important from a macro data release (not much anymore) and earnings that might matter, discuss a brief update on energy/commods/& bonds, take a look at the latest from Asia, and provide an update on our Global Bubble Index for August - which we have not updated since early June. There’s a lot to cover, so let’s dive in…

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Report Schedule for the Week:

• Tuesday -> (War Note + Portfolio Strategy Note - Food Commodity Discussion)

• Wednesday -> (Oil and Gas Research Strategy Note - Thiel Goes Long Shale)

• Thursday -> (Midweek Macro Note)

• Friday AM -> (Midyear AI Bubble + Data Center Report Pt. 3 of 5)

• Saturday -> (Oil and Gas Research Weekly Macro Note)

• Sunday -> (Weekly Macro Note)

We will also be discussing the release date(s) for both the Oil and Gas Portfolio Strategy and broader Flagship Portfolio Strategy Basket. Strategy discussions will begin on Wednesday for Oil and Gas Research for both public and private markets.

Macro Week Ahead

I am expecting another snooze fest this week as we continue to march towards midterms and Jackson Hole / next FOMC meeting. It looks less likely now that the Fed will consider a rate hike in September - though I believe it’s the last chance they consider such an action this year with midterms coming up. Inflation remains hot relative to the 2% mandate, and continues to compound, and things like electricity prices continue to charge higher. Fools on X do things like adjust electricity prices chained to 1973 without adjusting for purchasing power decline, rendering such datapoints useless in real terms.

This week, macro data-wise, Japan GDP growth already came in slow, while in the US we have the NY Empire State data, NAHB release, permits/starts, industrial production, and claims data in the pipeline. None of this is particularly market-moving or relevant - and as highlighted below - energy, commodities, and bonds will likely be the driver of market action now through the end of the year.

Energy, Commods, and Bonds - The Key Themes for August - The Illusion of Abundance

The pattern on WTI is constructive and could continue to take several months to play out - the floor has moved higher here in the 72-74/bbl range - but no real reason to rush into anything directly as it pertains to spot price. Equities themselves in the E&P/drilling spaces remain much more attractive as they begin to reprice higher for longer energy prices as the Hormuz reality catches up to markets:

Continued below with Ozone —>