EM Weekly
July 4, 2026

The practical dividend of de-escalation in the Middle East kept accruing this week: Gulf tanker traffic normalized further and mine-clearing operations off the Iranian coast progressed, though officials on all sides reiterated that a full restoration of pre-war maritime flows would be measured in months rather than weeks. It was the durability of the arrangement, rather than its existence, that remained the market’s central preoccupation as the 60-day negotiating window runs down.

Frictions beneath the headlines persisted. The dispute over transit fees through the Strait of Hormuz continued, with Oman and the U.S. continuing to press for a toll-free Strait while Tehran preserved the option to levy charges once the window expires; the Iran-Oman joint navigation mechanism advanced in parallel. The Israel-Hezbollah track remained the most combustible element of the regional picture, a standing reminder that tail risks to the détente have not been resolved.

With the supply shock now firmly behind it, crude drifted toward pre-war levels. Brent, the global benchmark, traded in the low-$70s per barrel, its lowest since before the conflict, as markets priced a best-case reopening. The OPEC-IEA divide over a prospective 2H26 supply glut continued to frame the debate over where prices will ultimately settle once Hormuz throughput is close to being fully restored, with WTI tracking the move lower.

On trade, the July 1 USMCA review reached its deadline. As telegraphed by the Trump administration, the U.S. declined to renew the agreement with Canada and Mexico in its current form, effectively shifting the process to a schedule of annual reviews until the deal expires in 2036, unless one of the parties decides to withdraw. 

The week’s marquee data event was the U.S. June employment report, brought forward to Thursday, July 2 ahead of the Independence Day market closure. Nonfarm payrolls rose by just 57k versus consensus expectation of 113k and the prior two months were revised downward, with the unemployment rate falling to 4.2% as labor force participation plunged.  

The slower-than-anticipated increase in U.S. jobs drove stocks higher, while short-dated U.S. treasury yields fell on bets that the Federal Reserve will not be forced to raise interest rates any time soon, prompting a repricing of market assigned Fed rate hike probabilities lower. The U.S. dollar held near its one-year high on the DXY (~100) and the Treasury curve was broadly stable, with the 10Y benchmark around 4.48%. Gold re-gained some ground against the backdrop of a stable dollar. The Japanese yen started the week on the back foot but strengthened sharply mid-week from record-low levels against the USD amid rising speculation that authorities in Tokyo may intervene to prop up the currency. 

Globally, the policy set-piece was the ECB’s annual Forum on Central Banking in Sintra, Portugal, where policymakers struck a broadly cautious tone, emphasizing that a disinflation last mile complicated by the recent energy price shock argues for patience before any easing. In the Eurozone, German and French flash June CPI prints had a disinflation tone, coming in below expectations. China’s manufacturing PMIs held above the 50 expansion line, while the final 1Q UK GDP estimate was revised down to 0.9% YoY, from 1.1% originally estimated. 

For emerging markets, the familiar crosscurrents endured. Cheaper energy and the clearing of Colombia’s electoral risk, where president-elect de la Espriella’s transition proceeded with early cabinet and policy signaling following rival Cepeda’s concession, remain supportive at the margin, but a dollar near cycle highs and a developed-market policy backdrop still tilted toward tightening, keeping external financial conditions on the restrictive side.