The corporate sector likes and demands certainty, predictability, and transparency. Without these, companies are unable to make sound investment decisions. In fact, they are legally required to be transparent themselves, and disseminating false or misleading information carries legal consequences.

Now, imagine if the US government were a publicly traded company. Its regulator would be all over it, demanding clarifications and retractions almost daily. As a matter of fact, the executive branch of the US does have a regulatory body. It’s called Congress. It is, however, completely unable or unwilling to perform its oversight duties. This is what happens when the CEO of “US Inc.” is also, in effect, the head of the supervisory body.

Last month and last week were even more turbulent than the new standard set in April. Numbers and deadlines were flying in every direction, only to be withdrawn and then reinstated. Whenever a ‘final date’ for trade negotiations is extended, the famous quote from St. Augustine’s Confessions comes to mind: “God, grant me chastity—but not yet.” This eternal struggle between self-control and desire played out in the announcement and then reversal of a 50% import tax on copper, or in the further extension of the tariff deadline for Mexico.

On the other hand, the government’s action frequently resembles the ‘Full Monty’ phenomenon. It is one package, and either you take it, or you get nothing. Excise duties were raised to 35% for Canada. Officially, the reason cited was the fentanyl trade, even though only about 0.1% of the total fentanyl supply comes from the US’s northern neighbour. The more likely reason? Canada’s intention to recognise a Palestinian state in light of the awful humanitarian crisis in Gaza.

It is now almost universally accepted and expected that the tariff charade will continue. One cannot help but wonder if the frequent U-turns and controversial decisions are, at least in part, a deflection, especially as concerns rise, even among staunch MAGA supporters, over the unreleased client list of convicted sex offender Jeffrey Epstein. Whatever the underlying motives, the US President appears determined to make trading partners pay for the privilege of accessing the vast US market.

Despite ongoing uncertainty around the extent of import duties, investors remained admirably upbeat in July. Major US equity indices posted solid returns last month, and the MSCI All-Country Index finished more than 1% higher. The bounce in the dollar index (+3.4%) also helped calm investor nerves. The stronger dollar even led the IMF to revise upward its global economic growth forecasts for this year and next.

Whether this optimistic market performance stems primarily from strength in the tech sector or from a genuine belief that tariffs will not harm the US economy is open to interpretation. The prevailing view seems to be that tariffs won’t trigger inflation or weaken the labour market. If misplaced, the Federal Reserve, despite relentless pressure from the President, may decide not to cut interest rates in September, remaining focused instead on its dual mandate: maximum employment and price stability.

A mix of economic indicators, rising PCE, slowing growth, and sluggish consumer spending, could be viewed as red flags for the second half of the year. So too could Friday’s nonfarm payroll data, which saw job growth slowing more than expected. More worryingly, trust in the US Administration further eroded after the head of the Labor Department was accused by the President, without evidence, of rigging data and consequently fired. The erosion of credibility resulted in a sharp drop in equities and the dollar on Friday. Future economic data will determine whether it was merely a blip or the beginning of the end.

Geopolitics Supports Oil

The impromptu, instinct-driven policymaking of the US apparatus continues to influence global flashpoints. While it may not serve as a springboard for a sustained rally, it has put a floor under oil prices. Donald Trump has so far failed to deliver on his campaign promise to end Russia’s invasion of Ukraine. However, his patience appears to be wearing thin. In a reversal, he recently threatened to tighten the sanction screw further by imposing secondary embargoes on those dealing in Russian energy.

As my colleague laid it out in one of last week’s notes, we do not believe that he would intentionally push oil prices higher, but mood changes are one of the idiosyncrasies of his presidency; therefore, sudden but brief price spikes cannot be completely ruled out.

Meanwhile, one bullish factor in oil markets appears to be fading, potentially replaced by another. The middle of the barrel, distillates, has offered unexpected and counter-seasonal price support. This was evident in the crack spreads on CME, which peaked above $38/bbl in the second half of July, compared to around $22/bbl during the comparable period in 2024. While global middle distillate inventories had been declining, recent data suggests the trend may be reversing. Stocks rose in both the US and Singapore, although they still drew in the ARA hub.

Gasoline now seems poised to take the lead. Last week’s EIA report showed a significant 2.7 mln bbls draw in US gasoline inventories, driven by refinery output exceeding 9 mbpd, a proxy for robust demand during the driving season. That said, inventories remain ample by historical standards: they are 2.1% higher than this time last year and exceed the seasonal long-term average by 1%.

In the medium term, oil prices will be shaped by a mix of tariffs and geopolitics. Any price jump triggered by energy sanctions is expected to be ephemeral, after all, US retail gasoline prices have a decisive nudge on voters’ preferences. Tariffs, on the other hand, no matter how diplomatically they are presented, will foster lasting animosity between the US and its trading partners, ultimately weighing on both economic and oil demand growth. No help is forthcoming from the supply side, as evidenced by yesterday's OPEC+ decision to complete the unwinding of the 2.2 mbpd voluntary production constraints by September and actively start to discuss the easing of the 1.65 mbpd cuts come September 7.

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