9.7.26

Closing Recap

U.S. stocks finished mixed on Wednesday as the renewed conflict in the Middle East sent shockwaves through global markets, with oil prices surging more than 5% to their highest levels in nearly three weeks while U.S. stocks ended mixed. President Trump declared the U.S.-Iran ceasefire agreement “over” and the military launched fresh strikes against Iranian targets, reversing the peace momentum that had driven oil to 26-year lows just days earlier. The Dow Jones Industrial Average tumbled 1.09% to 52,348.39, the S&P 500 sank 0.28% to 7,482.71, and the Nasdaq 100 managed a marginal gain of 0.22% to 29,318 as tech stocks found some footing after Tuesday’s brutal selloff.

Brent crude futures surged 5.2% to settle at $78.02 per barrel, while WTI crude jumped 4.4% to $73.52. Gold climbed back above $4,100, rising 0.68% to $4,103.17 as safe-haven flows returned amid the escalating Middle East crisis. Silver outperformed, jumping 1.23% to $58.961, while platinum surged 1.83% to $1,616.80. The dollar index pulled back 0.15% to 100.841, retreating from the 101+ highs as the safe-haven bid was partially offset by positioning adjustments. USD/JPY edged marginally lower to 162.286 but remains within striking distance of 40-year extremes. Bitcoin hovered near $61,500 as the risk-off environment and ongoing Strategy sales weighed on crypto. 

Key Takeaways

• Stocks Mixed as Geopolitics Dominate: The Dow fell 1.09% to 52,348.39, the S&P 500 shed 0.28% to 7,482.71. Nine of 11 S&P 500 sectors ended in the red, with materials (-2.49%) and financials (-1.92%) leading the laggards.
• Oil Surges Above $78: Brent crude jumped 5.2% to $78.02 per barrel, while WTI crude climbed 4.4% to $73.52. Both benchmarks hit their highest levels since June 19-22 as the U.S.-Iran ceasefire collapsed.
• Gold Reclaims $4,100: Gold climbed 0.68% to $4,103.17 as safe-haven buying returned. Critically, gold is entering a historically favorable seasonal period — July has averaged +1.5% gains over the last 20 years, making it the 2nd-strongest month of the year with a 65% win rate. The only better month is August, with +1.6% average gains since 2005.
• Silver Crashes Over 4%: COMEX silver futures declined 4.3% to $58.69 per ounce, as industrial metals were battered by geopolitical uncertainty.
• Dollar Holds Near 101: The DXY traded near 101.07-101.28, supported by safe-haven demand and elevated oil prices. The dollar fetched 162.41 yen.
• USD/JPY Tests 162.50: The yen weakened to 162.41-162.59 per dollar, hovering near the strongest levels since July 1, as the interest rate differential with the U.S. continued to pressure the currency.
• Bitcoin Holds $62,000: BTC traded at $62,009-62,262, down 1.2-2.0% on the day, consolidating in a narrow range as geopolitical tensions weighed on risk appetite.
• FOMC Minutes Reveal Deep Divisions: The June meeting minutes showed nine of 18 officials now anticipate a rate hike by December, with inflation risks from AI investment, Middle East energy disruption, and tariffs testing the Fed’s resolve.
• Fed Rate-Hike Odds Rise: The probability of a September rate hike increased to around 49.5% on Polymarket as hawkish FOMC minutes and soaring oil prices reignited inflation fears.
• BofA: S&P 500 Technicals Point to Corrective Q3: BofA analyst Paul Ciana says the S&P 500 uptrend that began in April turned rangebound in May. Bears point to “an exhausted uptrend, diamond top pattern, corrective wave count, weaker momentum, and defensive Q3 seasonals in year 2 of the Presidential Cycle.” Bears target 7,122 and 6,968. Bulls see “a correction-through-time, triangle continuation pattern, and improving breadth.”
• Traders Boost ECB and BoE Rate Bets: Markets are now pricing in two 25bps hikes by year-end from both the ECB and the Bank of England, as European central banks maintain a hawkish stance despite the Fed’s opaque messaging.
• Goldman Sachs on RBNZ: GS leans toward another 25bp hike by the RBNZ in September to 2.75%, following the July meeting’s 25bp increase to 2.50%. The bank stays constructive on NZD, arguing markets underappreciate the unanimous vote and potential for further tightening.
• Deutsche Bank: Dollar Is Mutating Into a Risk Asset: DB’s Mallika Sachdeva argues the dollar’s problem isn’t abandonment – it’s that the world is changing how it owns it. Three forces: (1) funding mix flipping, (2) parallel payment revolutions, (3) Asia’s cheap currencies with JPY as the key.
• Credit Agricole on USD/JPY Intervention: The firm sees 162-164 as the key battleground, with the MOF having reserves for “over 15 more interventions of the size it did during April and May.” Japan benefits from a weak yen but will avoid letting USD/JPY move above 164.
• SpaceX Extends Losses: The newly added Nasdaq 100 component continued its slide for a third consecutive session, reflecting broader tech volatility.

Market Overview

Wednesday’s session was a stark reminder that geopolitical risk remains the ultimate wild card in financial markets. President Trump’s declaration that the ceasefire was “over” and the launch of fresh military strikes against Iranian targets sent oil prices soaring more than 5%, erasing virtually all of the geopolitical premium unwinding that had sent crude to 26-year lows just days earlier. Iran retaliated with attacks on several U.S. military bases in the Middle East, while Trump warned that strikes could get “much worse” – a stark reminder that the geopolitical risk premium can return as quickly as it evaporates.

U.S. and Major World Indices:

Index	Up/Down	%	Last	Sentiment
Dow Jones Industrial Average	Down	-1.09%	52,348.39	Bearish
S&P 500	Down	-0.28%	7,482.71	Bearish
Nasdaq Composite	Up	+0.20%	25,870.65	Bullish
Philadelphia Semiconductor	Up	+2.23%	—	Bullish
Russell 2000	Down	-0.88%	—	Bearish

The equity market reaction was starkly bifurcated. The Dow tumbled 1.09% as materials and financials – sectors most exposed to inflation and higher oil prices – led the decline. But the Nasdaq managed to rise 0.20%, with the semiconductor sector surging 2.23% as investors rotated back into tech after Tuesday’s brutal selloff. The dollar’s 0.15% retreat to 100.841 was notable – typically, geopolitical risk drives the dollar higher, but the pullback suggests some profit-taking from the recent surge and potential positioning for a less hawkish Fed. Treasury yields at 4.564% remained near seven-week highs, with the inflationary threat from higher oil prices keeping the bond market on edge. 

Economic Calendar

The macro data landscape was dominated by the hawkish FOMC minutes, the RBNZ rate hike, and resilient jobless claims data, with all signals pointing toward continued monetary tightening.

Data Released Yesterday / Overnight:

• FOMC Meeting Minutes (June 16-17): Revealed deep divisions among policymakers, with nine of 18 officials now anticipating a rate hike by December. The minutes flagged three overlapping inflation shocks – AI investment, Middle East energy disruption, and tariffs – as key risks. The document was notably shorter under new Fed Chair Kevin Warsh, reflecting his break with forward guidance.
• RBNZ Rate Decision: The Reserve Bank of New Zealand raised the Official Cash Rate by 25 basis points to 2.50% in a unanimous decision, ending a three-meeting pause. The bank signaled more tightening could follow as inflation stays above target.
• U.S. Initial Jobless Claims: Fell unexpectedly to their lowest level since mid-May, signaling continued resilience in the labor market despite elevated interest rates.
• U.S. Existing Home Sales: Housing market data released Thursday provided insight into the strength of the sector.
• U.S.-Iran Escalation: Trump declared the ceasefire “over” and launched fresh strikes on Iran. Iran retaliated with attacks on U.S. military bases.

Today’s Economic Calendar:

• No Major U.S. Data: Friday’s calendar is light, with markets focused on geopolitical developments and positioning ahead of next week’s CPI report.

Major Risk Events This Week:

• Friday, July 10: PPI inflation data; University of Michigan Consumer Sentiment

Asset Class Spotlight: FX, Commodities, Bonds & Crypto

Precious metals staged a modest but significant recovery on Wednesday as the escalating Middle East crisis triggered safe-haven buying across the complex. Gold’s climb back above $4,100 to $4,103.17 was psychologically important – the $4,100 level had been acting as resistance, and a sustained move above it opens the door to a test of $4,150-$4,200. But the real story for gold bulls is seasonality. Gold is entering a historically favorable period: July has averaged +1.5% gains over the last 20 years, making it the 2nd-strongest month of the year with a 65% win rate.

The strongest July was 2020, when gold returned +10.7%. August is the only better month historically, with +1.6% average gains since 2005 and its strongest year in 2011, when gold returned +12.1%. By comparison, June – which just delivered a brutal -3.19% decline – has historically been the weakest month, averaging -0.4% with just 40% positive readings. This seasonal turning of the tide, combined with the escalating geopolitical risk, could provide the foundation for a more sustained recovery if the dollar cooperates. 

Crude oil’s marginal -0.27% dip to $73.323 was a consolidation after Tuesday’s explosive surge, with markets weighing the supply risk from the Iran escalation against the underlying demand concerns. WTI has now round-tripped the entire Iran war premium and then some – from $90+ when Hormuz fears peaked to $73. Citi’s bearish $60-65 target by Q1 2027 assumes peace; a full-scale war sends oil back toward $85+. 

Asset Class Snapshot:

Asset	Up/Down	Unit / % Change	Last
WTI Oil	Up	+4.4%	$73.52/bbl
Brent Oil	Up	+5.2%	$78.02/bbl
Gold (COMEX)	Down	-1.7%	$4,086.6/oz
Silver (COMEX)	Down	-4.3%	$58.69/oz
Bitcoin	Down	~ -1.2%	$62,009
EUR/USD	Flat	—	$1.1426
GBP/USD	Flat	—	$1.3392
USD/JPY	Up	—	162.41
10-Year Note Yield	—	—	—

The FX market was dominated by the dollar’s marginal pullback and the yen’s continued proximity to 40-year extremes. 

• USD/JPY: The yen weakened to 162.41-162.59 per dollar, hovering near the strongest levels since July 1. The wide policy rate gap between the BOJ’s 1% and the Fed’s 3.50-3.75% continues to underpin the structural case for yen weakness, with intervention risks keeping traders on edge.
• EUR/USD: The euro was largely flat at $1.1426, with the single currency held back by dollar strength and concerns over European growth prospects. Goldman Sachs has slashed its EUR/USD forecasts to 1.14 (3m), 1.12 (6m), and 1.12 (12m), arguing “we are unlikely to return to broad-based, sustained Dollar depreciation for some time.” 
• GBP/USD: Cable rose 0.27% to 1.34240, with traders also boosting BoE rate bets to price in two 25bps hikes by year-end. The UK’s sticky inflation continues to support the case for tightening. 
• AUD/USD: The risk-sensitive Australian dollar remained under pressure as geopolitical tensions and falling commodity prices weighed on the resource-linked currency.

Cryptocurrencies & Treasuries: 

Bitcoin traded at $62,009-62,262, down 1.2-2.0% on the day, consolidating in a narrow range as geopolitical tensions weighed on risk appetite. The crypto market remained in “Extreme Fear” territory, with the broader market falling 2.1%. More than 145,000 leveraged traders were wiped out. Strategy’s Bitcoin Monetization Program – which has seen $216 million in sales over the past two weeks – continues to be an overhang. However, the market’s reaction to Strategy’s selling has become more muted, suggesting some desensitization. In Treasuries, yields likely rose as oil-driven inflation fears and hawkish FOMC minutes pushed rate-hike expectations higher. The probability of a September rate hike increased to around 49.5% on Polymarket.

Looking Ahead

The dramatic re-escalation of U.S.-Iran tensions has fundamentally reshaped the market landscape heading into the weekend. With oil surging above $78 and showing no signs of slowing – Brent briefly touched $80 on Wednesday – inflation fears have been reignited just as the Fed’s June minutes revealed deep divisions and a growing tilt toward rate hikes. Nine of 18 officials now anticipate a hike by December, and soaring energy prices only strengthen the case for tightening. The dollar’s strength shows no signs of abating, with USD/JPY pushing toward 163 and the yen at 40-year lows.

For gold and silver, the outlook is particularly grim – the yellow metal is entering what is historically its strongest seasonal period (Gold seasonality: +1.5% average in July, 65% win rate), but the combination of a surging dollar, higher oil-driven inflation, and hawkish Fed expectations has overwhelmed seasonal tailwinds. With earnings season set to kick off next week and CPI data due Tuesday, the stage is set for a potentially volatile start to the second half.

What to Watch Today

• U.S.-Iran Escalation Watch: Trump has declared the ceasefire “over” and launched fresh strikes. Iran has retaliated with attacks on U.S. bases. Any further escalation could send oil toward $80-85 and trigger a flight to safety.
• Oil’s Inflation Shock: Brent at $78.02 and WTI at $73.52 represent a dramatic reversal from 26-year lows. Higher oil prices could reignite inflation fears and pressure the Fed to tighten further – nine of 18 officials already anticipate a hike by December.
• USD/JPY’s March to 163: The yen at 162.41-162.59 is within striking distance of 40-year lows. With the policy rate gap between the BOJ and Fed at 250-275 basis points, intervention risks remain elevated.
• Gold’s Seasonal Tailwind vs. Hawkish Headwinds: Gold is entering its historically strongest period – July averages +1.5% with a 65% win rate – but the combination of a surging dollar, soaring oil, and hawkish Fed expectations has overwhelmed seasonal factors. COMEX gold at $4,086.6 represents a critical test of support.