Markets amid US halt in attacks, growth in America and Europe, and Chinese slowdown

Between Saturday, August 1st, and Tuesday, August 4th, markets experienced a typical sequence: geopolitical risk remained elevated, but investors responded primarily to the possibility of the US-Iran crisis entering a negotiation phase. The result was a rapid shift of capital from oil to equities, metals, and interest rate-sensitive assets, while traffic in the Strait of Hormuz continued to demonstrate how far normalization still remained.

The OPEC+ paradox: more quotas, but too few barrels

The weekend began with OPEC+'s decision to increase production quotas by 188,000 barrels per day starting in September, completing the withdrawal of the 1.65 million barrel voluntary cuts introduced in 2023. Under normal conditions, such a move would have been a bearish signal for crude oil. This time, however, the market interpreted the announcement cautiously: several producers can formally produce more oil, but not necessarily export it.

The bottleneck remains Hormuz. On Monday, only six commercial vessels , including oil tankers and bulk carriers, passed through the strait, all en route to Iran. This is a picture incompatible with a normalized energy market. The OPEC+ increase therefore risks remaining at least partially theoretical until insurers, shipowners, and logistics operators consider the region safe again.

Uncertain diplomacy, falling oil prices

The change in tone came as Washington suspended further attacks and revived the possibility of talks. Brent crude lost 7% on Monday, falling to $83.77 a barrel , while WTI fell 5.1% . This wasn't just a technical correction: the market quickly reduced the geopolitical premium embedded in its prices.

Détente, however, remained fragile. Tehran denied the existence of direct negotiations with the United States, specifying that the only ongoing discussions concerned Oman and the temporary management of the Strait. This contradiction prevented traders from considering the crisis over. Oil thus remained extremely sensitive to political statements: every diplomatic overture reduced prices, while every denial served as a reminder that physical supply remains vulnerable.

Wall Street buys the easing

The decline in crude oil prices had an immediate impact on stocks, easing fears of a renewed surge in inflation and a more aggressive Federal Reserve. On Monday, the Dow Jones Industrial Average rose 1.32% , the S&P 500 1.48% , and the Nasdaq 2.13% . The Dow closed at a new high, while the technology sector benefited from both falling yields and strong corporate earnings.

Earnings season reinforced the trend: over 85% of S&P 500 companies that had reported results had surpassed expectations. On Tuesday, during the US session, the S&P 500 and the Dow updated their intraday highs, buoyed by the prospects for artificial intelligence and the belief that large companies can continue to grow even in the face of high interest rates.

Europe also followed the trend. The STOXX 600 closed Tuesday at a record high of 656.86 points , up 0.7% . More significant than the overall data was the domestic movement: energy fell along with crude oil, while technology and mining accelerated. Asia remained more cautious, with the MSCI excluding Japan index falling 0.5% , penalized by the Chinese slowdown and tensions in the Japanese bond market.

Strong United States, more fragile China

Wall Street was also buoyed by the improvement in American industry. The ISM manufacturing index rose to 55.6 in July, its highest level in over four years. This figure indicates an economy still capable of expanding despite the cost of capital and energy tensions.

This strength, however, has a less favorable side: the price paid component remained elevated at 71.1 . For the bond market, this means that the decline in oil prices may ease inflation expectations in the short term, but it does not eliminate the risk of higher rates in the long term. Treasury yields fell along with crude oil, but without transforming the movement into a true structural turning point.

On the currency market, the most notable movement was in the yen, which remained about 4% stronger than the previous week following the coordinated intervention of the United States and Japan. The dollar, on the other hand, showed more limited changes, while the euro remained around $1.15 . Here too, the message was clear: geopolitics had an impact not only on commodities, but also on defensive flows and currency policies.

The Chinese picture appeared weaker. The private manufacturing PMI fell to 50.9 , signaling marginal expansion. The combination of fragile domestic demand, slower growth, and high inventories weighed on Asia and made the rise in industrial raw materials more selective.

Gold and copper tell two different stories

Gold benefited from the softening of interest rate expectations, with spot prices rising 0.6% to $4,078 an ounce on Tuesday. The precious metal played a dual role, benefiting from both geopolitical uncertainty and the prospect of reduced monetary pressure should oil prices continue to decline.

Copper, on the other hand, rose thanks to the reduction in available inventories, reaching its highest level in about two months and supporting the entire European mining sector. This is an important trend: while the Chinese slowdown is dampening enthusiasm for demand, the scarcity of physical supply continues to support prices.

An optimistic, but not normalized market

Between Saturday and Tuesday, investors chose to price in the possibility of a détente even before an agreement was in place. Oil prices plummeted, Wall Street and Europe hit record highs, gold rose, and copper benefited from reduced inventories. But the mere six ships that transited Hormuz and Iran's denial are a reminder that normalization remains incomplete. The market has bought diplomacy; now it will have to see whether actual energy flows will follow the words.