U.S. Rescues The Yen | Macro Mondays: August 3, 2026

The US intervened in the Japanese yen market in coordination with Japanese authorities, described as the reverse of the 2011 intervention when authorities acted against a strong yen. Japanese authorities need both sides working together for a currency intervention to be effective, and without controlling the yen's path they cannot control inflation, which they have long struggled with. Trump stated Japan has been nice to the US, though no confirmed quid pro quo has been established, and whether Japan will be asked for something in return remains unknown, though the Trump administration typically seeks reciprocal arrangements.

Trump called off what he described as the largest attacks on any country since World War II, citing progressing negotiations, while Iran is not confirming involvement. The US side has become increasingly realistic in its demands, having already stripped back its original list from scrapping the missile program and regime change down to nuclear issues and the Strait of Hormuz. Trump's core remaining demand is getting the Strait reopened, and the nuclear question is likely to be dropped or produce only token progress in the next memorandum of understanding. A CNN report indicated the US General Staff emailed middle management asking for target suggestions because they are running out of things to bomb in Iran. The likely resolution framework involves war reparations, lifting sanctions, and a joint venture between Iran and Oman to manage the Strait, effectively removing the US from it, with the pre-war status quo not being restored since Iran has no incentive to return to it.

The oil market has found ways to maneuver around the Iran-related disruptions and the relevance of each new escalation dissipates over time. Roughly five to six million barrels per day are being moved out of the region via the seaway, and Iraq is offering tankers just under thirty dollars per barrel to load and transit through the Strait of Hormuz, with the extra profit per willing ship approximately fifty to sixty million dollars. Markets did not show the same panic bid in the Houston Argus to WTI spread this time as they did in March and April, interpreted as markets not discounting the same event twice with equal panic. Sequential weekly deterioration from the Iran situation is likely past its peak, though a second memorandum of understanding is probably not coming short-term.

US inflation looks extremely soft, and the July report due in mid-August is expected to look as soft or softer than June. A World Cup booking hangover is contributing to disinflation because flight and hotel bookings front-ran actual travel dates, inflating earlier readings and now fading. Core goods inflation looks soft because the US has moved from a period of tariff intake to a net tariff release, with tariffs being paid back on a monthly basis in June and July. Executives receiving tariff refunds are likely holding prices roughly sideways rather than cutting them due to bad PR optics, resulting in inflation near zero on the month.

The Federal Reserve under Walsh is characterized as significantly out of tune with actual inflation data, mirroring in the opposite direction the Fed's error of dismissing rising inflation in 2021 and 2022. By saying nothing, Walsh is implicitly maintaining a hawkish stance while inflation is falling, which raises real rates. Rising real rates were identified as the primary catalyst for the momentum selloff in July, which was then accelerated by King Leopold and associates in Korea. A thirty percent drawdown was sufficient to wipe out Leopold's entire book, though he remains up approximately eighty percent on the year due to an Anthropic position that could not be sold, meaning most investors in Situational Awareness who entered from the start are effectively at around zero excluding that illiquid position. The AI trade is becoming increasingly debt-driven, which amplifies leverage-driven volatility when the Fed's path is uncertain.

Alphabet reported tremendous earnings growth described as an honest report and reduced its server park lifecycle in accounting, increasing transparency of capex reporting. Microsoft increased its server park lifecycle from fifteen to twenty-five years, shifting capex from the operational to the financial lease category and obscuring true capex levels. Despite this, Microsoft was celebrated by the market while Alphabet was sold off, a dynamic characterized as reflecting the stupidest market one speaker can recall participating in.

Samsung is expected to generate more than one trillion in free cash flows over the next three years against a market capitalization of roughly one trillion, meaning it could theoretically buy back the entire company over that period. Micron and SK Hynix face a similar valuation situation relative to projected free cash flows. In 2027, approximately seventy-five percent of the more than one trillion in projected hyperscaler capex is expected to go to memory chips, and memory chips are argued to be currently more valuable than GPUs in that context. The market continues to price memory companies as cyclical despite their projected cash generation, and agents in the agentic economy require significantly more memory than logic, which may make Nvidia's relative valuation premium versus memory names incorrect. All nowcasting data across India, China, Japan, and Europe currently suggests the dollar has more weakness ahead, with Real Vision's nowcasting leaning toward dollar weakness since US inflation data began softening.