Tech Rebound Amid Fighting

MACRO FRAME

The latest military exchanges between the US and Iran re-inflate the geopolitical risk premium in energy and add a hawkish skew to the macro backdrop.

STOCK INDEX FUTURES

Equity index futures are mostly higher, with tech leading gains as markets look through last night’s renewed US-Iran strikes and treat yesterday’s oil-driven selloff as a short-term shock. Crude has eased slightly from its spike, the dollar and 10‑year yields are both a touch lower, and the prevailing view on Wall Street remains that both sides still have incentives to work toward a longer‑term truce. Equity traders are increasingly treating Gulf headlines as noise around an underlying negotiation process, rather than a clear break toward all‑out war. Memory chip producers were higher premarket as assess the outlook of AI infrastructure ahead of the introduction of SK Hynix ADRs tomorrow, the world’s largest memory producer. Micron and Sandisk were 3% up premarket. Meanwhile, more traditional sectors remained under pressure after having outperformed the tech sector in July.

Watch point: Equity volatility is being driven by increasingly concentrated bets in tech and semis, and that argues for a deliberate shift toward industrials and broader, real‑economy exposure.

CURRENCIES

US DOLLAR: The USD index is little changed at 101.95, remaining firm but off local highs. Yesterday’s rather hawkish Fed minutes and oil driven inflation worries remain supportive, though traders appear skeptical that the latest round of strikes will result in an all-out conflict, capping the upside to the dollar. June’s Fed minutes showed policymakers explicitly keeping the door open to a hike this year, though the committee is divided on timing. Markets are pricing roughly 35 bps of Fed tightening priced by December compared to 30 bps on Tuesday.

Watch point: Recent data has reinforced expectations that Fed policy will move higher before year-end. For now, markets will look to inflation signals for guidance on potential rate-hike timing.

EURO: The euro 0.12% higher to $1.1428. German trade balance data for May showed exports grew 0.9% MoM vs. estimates of -0.3% decline, supported by a 23% increase in shipments to the US. For the first five months of the year, the country posted a trade surplus of €88.4 billion. The ECB’s account of its June meeting revealed that policymakers expect inflation to stay above target. The bank noted that “headline inflation was set to rise further over the summer and remain well above target into the first half of 2027, despite almost three 25bp interest rate hikes being embedded in the projections.” The bank also noted that communication should remain neutral, neither suggesting that the current decision was the first of a sequence of hikes to come nor that it was a one-off move. Given the current environment and previous policy response from the bank, a hawkish bias is likely to persist until policymakers gain a better understanding of the second-round effects of inflation, which may not come until later in the year. Traders continue to await further developments out of the Gulf, though moves in the currency market have appeared much more benign than the action in the Gulf would suggest. Markets are pricing in 40 bps of tightening by year-end, up from 28 bps on Tuesday.

Watch point: A peace deal, restoration of oil flows through the Strait, and easing services inflation are likely to push back tightening expectations, though policy expectations are still biased upwards.

BRITISH POUND: Sterling is little changed at $1.3387. The Sterling has climbed a little over 2% from its seven‑month low in late June, which followed Starmer’s resignation announcement. Data from BNY shows that domestic GBP purchases remain consistent, helped by positive real rates, while international flows are more cautious, constrained by concerns about UK growth and politics. Sterling has been more volatile than most majors this week, partly due to uncertainty over who Andy Burnham is likely to choose as finance minister. Overnight implied volatility in GBP is around 6%, second only to the euro (about 6.5%), underscoring that traders are actively hedging political and macro event risk in the near term. UK money markets now price roughly a 78% chance of just one BoE hike this year.

JAPANESE YEN: The yen gained 0.10% to 162.46 yen per dollar, remaining firmly in the intervention danger zone. For Japan, rising oil prices are particularly negative for the currency given the country’s import dependence and fiscal debt overhang. For the yen, bearish pressure in expected to continue in the near-term, especially if oil prices continue to climb, which could see a resumption of pre-ceasefire USD/JPY dynamics. Investors are now awaiting official intervention data later this month to determine whether the government was behind the yen’s sharp but short-lived rally on July 2. Elsewhere, Japan’s government revised its draft of the annual policy agenda, calling for appropriate monetary policy that supports stable price growth, more or less pressuring the BoJ to keep rates low. A more hawkish Fed and large US–Japan rate differential still dominate currency moves as well, while any intervention is unlikely to change the underlying direction, only volatility. The market sees a total of 22 bps of tightening by year-end, with a move expected to come in January of 2027.

Watch point: With the yen sustaining a break above the 160 level, intervention from the government appears to be the greatest near-term risk against further depreciation.

AUSTRALIAN DOLLAR: The Aussie is little changed at $0.6934. The Reserve Bank of Australia’s chief economist noted there were few signs of a market slowdown in the domestic economy, despite softer consumer and business confidence outlook surveys. Markets are largely expecting the RBA to be done with raising rates this year, leaving near-term price direction increasingly driven by market odds on a rate hike from the Fed. Currently, yield differentials are moving in favor of the dollar. The data calendar is once again thin this week for the Aussie. Minutes of the RBA’s June policy meeting showed the board still saw upside risks for inflation and stood ready to raise rates again if needed, having already hiked three times this year. However, members at the RBA were increasingly concerned about the risk of a downturn in the housing market, highlighting the board’s focus on the balance of risks. Markets imply a 60% chance the RBA will hike for a fourth time this year, up from 40% early in the week.

Watch point: While a durable end to the war would alleviate downside risks to growth and moderate inflation pressures, ongoing pass-through into broader prices is likely to be in focus in the RBA’s policy minutes.

TREASURY FUTURES

Yields moved lower at the front end and higher at the long end overnight. The Fed’s June minutes showed that inflation remained the dominant concern at the meeting, with total PCE running at 3.8% in April and staff-estimated at 4.1% in May, driven by tariff pass-through, Strait of Hormuz-related energy shocks, and AI-related demand. Notable, policymakers also see price pressures becoming increasingly broad-based across goods and services. The labor market was assessed as balanced and stable, with the unemployment rate holding near 4.3% and nominal wage growth consistent with an eventual return to target, leaving it largely a non-factor in the inflation debate. The most significant communications development was the Committee’s explicit removal of the easing bias from the post-meeting statement, with participants roughly split between a year-end rate path at or below the current range and one above it. Ultimately, the minutes leave the impression of a committee on hold but tilting hawkish, with the next move dependent on incoming PCE prints and geopolitical developments. Markets are priced for a move higher in December and see a total of 38 bps of tightening by year-end.

Watch point: The Warsh-led Fed held on rates and signaled broad institutional change. Mainly, markets should expect fewer words from the Fed and less policy signaling, raising near-term rate volatility with incoming data.

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