Global equities turned lower on Tuesday after fluctuating between gains and losses, as traders avoided large bets ahead of congressional testimony from Federal Reserve Chair Kevin Warsh, the upcoming U.S. inflation data, and the unofficial start of earnings season. Markets were also impacted by hawkish remarks from Fed Governor Christopher Waller on Monday, who stated the Fed may need to raise rates "in the near term" if data shows inflation remains significantly above the 2% target.
S&P 500 futures were largely flat. Tech stocks received a boost, with South Korea's two major memory chip giants rebounding, pushing Nasdaq 100 futures up 0.5%.
In European markets, the Stoxx Europe 600 index fell 0.7%, led lower by the travel and leisure sector, with media and consumer stocks also showing weakness. Shares of LM Ericsson Telephone (ERIC) tumbled as much as 10% after the company warned of margin pressure in its core networks business.
Amid market confidence that AI infrastructure build-out will continue to drive chip demand, sources indicated that Samsung Electronics is exploring the possibility of issuing American Depositary Receipts.
XTB Research Director Kathleen Brooks noted, "This suggests that if this trend persists, the Nasdaq could break its recent negative correlation with oil prices and continue to rise even as energy prices increase."
Market Faces a Dense Calendar of Risk Events
The day featured a packed schedule of economic and corporate events. JPMorgan Chase (JPM), Citigroup, Wells Fargo (WFC), Goldman Sachs (GS), and Bank of America (BAC) all released their second-quarter earnings before the U.S. market open.
Markets anticipate the U.S. June consumer price report will show the impact of falling gasoline prices outweighing the consumption boost from the World Cup. After a rapid acceleration in inflation from March to May, June's figures may show a moderation. Chair Warsh is scheduled to testify before Congress several hours after the data release.
Bruno Schneller, Managing Partner at Erlen Capital Management in Zurich, stated, "The market is at a significant inflection point on Tuesday, with investors needing to weigh three competing forces: renewed geopolitical tensions in the Middle East, the start of Q2 earnings season, and the release of U.S. June inflation data."
He added, "These events will likely determine whether the recent rally broadens further or pivots to a more selective, structural market."
U.S. CPI Remains the Key Focus
Richard Flax, Chief Investment Officer at Moneyfarm, commented, "Geopolitical factors are marginally negative for markets, but oil prices haven't spiked extremely. I expect Warsh to deliver a data-dependent speech without much forward guidance. For us, the inflation data is what truly matters."
Economists expect the U.S. Consumer Price Index may show its first month-on-month decline since the onset of the pandemic in 2020.
This data will help markets gauge the policy outlook for the Fed's July 28-29 meeting. Currently, markets price in roughly a 40% probability of a 25-basis-point Fed rate hike.
However, this disinflationary trend could reverse quickly if the current rise in oil prices persists. The year-on-year increase in U.S. CPI is still expected to remain well above the Fed's 2% target.
U.S.-Iran Tensions Escalate, Oil Tops $86
As U.S.-Iran tensions over the Strait of Hormuz escalated, President Trump reinstated a blockade on Iranian vessels transiting the waterway and demanded a 20% compensation fee from all other cargo. Concurrently, U.S. forces completed another round of strikes against Iran.
Alpesh Patel, Managing Partner at RootBridge Capital, said, "We already know the market can handle oil prices well above current levels, and U.S. stocks can continue to rise. Only one thing truly matters: whether there are signals that interest rates are about to rise."
Brent crude oil rose above $86 per barrel, hitting a one-month high, as U.S.-Iran confrontation over the status of the Strait of Hormuz intensified. The rising oil price reinforced market bets that the Fed could hike in July.
Analysts at ING stated, "The U.S. reinstatement of the blockade has a much greater impact on the market than the previous suspension of Iran oil sanction waivers. This memorandum of understanding appears to be completely defunct."
Bond Yields Climb, Dollar Weakens
U.S. Treasury yields were volatile. The yield on the interest-rate-sensitive 2-year U.S. Treasury note was last at 4.29%, its highest level since February, up 2 basis points on the day. The 10-year U.S. Treasury yield rose 2 basis points to 4.63%.
Eurozone government bond yields rose in early trading. The UK two-year gilt yield climbed to its highest level since May. The German 10-year bund yield touched 3.114% at one point, an eight-week high, gaining about 4 basis points on the day.
The U.S. dollar weakened. The dollar index, which measures the greenback against a basket of six major currencies, fell 0.1% to around 101.16, still near its high for the month.
Money markets currently price in at least one more rate hike this year from both the Bank of England and the European Central Bank, with an approximately 80% probability of an additional hike by December.
Jefferies economist Mohit Kumar noted in a report that data scheduled for release at 20:30 Hong Kong time Tuesday evening, along with Warsh's testimony beginning at 22:00, would be key for influencing monetary policy expectations.
He expects Warsh will likely strive to demonstrate policy credibility and emphasize the Fed will react based on newly released data and inflation risks. Kumar added it is still too early for the recent oil price surge to be significantly reflected in inflation data.
Bitcoin Rebounds, Gold Advances
Bitcoin rose modestly by 0.8% to $62,619 but remained within a narrow range ahead of the U.S. inflation data release.
Nexo analyst Dessislava Ianeva noted, "Since mid-June, Bitcoin has been trapped in the same trading range, with $64,441 capping every rally above and $58,457 absorbing selling pressure below. Even renewed tensions with Iran haven't pushed the price to break out in either direction."
Gold prices rose, with the crude oil rebound further fueling inflation concerns. New York gold futures were up 0.5% in early trading at $4,024.90.
ING analysts stated, "Gold remains vulnerable around the $4,000 level. The market is closely watching developments in the Strait of Hormuz and their impact on energy prices, inflation, and interest rates."
Key Stocks in Focus
Shares of JPMorgan Chase (JPM) edged lower in pre-market trading following its Q2 earnings report. Excluding special items, the bank reported earnings per share of $6.14 and total revenue of $58.02 billion. LSEG analysts had expected EPS of $5.85 and revenue of $50.19 billion. It should be noted that the bank's profit metric may not be directly comparable to consensus estimates.
Bank of America (BAC) reported quarterly results that exceeded market expectations. The company posted EPS of $1.21, beating the LSEG analyst consensus of $1.13, and revenue of $31.7 billion, also surpassing the market expectation of $30.72 billion. However, its shares were flat in pre-market trading.
Wells Fargo (WFC) reported better-than-expected earnings per share of $2.00 and revenue of $22.62 billion, yet its shares fell 1%. LSEG-surveyed analysts had expected EPS of $1.72 and revenue of $21.84 billion.
Goldman Sachs (GS) released stronger-than-expected Q2 results, with its shares up 1.4% pre-market. The company reported EPS of $20.98, significantly higher than the LSEG consensus of $14.48, and revenue of $20.34 billion, also exceeding the market estimate of $16.13 billion.
Shares of Apple (AAPL) fell about 1%. U.S.-based Gibbon Capital downgraded Apple from Market Perform to Underperform, setting a price target of $250, implying a 21% downside from Monday's close. The Wall Street firm believes rising prices will lead consumers to cut back on spending, potentially keeping pressure on Apple's stock.
Shares of legacy tech giant IBM (IBM) plunged 17% after reporting preliminary Q2 results that missed expectations. Excluding certain items, the company expects EPS of $2.93, compared to the FactSet-surveyed analyst expectation of $3.01.
Shares of Swedish networking equipment maker LM Ericsson Telephone (ERIC) tumbled nearly 10%. Data from financial platform StreetAccount showed the company's revenue was SEK 52.7 billion, below the market expectation of SEK 53.94 billion, with an adjusted gross margin of 48.4%, also missing the expected 47.8%.
SoftBank's Masayoshi Son: AI Boom Will Require $5 Trillion in Annual Investment.
SoftBank Group founder Masayoshi Son stated that by 2040, global artificial intelligence infrastructure will require $5 trillion in annual investment to support the expansion of data centers, power supply, and humanoid robots, facilitating a shift from a "human-centric" work model to a new paradigm.
He noted that as AI evolves into "Artificial Superintelligence" (ASI), the resulting revenue would justify these massive expenditures. "AI will completely transform our lives—and that transformation will be profitable," Son said.
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