Oil Fell. Hormuz Did Not Reopen.

This morning’s tape is better. It is not clean.

July producer prices were unchanged month over month and rose 4.7% year over year, down from 5.5% in June. Core wholesale inflation eased to 4.2% from 4.7%. That followed yesterday’s softer CPI report and cut the market-implied chance of a September Fed hike to roughly 32%, down from about 50% two days ago.

Bonds and stocks liked it. The 10-year Treasury yield fell to 4.64% from 4.68%, while the S&P 500 rose 0.4% after the open and moved back toward last week’s record. The Nasdaq gained 0.4%. This is the first two-day inflation sequence in a while that gives the Fed room to wait without asking equity investors to ignore the data.

Oil helped too. Brent fell 2.5% to about $86.75. That is below yesterday’s $89 close and well below the $102 spike seen last month. The move matters because energy is the quickest route from the Iran war into inflation, margins, and Fed policy.

But price relief is not route repair. Hormuz has not reopened, and the Middle East conflict is spreading along the alternate shipping route. Houthi forces and Yemen’s government fought overnight in Taiz after a week of attacks that killed dozens of government troops. The Houthis are also targeting Saudi oil facilities and Saudi shipping in the Red Sea. Dark oil residue appeared along Qeshm Island today, though its source has not been independently established.

That leaves the market pricing a favorable oil move without proof that the physical bottleneck is clearing. I will take Brent at $86.75 over Brent at $90, but I would not treat one down morning as operating confirmation.

The labor data are mixed in a way that matters for the Fed. Initial jobless claims rose to 209,000 from a revised 200,000, slightly above forecasts, but the four-week average held at 199,000 and continuing claims fell to 1.78 million. Layoffs are still low. Hiring is the problem: July payrolls fell by 23,000, and the unemployment rate declined only because 264,000 people left the labor force.

The consumer gets the next vote. Prices have now risen faster than average wages for four months. Friday’s retail-sales report will show whether $4 gasoline and weak hiring are beginning to curb spending. Preliminary Michigan sentiment and inflation expectations arrive the same morning.

Trade policy is not driving today’s tape, but it has not gone away. Shippers have begun passing tariff refunds to customers after roughly $100 billion was returned to companies, while the government is still appealing the order that extended refunds to all importers. New Section 301 duties of 10% or 12.5% on 60 trading partners now sit alongside that refund fight. DOGE is not moving markets this morning, and the broader deficit picture offers little cushion if energy or growth worsens.

Russia added another maritime tail risk. Vladimir Putin threatened to retaliate “in kind” for Western seizures of Russian-linked commercial vessels. It is not today’s primary driver, but it gives shippers and insurers one more reason to stay cautious.

Historical context: 1973 Yom Kippur War / Oil Embargo

This remains a possible analog, not a forecast.

Similarities:

• A Middle East conflict is impairing a globally important energy channel.
• Oil is feeding inflation risk while hiring weakens.
• The Fed must weigh price pressure against slower growth.
• Equities are calmer than the energy and shipping backdrop.

Differences:

• The United States is much less dependent on imported energy than it was in 1973, which reduces the direct economic hit.
• Today’s disruption comes through shipping access, insurance, sanctions, and military pressure rather than a coordinated producer embargo.
• The S&P 500 is near a record and volatility is subdued, not in a disorderly bear market.
• Strong corporate earnings and falling Treasury yields are cushioning valuations, though those valuations leave little room for a renewed oil spike.

Strategy	Typical 5M Return	Typical 5M Vol	Analog Return	Analog Max DD	Analog Vol
Buy & Hold	+4.5%	13.3%	-11.0%	-18.6%	19.6%
200 SMA Trend	+1.8%	10.7%	-4.5%	-5.5%	5.6%
12M Momentum	+2.8%	11.3%	+0.0%	0.0%	0.0%
RSI Mean Reversion	+0.0%	5.8%	-2.8%	-10.1%	17.6%

What I take from the numbers is simple: wait for confirmation. In the analog window, trend and momentum avoided much of the damage by waiting for price. Today’s lower energy dependence, strong earnings, falling yields, and calm equity tape are real differences. The warning is narrower: inflation can improve before the supply route has actually healed.

Deployment stance

I am keeping the pulse at RED. I would deploy at reduced size or with explicit hedges.

The softer PPI, lower oil, and falling yields move the setup in the right direction. They keep CRITICAL off the table. Normal deployment still looks too aggressive while Brent is above $80, Hormuz is unresolved, and the Yemen front is expanding around Saudi oil and Red Sea shipping.

I would move toward YELLOW if Brent holds below $80, tanker and insurance data confirm sustained Hormuz normalization, and volatility stays subdued through Friday’s consumer data. I would move toward CRITICAL if Brent retakes $95, VIX breaks 20, or equities and yields begin confirming the oil shock together.

The next catalysts are retail sales and preliminary Michigan sentiment Friday, then the late-August PCE report and the September Fed meeting. The inflation data bought the market time. Shipping still has to earn the all-clear.

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Sources: AP - July PPI, core inflation, and consumer pressure, AP - markets, Brent, Treasury yields, and Fed probabilities, AP - jobless claims, AP - Yemen fighting and Middle East shipping risk, AP - tariff refunds reaching customers, USTR - Section 301 forced-labor tariffs, AP - Putin’s vessel-seizure threat, New York Fed - August economic calendar