23rd July - Oil Climbs On The 12th Night Of Strikes
US strikes on Iran continued for a 12th consecutive night, as oil continued to rise in price throughout the day. There were also reports of Houthi attacks on Saudi Arabian ships in the Red Sea, after the Iranian-backed group announced a 'maritime embargo' against Saudi Arabia and declared the Bab al-Mandab Strait closed to Saudi vessels.
There were no new reports of discussions over a truce or a ceasefire, meaning either talks are still going on behind closed doors or that it may have been a cause for false hope at the start of the week. The combination of these factors meant oil continued to rise yesterday, with Brent up 1.35% to $90 and US Oil up 2.1% to $86.50. Both have continued to rise this morning, with Brent now almost exactly 50% of the way between the previous lows and the wartime highs of April & May. If we continue to see oil rise and reach $100, there will then be real pressure on central banks to raise rates to combat the inevitable rise in inflation we will see from global CPI prints next month.
Forex
The USD halted its 3-day rise yesterday, with the DXY falling slightly (0.06%) to 101.100. Following softer CPI/PPI prints last week and weak NFP numbers at the start of the month, there is the potential for weaker fundamentals to catch up with the USD and move it lower over the next few weeks, though it is still backed by the safe-haven demand that is coming from the uncertainty around Iran. If we do see some form of ceasefire or truce, that could remove the demand-side factor propping up the USD even further, so this remains something for USD traders to keep a close eye on.
Yesterday morning saw the UK's CPI print released, which came in soft at 2.6% compared to an expected 2.7%. While this was only a small miss, we would still expect it to have a negative effect on the currency. However, we saw little to no movement in the GBP because of this, with the GBP/USD even gaining a little due to USD weakness. To me, this signals the same as the NZD's lack of movement from its own CPI print this week, that unless there is a significant surprise, markets are now primarily focused on next month's CPI prints. CPI prints released today are for a time when oil was at pre-war pricing and is for a world that we no longer inhabit.
The CAD continued to see support from rising oil prices, despite the implementation of tariffs on Canada by the USA. The CHF continues to show weakness as it struggles with its oil-dependent economy and 0% interest rates bleeding demand away from the currency. The JPY overall was relatively flat on the day, but the USD/JPY still remains dangerously high for the BoJ, who still have a decision to make on whether they will intervene in the market or not. The NZD and AUD both had relatively stable days, taking a break from the demand they had been seeing since the start of the month.
Indices
Some of the biggest news of the day came after market close yesterday, with Alphabet and Tesla releasing earnings reports. Alphabet was the more interesting and reflected the recent trend with data releases from the major tech companies. We saw exceptional revenue numbers, up 24% year-on-year and ahead of expectations, with a number of sub-sectors within the business reporting exceptional results. However, it also reported that the 2026 capex guidance would be $195-205 billion, up from $180-190 billion in April. On the back of the release, the stock fell 5%. Even with excellent earnings, the increase in capex guidance was enough to push the stock down, which is a pattern repeated among tech stocks and reinforces the concerns around excessive spending on AI. Tesla was also down after their release (3-4% overall), but this was more due to a miss on their earnings per share expectation and so was a more expected outcome.
That we can see a drop like this despite those earnings is further proof that the market is now penalizing capex expenditure on AI rather than rewarding it, further tying into the idea that AI spend is overstretched and needs to be wound down, which would lead to the balloon deflation rather than bubble burst scenario we have discussed in the past. However, it is worth noting where this expenditure is going when we look at the broader picture. The money is being spent on the chip and memory space, which would mean this expanded spending is beneficial for the semiconductor space even as it is bearish for the tech firms doing the spending, meaning the overall tech sector performance would balance out. Alphabet's CFO noted the raise in capex was driven by demand, that it is a demand signal and not wasteful spending as some fear. The question then becomes, is the spending evidence of overspending causing an AI bubble that could burst, or evidence of real demand that will produce real results? We have Intel reporting tonight, which will give us another set of data to analyse where the market is headed.
The indices as a whole were slightly lower on the day as investors waited for the two major earnings releases overnight, but are all starting the day a little bearish after the overnight news. With Intel reporting tonight, there is a chance investors will broadly keep their powder dry today as well, as they wait for more data before making their moves.
Precious Metals
Gold and silver defied normal expectations yesterday, as both rose despite no news on a truce and oil prices rising once again. Both had seen a boost from the initial reports of a potential ceasefire, which continued yesterday despite concerns about inflation continuing to rise. Gold rose 1.25% up to $4,130, but did fall from an intraday high of $4,165. Silver was similar, up 1.66% overall at $59.70 but a little off the intraday high of $60.93. Both have opened today lower, so we may be seeing that the optimism from the ceasefire rumours may be running dry.
Both are close to key psychological levels, with Gold below $4,200 and Silver below $60 (though it did briefly push through it yesterday). I feel today will be a pivotal day in the short term as to which direction metals will move, as they both need to break through key levels to be able to move further north. In the long term, I continue to think metals can be a good investment, but in the short to medium term, outside of an announced ceasefire, I am still struggling to see the catalyst that will push past the rate-hike concerns that are currently still circling. If we do see a ceasefire and oil begin to fall, having seen the reaction from the past two days to rumours, we could see a significant push in metals, but if we hear further escalation, there could be a burst of the optimism mini-bubble and a push down lower. As all seems to rest on geopolitics in the short term, it makes predicting a direction for metals very difficult.
Todays Key Market Drivers
Iran & Oil - Developments on a potential ceasefire would be a significant market mover, while silence on this front will see a move back to a more risk-off environment. The price of oil will affect everything, so developments with both the Iranians and Houthis will be keenly watched.
Intel Earnings - These will be released after market close and will add to the Alphabet story we saw today. This could be a significant market mover for indices.
EUR Interest Rate Decision, 1:45 pm UK time - The ECB is expected to hold rates, but the guidance around it will be interesting in light of energy prices and recent CPI prints across the globe.
USD Unemployment Claims, 1:30 pm UK time - Less of a market mover than monthly data releases, this will, as always, help to give us an idea of the health of the US economy.
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