Monday, July 13

Headline CPI surprised to the downside—down 0.4% month-on-month and cooling the annual rate to 3.5% from 4.2%—a move characterized as the first monthly softening in core prices in more than six years. The market reaction was immediate: CME’s FedWatch probabilities for a July rate hike collapsed to about 17% from 42% a day earlier, and short-dated Treasuries sold off their hike risk as traders ripped up near-term tightening bets.

Policy messaging complicated the read. Fed Chair Kevin Warsh gave a restrained Humphrey‑Hawkins testimony, reiterating the 2% goal without committing to near-term action, while Governor Christopher Waller warned additional tightening could be needed if core inflation remains elevated—comments that helped keep medium-term “higher‑for‑longer” pricing alive. The net: intraday moves favored dovish positioning, FX crosses such as GBP/USD rallied as near-term Fed odds fell, but money markets and longer-term yields still reflect upside inflation and policy risk once geopolitical oil pressures are folded in.

Political escalation in the Strait of Hormuz became a direct macro driver: President Trump ordered a targeted blockade on Iranian vessels and a transit levy on non‑Iranian cargo while reports said Iran had shut or restricted traffic, reducing shipments “to a trickle.” Energy markets reacted—Brent gained roughly 3.5% and approached $79/bbl, WTI traded near $74, and weekly gains were notable (Brent ~+5.4%). Some commentary even placed world oil prices back above $85 if hostilities persist.

Those moves lifted breakeven inflation and forced money markets to reprice policy risk: euro-area and U.S. curves incorporated higher energy-driven inflation premia and hedge-like demand pushed volatility across FX, rates and credit. The EU’s failure to agree a fresh Russia sanctions package added another supply-side uncertainty. The implication for markets is clear—geopolitical oil shocks have the capacity to offset a soft CPI print and keep medium-term rate and inflation expectations elevated.

The start of U.S. bank earnings season provided a defensive counterpoint to tech weakness. JPMorgan reported roughly $21.2 billion in quarterly profit—the highest ever for a U.S. bank—helped by ~30% higher investment‑banking fees and a ~35% surge in markets revenue tied to Iran‑related volatility. Other majors, including Goldman Sachs, Bank of America, Citigroup and Wells Fargo, also posted strong results, and Goldman’s stock jumped about 9% on trading and fee windfalls. That flow into financials and cyclicals helped cushion equity markets amid broader risk aversion.

Counterbalancing this, IBM issued a profit warning and plunged ~26%, erasing roughly $69 billion of market value in a single session, while the Philadelphia Semiconductor Index fell ~10% over the week and moved more than 20% off its June peak. Yet capex signals remain mixed: ASML raised revenue guidance and TSMC flagged robust AI-related orders even as public semis slid—leaving portfolios to balance resilient financials and software names against volatile hardware and AI‑infrastructure exposures.