Market snapshot
The record lasted one day. On Thursday the S&P 500 closed above 7,800 for the first time, precisely at 7,798.99, the Nasdaq added 0.81 percent to 26,803, and the Dow barely moved at 53,840. On Friday all three slipped, the S&P 500 and the Dow by a fifth of a percent, the technology basket by twice that. Summer volumes are thin, so one weak data point carries more weight than usual.
The consumer gave way first. The University of Michigan sentiment index fell in August from July’s 55.2 to 51.0, against an expected 54.5. Retail sales dropped 0.6 percent month on month in July, where the forecast was plus 0.1. Two numbers in a row say the same thing, people stopped buying before the indices noticed.
Gold at 4,460 dollars an ounce, the highest level in ten weeks. Bitcoin around 63 thousand dollars, the dollar index DXY at 99.88, the ten-year US Treasury yield near 4.65 percent. Oil is holding high, Brent around 89 dollars, WTI around 82. On August 5 Brent was near 78. Fourteen percent in nine days, and not because of demand.
Lithuania and the Baltics
A drone was shot down over Latvia, fighters scrambled from Šiauliai. Early Friday morning Italian Eurofighters on duty in Lithuania and Turkish F-16s on duty in Estonia took to the air. The object was downed in a wooded area near the village of Rugāji in Balvi municipality, with no injuries and no damage to property. An air alert was in force in several municipalities for 50 minutes. The Latvian military says the drone entered the country’s airspace after being knocked off course by Russian electronic warfare, and that its type and owner remain unidentified. That same night, flights and shipping were restricted for four hours in the eastern part of the Gulf of Finland.
Prime Minister Mindaugas Sinkevičius does not rule out a false flag. According to him, this will become clear once the drone or its wreckage is found. Defence Minister Robertas Kaunas adds that intelligence has information about provocations Russia is considering in the Baltic region, and that Ukrainian drones could be used for them. Latvian President Edgars Rinkēvičs cut short his holiday over the security situation and will address the public in Aglona on Saturday.
Ukraine’s DEMZ signed an investment agreement for an ammunition plant in Lithuania. The Dnipro Electromechanical Plant will build an ammunition assembly workshop in the Prienai district and will use existing infrastructure in the Alytus industrial park to produce metal munitions components. Construction starts this autumn, production at the end of next year, and the Lithuanian unit will become the company’s regional production and innovation centre. This time Ukraine’s defence industry is coming to Lithuania not to ask for aid, but to invest.
Seven members of the Seimas are travelling to Brussels to talk with Chinese representatives. They have formed a temporary group for restoring diplomatic relations with Beijing to the level of European Union member states, with the meeting planned for early September. Sinkevičius says that improvisation, however well intentioned, does not necessarily help, and that foreign policy has to be consistent. The bill from 2021 has not been settled, and a queue of those wanting to negotiate separately has already formed.
Luminor’s half-year profit was 72 million euros, a fifth less than last year. Operating income barely moved at 271.7 million euros, second-quarter net profit was 37.4 million, down 19 percent. The bank says the profit is being eaten by spending on information systems and on digitising its business model. At the same time, new lending rules have applied since August 1, the down payment for a first home can fall from 15 to 10 percent, while 30 percent remains for a second and any subsequent one. Banks are earning less, and the regulator is opening the door to new borrowers.
Europe
A German steelmaker is hampered by low water on the Rhine, and Romania is shutting the Cernavodă nuclear plant over shallow water on the Danube. Two different sectors, one cause. European industry increasingly depends not on price and not on sanctions, but on the weather.
Poland’s army has reached 220 thousand soldiers, with a target of 500 thousand. The deadline drifts between 2030 and 2035, and formal documents mention even 2039. The defence ministry stresses that what matters is not only the headcount, but the reserve and readiness alongside it.
Ukraine
Lavrov: there will be no ceasefire. Russia’s foreign minister said on Friday that Moscow will not agree to freeze the front along the current line, and that strikes on Ukraine’s military industry will be intensified in the near future. The question of negotiations has not even been opened.
Ukrainian drones set fire to one of Russia’s largest oil refineries in Salavat. The plant stands roughly 1,300 kilometres from the Ukrainian border, processes up to 74 million barrels a year, and two civilians were wounded. It was the fourth strike on refining capacity in three days.
Queues are already visible at Russian filling stations. The campaign against refining works not through export revenue but through the domestic market, and that is where it is felt fastest. On Thursday the remains of 261 dead were returned to Ukraine.
Geopolitics
The Hormuz deal is melting away. Iran’s Revolutionary Guard declared that it will not reopen the strait until the United States meets a list of conditions. Tehran wants to retain control and to charge a toll for passage, Washington does not agree. On August 5 it looked as though the document would be signed within a day or two.
The US blockade is working by force. Since July 13, when the blockade of Iranian ports was reimposed, US Central Command CENTCOM has redirected 55 commercial vessels, disabled two and boarded two. The Panama-flagged cargo ship Vela Nova was stopped with two missiles into its engine room.
Houthis killed six people aboard a cargo ship in the Bab el-Mandeb Strait. The first fatalities in Red Sea shipping in more than a year. One strait is being opened through negotiation, the other is being closed by violence, and in both cases the bill lands in the same oil price.
The Senate passed a sanctions law on Russia and Iran by 86 to 11, named after Senator Lindsey Graham, who died on July 11. It provides for tariffs of up to 100 percent on the largest buyer states of Russian oil and gas, and extends Iran sanctions to 2031. An identical bill was introduced in the House of Representatives on August 10.
China imposed sanctions on some US companies and tightened drone exports on August 5, a month before the meeting between Xi Jinping and Trump in America. The sanctions are being placed not instead of talks but ahead of them, so that there is something to put on the table in September.
Central banks
US inflation in July was 3.4 percent. The consumer price index rose 0.1 percent on the month, the core measure excluding food and energy rose 0.2 percent, and its annual rate stands at 2.5 percent. Both annual figures fell by 0.1 percentage point over the month, but both still sit well above the two percent target.
The odds of a September rate hike fell. At the July 29 meeting the US central bank, the Fed, left the rate in the 3.5 to 3.75 percent range for the fifth consecutive time, but three participants voted against, wanting a hike. Chairman Kevin Warsh keeps repeating that he will not hesitate to stop inflation, and the bond market does not believe him.
Put all three together and you get an awkward position. Prices are sticky, the consumer is retreating, oil is getting more expensive. The consumer rules out a hike, prices rule out a cut.
What to watch tomorrow
Rinkēvičs’s address in Aglona. Whether Latvia calls the incident an error or a provocation. The wording determines whether joint NATO decisions will be requested.
The drone wreckage. Its type and origin will show whether Sinkevičius’s version had grounds, or was political insurance.
Brent above 90. The threshold is psychological, but above it inflation forecasts get recalculated quickly.
Walmart and Target results next week. They will show whether July’s drop in retail was a one-off or a trend.
Russia’s fuel market. Whether the queues at filling stations spread, and whether Moscow moves to restrict exports.
Meška’s comment
Oil rose fourteen percent in nine days, while consumer sentiment fell to 51. The market is celebrating a record and losing faith that there will be anyone left to buy, both at once. We will see which of the two signals turns out to be right.
Sources
Reuters, CNBC, Al Jazeera, Euronews, UPI, Fortune, Trading Economics, NBC News, RFE/RL, Yle, Kyiv Post, LRT, BNS, 15min, US Central Command CENTCOM, US Bureau of Labor Statistics, Federal Reserve, Bank of Lithuania.
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