Muzinich Weekly Market Comment: August Lull

August 17, 2026

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It was a quiet week for financial markets in terms of price action, typical of the seasonal August lull. Earnings season is drawing to a close, the economic data calendar and central bank activity remain relatively light, and the geopolitical impasse in the Middle East continued. 17 August marks the initial 60-day deadline of the Memorandum of Understanding negotiations, although both sides have reportedly indicated their consent to mediators to extend the talks^[1].

As we move closer to the six-month mark since the military operation began on 28 February—with no signs of the reopening of the Strait of Hormuz—the latest attempt, the Oman–Iran accord, has seemingly stalled. The US appears to have aggressively shifted tactics, moving clearly away from military action towards full-scale economic pressure. Treasury Secretary Scott Bessent said that the US will soon announce unprecedented economic measures against Iran^[2]. Perhaps slightly surprising was the lack of follow-through in energy prices, with both West Texas Intermediate and Brent crude grinding higher by around 3.5%, closing the week close to $81 and $86.50 per barrel, respectively. It is true that the release of strategic reserves and commercial stockpiles is helping—as are volumes bypassing the Strait of Hormuz via pipelines—while China has also slashed its oil imports, which is supportive. But after six months of supply shortfalls, with no likely reopening of the Strait of Hormuz in sight, and both parties setting up for the long game, prediction markets give only a 35% likelihood that traffic through the Strait of Hormuz will return to normal by 1 January 2027, see Chart of the Week^[3]. One might have expected crude prices to move significantly higher, or so the oil bulls could argue.

The counterargument is that the oil bulls are factoring in too large a supply disruption/shock. Put another way, the Strait of Hormuz is not actually closed! According to US Energy Secretary Chris Wright, an estimated nearly 9 million barrels per day (bpd) are still moving through it, while total Gulf exports are around 15 million bpd when pipelines are included, compared with roughly 20 million bpd before the war^[4]. The discrepancy between the bulls and bears boils down to the inability to now track tankers. There are three problems. First, nearly all vessels have gone dark, switching off their Automatic Identification Systems (AIS). Second, most satellite-imagery vendors, under pressure from Washington, have stopped selling their pictures. Third, rather than travelling from origin to destination in a single voyage, most cargo flows now involve ship-to-ship transfers on the high seas. This allows smaller vessels to navigate the Strait of Hormuz more easily, as they are harder to identify and easier to escort under US military protection before transferring their cargo to larger crude carriers.

So, the real debate should be how much oil is finding an exit. If we use Chris Wright’s estimate as the optimistic end of the spectrum and compare it with the countable data—Kpler puts the five-day average of ship transits through Hormuz at around 13—we can safely say that at least 5 million bpd are transiting the Strait.⁴. This gives us a reasonable estimated range of 5–9 million bpd.

This still leaves a shortfall, but it may help explain the reluctance of oil prices to spike higher. It also provides some grounds for confidence that the US shift in tactics may have time to bear fruit before the global oil inventory cushion is depleted to critical levels.

Government bonds also largely ignored the grind higher in oil prices, with European bonds showing all the signs of an August holiday, trading in a tight range over the week. In the US, inflation data came in soft, suggesting little inflationary follow-through from the macro backdrop. Consumer price inflation in July fell to 3.4% year-over-year (YoY), rising by just 0.07% over the month, while core consumer prices fell to 1.6% on a three-month annualized basis^[5]. Wholesale prices also cooled, with the Producer Price Index rising 4.7% YoY, down from 5.5% in June^[6].

This led to a steepening of the US curve, as front-end yields fell and investors pulled back the odds of the Federal Open Market Committee hiking in September to 30%^[7]. Meanwhile, the long end closed the week relatively unchanged with supply possibly weighing on sentiment following the $25 billion 30-year Treasury auction, which was awarded at 5.216%—the highest yield the US government has printed for a 30-year bond since 2001^[8]!

Corporate credit markets continued to grind higher, with the status quo restored. High yield, benefiting from its superior coupon, continued to outperform its investment-grade peers. With major currencies and equity markets largely August range-bound within a ±1% range over the week, the Bloomberg World Large & Mid Cap Index closely around 0.5% higher for the week.

Chart of the Week: Odds Against a Near Term Solution

Source: Bloomberg, as of August 14, 2026. Muzinich views and opinions are subject to change. For illustrative purposes only, not to be construed as investment advice or an invitation to engage in any investment activity.

 

References

[1] Midde East Monitor, “US, Iran agree to extend 60-day ceasefire ahead of Aug. 17 deadline,” August 12, 2026
[2] Bloomberg, “US Readies Unprecedented ‘Economic Isolation’ Plan for Iran,” August 14, 2026
[3] Bloomberg, as of August 14, 2026
[4] CNBC, “Strait of Hormuz ship traffic near three-month low as U.S.-Iran deal in doubt,” August 12, 2026
[5] Bloomberg, “US REACT: Modest Core CPI Lowers Fed Rate-Hike Chances,” August 12, 2026
[6] Bloomberg, “US Wholesale Inflation Cools as War-Driven Energy Shock Fades,” August 13, 2026
[7] Bloomberg, as of August 14, 2026
[8] Bloomberg First Word,” US 30-Year Auction Tails as It Draws Highest Yield Since 2001,” August 13, 2026

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