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London Quick Take - 14 July - Stocks wobble, bond yields spike as oil, inflation and AI risks swirl ahead of earnings: investors face many questions
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Questions more than answers: European stock markets fell with oil prices jumping to $85 on a fresh wave of military strikes by the US and Iran over control of the Strait of Hormuz, reigniting worries about stagflation. The major indices slipped around half a percent of more in early trade on Tuesday, with the FTSE 100 getting a small reprieve from heavyweights BP and Shell. It comes after Wall Street dipped Monday following comments by President Trump over the Strait and semiconductors came under heavy selling pressure once more, with the S&P 500 down –0.8% and Nasdaq Composite sliding -1.55% and the Nasdaq-100 closing below its 50-day moving average.
Can it get a lot worse again in the Middle East? The US reinstated its ‘blockade’ of the Strait of Hormuz: Trump posted: "The Hormuz Strait is OPEN, and will remain OPEN, with or without Iran. We are reinstating the THE IRANIAN BLOCKADE, so named because it is only stopping Iran’s ships or customers from entering or leaving. All other countries will have fair and open use of the Strait.” He continued: "The U.S.A. will be, from this point forward, known as 'THE GUARDIAN OF THE HORMUZ STRAIT,' but as such, and as a matter of FAIRNESS, will be reimbursed, at the rate of 20% on all cargo shipped, for any and all costs necessary to do the job of providing safety and security to this very volatile section of the World. The process and formation will begin immediately."
Clearly, the sixth wave of US airstrikes has rattled energy markets. The idea of tolls is another significant concern, and markets may be pricing in this aspect as well.
Will oil stay higher? Crude prices spiked on the renewal of conflict and worries about the Strait seizing up again, with Brent futures clearing out stops at the 200-day moving average at $79 and the round number resistance at $80 to clear $85 this morning, its highest level in a month; i.e. since before the US and Iran agreed to extend their ceasefire. As noted last week with oil longs having been cleared out by the steady decline since the middle of May there was scope for a fresh run up, although it seems unlikely at present that we get much beyond $90 unless there is a material breakdown in flows. BP shares rallied +3% as it reported stronger Q2 oil trading results and forecast a decline in net debt. Ahead of its August second quarter results, the company said Q2 profits from its oil trading division would be “slightly higher compared with the first quarter”, when the division drove a double in profits to $3.2bn.
Will inflation rise? Sovereign bond yields have shot higher on renewed inflation concerns as markets price in a hawkish policy response from central banks to front-end rates. UK 2yr gilt yields trade +10bps higher this morning to 4.452%, the highest in two months, in a sharp repricing of expectations. Rate hikes in the US, UK and EU are now fully priced by September. The latest flare-up won’t show up in today’s key US CPI print, but it’s a given that prolonged low-level conflict and disruption to energy flows will mean stickier inflation.
How important is today’s CPI print? Markets odds now imply a rate hike this month by the Fed (meeting of 28/29 July) is a coin toss. Fed governor Christopher Waller yesterday said a hot core reading this week could prompt near-term tightening. “Sterling staring at inflation until melts before our withering gaze is not an option,” he said. I’ve been consistently arguing that the market was short inflation risks and short on the chance the Fed could hike this month. Last month US CPI YoY came in a 4.2% for the headline CPI, the hottest since April 2023 and up from 3.8% a month before. The 2.9% for core, up from 2.8% in the prior month, was the hottest since September 2025. Core CPI was up +0.2% for the month – if it rises to +0.3% it will trigger market bets for a hike later this month. “If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy,” added Waller, though without specifying a level.
What will Kevin Warsh say? Fed chair Warsh begins his two-day testimony in Congress today. It's unlikely he will offer forward guidance of any note, but we could start to see some refinements about the likely reaction function of the Fed.
Can China keep oil imports down? China’s exports and imports grew faster than expected in June, on AI-related hardware demand and a surge in car sales. Exports rose 27% from a year earlier, while imports surged 36%. Surging semiconductor prices are pushing up exports and imports – Chinese imports from South Korea were up +85% last month. Of note, crude oil imports declined to near a decade low as domestic demand is destroyed – can this last for much longer?
How significant are semiconductor earnings? Very significant says Citadel, pointing out that semis have become the most important sector for the S&P 500, making up 18% of the index today from just 3% ten years ago. Semis report all through July and August and that means an extended period of potential volatility implied by options pricing of stocks in the sector. Semis were down hard yesterday because of SK Hynix, which plunged -15% in Korea on the first of trading after its Nasdaq listing, with the ADR down -9% yesterday in New York. But TSMC's June sales data shows demand for AI computing is still soaring. The big banks of Wall Street report today, officially kicking off earnings season across the pond - shares were lower yesterday. Remember expectations for this season's earnings growth for the S&P 500 run at +23%...a high bar to clear.
Could Andy Burnham reinstate the Help to Buy scheme? Housebuilders were on the front foot yesterday on reports the incoming PM will look at reviving the scheme that helps first-time buyers...also called Help to Build, it certainly was a positive for the housebuilders when it was alive before. The spike in front-end rates has sent shares down lower today however. I think we need to see rates settle down before this looks promising.
Can it get a lot worse again in the Middle East? The US reinstated its ‘blockade’ of the Strait of Hormuz: Trump posted: "The Hormuz Strait is OPEN, and will remain OPEN, with or without Iran. We are reinstating the THE IRANIAN BLOCKADE, so named because it is only stopping Iran’s ships or customers from entering or leaving. All other countries will have fair and open use of the Strait.” He continued: "The U.S.A. will be, from this point forward, known as 'THE GUARDIAN OF THE HORMUZ STRAIT,' but as such, and as a matter of FAIRNESS, will be reimbursed, at the rate of 20% on all cargo shipped, for any and all costs necessary to do the job of providing safety and security to this very volatile section of the World. The process and formation will begin immediately."
Clearly, the sixth wave of US airstrikes has rattled energy markets. The idea of tolls is another significant concern, and markets may be pricing in this aspect as well.
Will oil stay higher? Crude prices spiked on the renewal of conflict and worries about the Strait seizing up again, with Brent futures clearing out stops at the 200-day moving average at $79 and the round number resistance at $80 to clear $85 this morning, its highest level in a month; i.e. since before the US and Iran agreed to extend their ceasefire. As noted last week with oil longs having been cleared out by the steady decline since the middle of May there was scope for a fresh run up, although it seems unlikely at present that we get much beyond $90 unless there is a material breakdown in flows. BP shares rallied +3% as it reported stronger Q2 oil trading results and forecast a decline in net debt. Ahead of its August second quarter results, the company said Q2 profits from its oil trading division would be “slightly higher compared with the first quarter”, when the division drove a double in profits to $3.2bn.
Will inflation rise? Sovereign bond yields have shot higher on renewed inflation concerns as markets price in a hawkish policy response from central banks to front-end rates. UK 2yr gilt yields trade +10bps higher this morning to 4.452%, the highest in two months, in a sharp repricing of expectations. Rate hikes in the US, UK and EU are now fully priced by September. The latest flare-up won’t show up in today’s key US CPI print, but it’s a given that prolonged low-level conflict and disruption to energy flows will mean stickier inflation.
How important is today’s CPI print? Markets odds now imply a rate hike this month by the Fed (meeting of 28/29 July) is a coin toss. Fed governor Christopher Waller yesterday said a hot core reading this week could prompt near-term tightening. “Sterling staring at inflation until melts before our withering gaze is not an option,” he said. I’ve been consistently arguing that the market was short inflation risks and short on the chance the Fed could hike this month. Last month US CPI YoY came in a 4.2% for the headline CPI, the hottest since April 2023 and up from 3.8% a month before. The 2.9% for core, up from 2.8% in the prior month, was the hottest since September 2025. Core CPI was up +0.2% for the month – if it rises to +0.3% it will trigger market bets for a hike later this month. “If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy,” added Waller, though without specifying a level.
What will Kevin Warsh say? Fed chair Warsh begins his two-day testimony in Congress today. It's unlikely he will offer forward guidance of any note, but we could start to see some refinements about the likely reaction function of the Fed.
Can China keep oil imports down? China’s exports and imports grew faster than expected in June, on AI-related hardware demand and a surge in car sales. Exports rose 27% from a year earlier, while imports surged 36%. Surging semiconductor prices are pushing up exports and imports – Chinese imports from South Korea were up +85% last month. Of note, crude oil imports declined to near a decade low as domestic demand is destroyed – can this last for much longer?
How significant are semiconductor earnings? Very significant says Citadel, pointing out that semis have become the most important sector for the S&P 500, making up 18% of the index today from just 3% ten years ago. Semis report all through July and August and that means an extended period of potential volatility implied by options pricing of stocks in the sector. Semis were down hard yesterday because of SK Hynix, which plunged -15% in Korea on the first of trading after its Nasdaq listing, with the ADR down -9% yesterday in New York. But TSMC's June sales data shows demand for AI computing is still soaring. The big banks of Wall Street report today, officially kicking off earnings season across the pond - shares were lower yesterday. Remember expectations for this season's earnings growth for the S&P 500 run at +23%...a high bar to clear.
Could Andy Burnham reinstate the Help to Buy scheme? Housebuilders were on the front foot yesterday on reports the incoming PM will look at reviving the scheme that helps first-time buyers...also called Help to Build, it certainly was a positive for the housebuilders when it was alive before. The spike in front-end rates has sent shares down lower today however. I think we need to see rates settle down before this looks promising.
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