{"id":903,"date":"2026-07-31T17:40:25","date_gmt":"2026-07-31T21:40:25","guid":{"rendered":"https:\/\/brintab.com\/?p=903"},"modified":"2026-07-31T17:40:26","modified_gmt":"2026-07-31T21:40:26","slug":"commentary-july-2026-persian-gulf-optimism","status":"publish","type":"post","link":"https:\/\/brintab.com\/?p=903","title":{"rendered":"Commentary July 2026 \u2013 Persian Gulf Optimism?"},"content":{"rendered":"\n

Commentary July 2026 \u2013 Persian Gulf Optimism?<\/u><\/strong><\/p>\n\n\n\n

The second quarter opened in the shadow of the Iran conflict, with oil prices still elevated and investors bracing for a rerun of the ups and downs that had rattled markets earlier in 2026. As tensions in the Middle East gradually eased and some ships started to get through the Strait of Hormuz, the fear premium that had been baked into stock prices faded and markets recovered.<\/p>\n\n\n\n

It would be a mistake, though, to read this simply as “crisis resolved, back to normal.” Two things are true at once. First, the Artificial Intelligence (AI) bubble continued to be the primary driver of markets. Second, the oil shock has still left its mark on inflation, which crept back up over the quarter on the back of higher energy costs. This prompted us to contemplate whether the current inflation is sticky or just transitory.<\/p>\n\n\n\n

Bonds and Interest Rates<\/u><\/strong><\/p>\n\n\n\n

Coming into the quarter, we expected the path of least resistance for interest rates to be gradually lower as inflation from the latest Persian Gulf War started to calm down. That expectation has been pushed out.  We still await the gradual impact of the oil market stabilization. Under the new leadership of Kevin Warsh, the US Federal Reserve held short term rates steady through the quarter.  They adopted a slightly firmer tone by the end of June due to more inflation concerns, somewhat exacerbated by high oil prices. Even after the Persian Gulf started to settle down and oil prices plummeted by the end of the quarter, energy-driven inflation is still a lingering concern. <\/p>\n\n\n\n

\"\"style=\"height:auto;width:100%;border:2px<\/figure>\n\n\n\n

Fig. 1: Bonds-Med. term Cdn Gov\u2019t-purple, Cdn Corp-green, High Yield-red, Long Term US-black – 2 years \u2013 TradingView<\/strong><\/p>\n\n\n\n

Furthermore, the rampant spending on AI equipment by tech companies is also pressuring inflation.  As the US Federal Reserve signalled its bias to keep short term rates higher to squelch inflation, the result was that very long-term rates started to fall and thus long-term bond prices started to rise.  Why, you ask, would long term rates fall when short-term rates rise?  Long-term bond investors became slightly more comfortable that they did not need to embed quite as much inflation expectation in the interest rates they were demanding.  If the Federal Reserve gets inflation under control with higher short-term interest rates now, then in the long run interest rates can be lower.<\/p>\n\n\n\n

North of the border, the picture is somewhat more benign. The Bank of Canada has kept its policy rate on hold, and core inflation measures have stayed close to target despite the same fuel price spike seen by Americans.  It is the Bank’s view that the Iran-related shock will prove transitory for Canada. Meanwhile, the fear of a recession in Canada seems to have faded too.  The combined effect is more chance that interest rates stay steady \u2013 they don\u2019t go up or down much.  Just like for American long-term bonds, Canadian long bond yields also eased toward the end of the quarter, although in Canada\u2019s case it did not take expectations of short-term rate increases to make long bond rates come down.<\/p>\n\n\n\n

Currencies<\/u><\/strong><\/p>\n\n\n\n

The U.S. dollar found renewed support this quarter as the Fed’s hawkish pivot widened the interest rate advantage between the U.S. and other countries, including Canada. The USD saw strength against many world currencies and the Canadian dollar drifted lower to settle just above $0.70 USD.  There was a brief Canadian windfall profit in the quarter due to the short-term surge in oil prices but that was just a blip and did not drive the CAD higher as it typically would.<\/p>\n\n\n\n

\"\"style=\"height:auto;width:100%;border:2px<\/figure>\n\n\n\n

Fig. 2: US Dollar Index-green and USD vs CAD-purple \u2013 2 years \u2013 TradingView<\/strong><\/p>\n\n\n\n

Near the end of the quarter, we shifted to expect there might be potential for the CAD to dip into the mid-60s USD as the Canadian economy looked weaker thanks to hesitation related to trade agreement CUSMA negotiations.  The different economic outlook is letting Canadian interest rates trend lower while US rates trend higher.  The interest rate gap is likely going to make the exchange rate move (i.e. CAD to weaken).  A sub-0.70 CAD is what we saw back from 1998-2002 and Canada would have to engineer a fundamentally different economic path from the US economy for things to be substantially different.  With meaningful investments in the US, a lower CAD would not bother us so much but we recognize the pain from the weakened purchasing power of Canadians\u2019 income that you end up feeling.  We are just happy to be able to offset that somewhat on the investment side.<\/p>\n\n\n\n

Stock Markets<\/u><\/strong><\/p>\n\n\n\n

This quarter most global stock markets (with the notable exception of the UK) recovered from the recent Iran war-induced decline but the Japanese market rose the most.  Japan was driven by the global technology and factory automation boom, for which Japan provides many inputs. By the way, Korea had a similar experience.<\/p>\n\n\n\n

Bank stocks continued to do very well and we started to see housing-related stocks pick up on the notion that long term interest rates might decline a bit, bringing the housing market back to life.  Also, our investments in the more stable yield-focused utilities sector continued to do well for us.<\/p>\n\n\n\n

\"\"style=\"height:auto;width:100%;border:2px<\/figure>\n\n\n\n

Fig. 3: Stocks: US-black, Can-purple, Jpn-red, UK-yellow, Germany-green \u2013 2 yrs \u2013 Trading View<\/strong><\/p>\n\n\n\n

It seems highly probable that the recent surge in stocks will be followed by a broad market pullback in late summer or fall and once that happens, we suspect that we will see markets transition to different sectors leading the charge, with more of a consumer spending link.  That theme could eventually bring the housing and automotive sectors back into the flow, both of which have faced weak demand for a couple of years now.<\/p>\n\n\n\n

This year gold has not been the bright shiny investment it was in 2025.  At the moment it seems its resurgence will only likely happen once a US recession emerges, which is still at least a couple quarters off.  After the 2025 surge in gold, we did lighten our exposure and we may further reduce it in the months ahead, depending on how the summer progresses.<\/p>\n\n\n\n

As we welcome summer, we expect a market pullback around the corner and our main focus will be to understand if it is more driven by consumer stocks or related to a decline in all the capital spending on AI equipment.  Observing the key drivers of any pullback will help guide where we deploy cash into promising investments.<\/p>\n\n\n\n

Respectfully submitted,<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Paul Fettes, CFA, CFP, Chief Executive Officer, Brintab Corp.<\/p>\n","protected":false},"excerpt":{"rendered":"

Commentary July 2026 \u2013 Persian Gulf Optimism? The second quarter opened in the shadow of the Iran conflict, with oil prices still elevated and investors bracing for a rerun of the ups and downs that had rattled markets earlier in…<\/span><\/p>\n

Read more ›<\/a><\/div>\n

<\/p>\n","protected":false},"author":10802,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-903","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/brintab.com\/index.php?rest_route=\/wp\/v2\/posts\/903","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/brintab.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/brintab.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/brintab.com\/index.php?rest_route=\/wp\/v2\/users\/10802"}],"replies":[{"embeddable":true,"href":"https:\/\/brintab.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=903"}],"version-history":[{"count":1,"href":"https:\/\/brintab.com\/index.php?rest_route=\/wp\/v2\/posts\/903\/revisions"}],"predecessor-version":[{"id":918,"href":"https:\/\/brintab.com\/index.php?rest_route=\/wp\/v2\/posts\/903\/revisions\/918"}],"wp:attachment":[{"href":"https:\/\/brintab.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=903"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/brintab.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=903"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/brintab.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=903"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}