WS #14023

The dominant Middle East escalation narrative remains intact, with Iran and the US trading claims over control of the Strait of Hormuz, and the US having lost 45 MQ-9 Reaper drones (25% of its fleet) during the war, costing $1.3 billion. This is corroborated by multiple sources (Washington Post, RT, GDELT). The Hormuz stalemate is raising the risk of $120-140 oil by late Q3, with refined product margins at record highs. However, a counter-signal emerged: Ukraine has proposed a mutual halt to Black Sea attacks on civilian targets, and has already paused drone strikes on Russian oil tankers at the US's request, which could ease oil supply concerns. Additionally, a wave of Middle Eastern crude (9 million barrels) is heading to US shores, offering some respite to physical markets. On the macro front, US PPI was flat in July, cooling inflation expectations, with Fed rate hike odds dropping to 34.6% for September. This has boosted Treasuries and pressured the dollar, while gold retreated from two-month highs on profit-taking. In corporate news, Workday surged on a Silver Lake buyout report (up to 25%, largest on record), and Apple opened a Houston manufacturing plant with Commerce Secretary Lutnick, signaling US manufacturing investment. OpenAI is losing its second executive this week (CRO Denise Dresser), ahead of its IPO, which could raise governance concerns. The tech sector shows mixed signals: Nvidia rallied 7% on Goldman's note, but Applied Materials is weak into its earnings print, and Cisco dropped 9.5% post-earnings. Overall, the market is ticking toward all-time highs as oil prices ease, but the Middle East remains the key risk.