In today’s briefing:
- The Fed Is Buying Treasuries Again—but This Is Not Another Round of Money Printing
- Carry Trade Intact as Stronger Yen Requires More Than Foreign Exchange Intervention
- Cotton’s Short Squeeze Is Getting a Fundamental Assist
- Monday Macro Update: We Have Retuned To “Square One” In Terms of Iran and the Strait of Hormuz
- Energy Weekly (W/E 07/Aug): Oil Reprices Hormuz Risk, Positioning Turns Cautious, and Oxy Beats
The Fed Is Buying Treasuries Again—but This Is Not Another Round of Money Printing
- The Fed is buying Treasuries again—but this is not QE: purchases are mainly short-term bills designed to maintain banking-system liquidity, not stimulate the economy
- Rising Fed assets is not always “money printing”: reserves remain near US$3 trillion as the liquidity created has been largely offset by Treasury operations, currency demand and other Fed liabilities
- This helps explain the US dollar’s resilience: bill purchases barely suppress long-term yields, unlike conventional QE, so the direct downward pressure on the dollar is limited
Carry Trade Intact as Stronger Yen Requires More Than Foreign Exchange Intervention
- Despite the narrowing of the US-Japan yield differential, the yen carry trade appears to be intact and has recently shifted away from Treasuries towards long-duration US risky assets.
- Recent foreign exchange intervention by the US and Japan cannot produce a rapid reversal in the yen’s fortunes without other conditions falling into place, including less global financial accommodation.
- The carry trade will remain intact in the near term. Japanese entities could play a major role in strengthening the yen via repatriation of overseas assets and higher onshore investment.
Cotton’s Short Squeeze Is Getting a Fundamental Assist
- Cotton has rallied hard over the past couple of weeks.
- The primary driver has -not yet – been a dramatic supply shock.
- Hedge funds had been net short for nearly two years; that positioning began reversing in April, and short-covering into fresh long-buying has done most of the work since.
Monday Macro Update: We Have Retuned To “Square One” In Terms of Iran and the Strait of Hormuz
- In last Friday’s report we suggested that we were back to “square one,” i.e. the MOU, in terms of Iran’s demands before the Strait of Hormuz is “opened.”
- President Trump stated that he is willing to let economic pressure on Iran be the deciding factor, and therefore we would assume no resumption of military strikes against Iran.
- Based on what we believe Tehran can tolerate, therefore, the odds appear high that the stalemate could continue through at least the end of 2026.
Energy Weekly (W/E 07/Aug): Oil Reprices Hormuz Risk, Positioning Turns Cautious, and Oxy Beats
- WTI fell 7.7% as Hormuz de-escalation hopes faded, while easing IV and weaker speculative positioning pointed to a more cautious oil market.
- Energy ETFs broadly tracked crude lower, with XOP and IXC among the biggest laggards, while utilities proved more resilient amid the broader risk-off move.
- Occidental delivered its strongest free-cash-flow quarter since 2022, beating earnings expectations and raising its dividend as debt continued to fall.
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