Key Takeaways
- Saudi Arabia's East-West Pipeline has recovered to 5.5 million barrels per day (b/d), restoring roughly 75% of its nameplate capacity following recent drone strikes.
- German government forecasts for economic growth have been revised upward to 1.3% for 2026 and 1.1% for 2027, a significant jump from previous April estimates.
- Money markets are scaling back hawkish bets, with traders no longer fully pricing in a third ECB rate hike by year-end or a fourth Bank of England hike by 2027.
- US Treasury yields saw a sharp move as the two-year yield fell 10 basis points to 4.785%, reflecting shifting expectations for the Federal Reserve's policy path.
Saudi Energy Infrastructure Rebounds
Flows through Saudi Arabia’s critical East-West Crude Pipeline have recovered to approximately 5.5 million b/d, according to industry sources. This recovery brings the pipeline to roughly 75% of its 7 million b/d nameplate capacity, a vital development for global energy security as the kingdom bypasses the volatile Strait of Hormuz.
The restoration of these flows follows repairs to pumping stations damaged in recent drone attacks. While a full return to pre-attack levels may take several more weeks, the current throughput has already allowed Saudi Aramco (2222.SR) to resume significant export loadings from the Red Sea port of Yanbu.
European Economic Outlook and Rate Adjustments
The German government has significantly upgraded its economic outlook, according to a leaked draft. Berlin now forecasts growth of 1.3% in 2026 (up from 0.5%) and 1.1% in 2027 (up from 0.9%), though it expects a cooling to 0.6% by 2028. This optimism comes despite ongoing structural challenges and energy price volatility stemming from regional conflicts.
Simultaneously, traders are recalibrating their expectations for European monetary policy. Money markets have pulled back from pricing in three additional rate hikes from the European Central Bank (ECB), now questioning if even one more hike will occur by year-end. Similarly, the Bank of England (BoE) is seeing a shift in sentiment, as traders no longer fully price in four rate hikes by the end of 2027.
Treasury Yields and Global Market Sentiment
In the United States, the fixed-income market reacted to the shifting global narrative with a notable drop in short-term yields. The US two-year Treasury yield fell 10 basis points on the day to 4.785%. This move suggests that investors are beginning to price in a more cautious approach from the Federal Reserve, even as other central banks maintain a data-dependent stance.
The combination of recovering oil supply and cooling interest rate expectations has provided a complex backdrop for global equities and currencies. While the British Pound remains under pressure near three-month lows, the broader market is closely watching for official policy statements from the BoE and ECB later this month to confirm if the current "peak rate" narrative will hold.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.