Renewed fighting between the U.S. and Iran has pushed oil prices higher, prompting central banks to remain vigilant on inflation. Eurozone data have improved, with the July Sentix Investor Confidence Index rising to -3.1 from -3.4, well above expectations of -10. June Services PMI was revised up to 49.4, while the Composite PMI was revised to 50. However, renewed Middle East tensions have lifted Brent crude back above US$90/bbl, pushing the eurozone one-year inflation swap rate to 2.5%. June CPI rose 2.8% YoY, with core CPI at 2.4%, reigniting inflation concerns. Against this backdrop, the ECB maintained its restrictive policy stance while signaling a “hawkish pause,” keeping the option of a September rate hike if inflation pressures persist.
Military conflict between the U.S. and Iran intensified as U.S. airstrikes on Iran continued. Yemen’s Houthi forces announced a maritime blockade against Saudi Arabia and threatened shipping through the Bab el-Mandeb Strait, while Iran stepped up attacks on oil shipments through the Strait of Hormuz. President Trump warned of retaliation, keeping global energy supply and trade under pressure. Oil prices rose, adding to equity market volatility.
Escalating Middle East tensions pushed WTI crude back above US$92/bbl, lifting inflation expectations and Treasury yields. The U.S. 10-year yield rose to 4.70%, while the 30-year yield climbed above 5.16%, weighing on bond markets, with long-duration bonds underperforming. The U.S. dollar strengthened to 101.4, pressuring gold, silver, and base metals. Meanwhile, Bitcoin and Ether attracted inflows on expectations that the CLARITY Act will be passed.
Semiconductor Pullback Shifts Focus to Hyperscalers as Earnings Test AI Growth and ROI
Semiconductor stocks have pulled back in recent weeks, while cloud platforms and enterprise software have outperformed. The rotation reflects investors shifting from AI hardware, such as chips and servers, toward platforms that control computing capacity, enterprise customers, and AI applications. For now, this appears to be a sector rotation rather than a reversal in AI infrastructure demand.
Major U.S. banks reported better-than-expected 2Q earnings, led by strong investment banking, equity trading, and wealth management. Higher interest rates continued to support net interest income, while improving capital markets activity–including IPOs, M&A, and bond issuance–along with elevated market volatility boosted investment banking and trading revenue. JPMorgan’s equity trading revenue rose 86% YoY, investment banking fees increased 30%, and the bank raised its full-year net interest income guidance. Goldman Sachs reported 72% growth in equity trading revenue, a 55% increase in investment banking fees, and 32% growth in fixed-income trading.
Following the ECB’s June rate hike, long-term yields have risen and yield curves have steepened, supporting European banks. Historically, European bank stocks have tended to move in line with higher German 10-year government bond yields. While U.S.-Iran tensions have resurfaced, they are unlikely to reach the severity seen in March. With the U.S. midterm elections approaching, oil prices and economic growth are expected to remain manageable. Markets still expect one more 25 bps ECB rate hike by year-end, supporting bank earnings. Reflecting this backdrop, earnings forecasts for European financials have been revised steadily higher over the past month.
