Iran strikes continue for a second day

EU mid-market update: Iran strikes continue for a second day; Latest Grok AI model chooses efficiency and speed over Fable-like intelligence.

Notes/observations

- Escalation intensified overnight as US forces struck Iran for a second consecutive night, with CENTCOM confirming roughly 90 targets hit (air defence systems, missile and drone storage, and coastal naval infrastructure), on top of ~80 the night before. The strikes follow Trump's declaration at the NATO summit in Ankara that last month's ceasefire was "over" after Iran resumed attacks on commercial tankers in the Strait of Hormuz. Iran retaliated with drone and missile attacks on US bases in Bahrain and Kuwait (with Qatar also reported as a target); Bahrain saw minor property damage and injuries, while Kuwait reported no damage. Notably, Trump claimed Iran "called a little while ago" seeking a deal, though he questioned whether they were "worthy" of one, and a US official framed the escalation as potentially lasting "a day or two, a week or a month" depending on Iran's tanker activity. For markets, the key read-through is oil: Brent jumped over 5% Wednesday but has since erased gains to trade down ~1%, easing the inflation/energy premium that had pushed Bund and gilt yields to multi-week highs the prior session.

- According to Axios, US officials assess that the current escalation with Iran could range from days to months, hinging on whether Tehran persists with attacks on commercial shipping in the Strait of Hormuz. The White House believes it retains significant escalation latitude because hundreds of oil tankers have successfully exited the Gulf in recent weeks, reducing immediate chokepoint vulnerabilities. At its core, the flare-up reflects frustration among Iran's more radical factions, who view the MOU as a failure: sanctions waivers proved ineffective for oil sales due to banking reluctance, and no frozen funds were reportedly released because Tehran has not fulfilled the required nuclear commitments.

- The dominant corporate AI story is SpaceXAI's Grok 4.5, which scored 54 on the Artificial Analysis Intelligence Index — fourth place behind Fable 5, GPT-5.5 and Opus 4.8, but a 16-point jump over Grok 4.3 that brings SpaceXAI to the intelligence frontier and ahead of Google's Gemini models. The standout is cost efficiency: Grok 4.5 is one of the cheapest near-frontier models to run (~$0.31/task on the Intelligence Index), with a headline price over 60% below Opus 4.8 and GPT-5.5, and roughly 60% lower token usage. As a coding agent it ranks third (score 76, on par with GPT-5.5 in Codex) at a fraction of the cost — $2.49/task vs $11.80 for Fable 5 in Claude Code. Pricing is $2/$6 per 1M tokens, context trimmed to 500k (down from 1M), and Musk has disclosed the model is 3x larger at 1.5T parameters. This feeds a broader market theme: investors increasingly view China tech as an "AI efficiency trade" (cheaper, open-source, practical deployment), which could advantage China as the next AI phase hinges on lowest-cost delivery. Asia AI newsflow is heavy - Nvidia reportedly won approval to sell H200 chips to top Chinese firms (training on public data only), CXMT's July 16 IPO would be China's largest since 2022 (CNY29.5B), and SK Hynix's US ADR IPO is >7x oversubscribed. Taiwan's central bank flagged AI-bubble concerns even as Korea keeps pushing its chip boom.

- FTSE 100 is the notable underperformer in an otherwise green Europe, dragged by AstraZeneca, which fell ~8.9% after its Wainua (eplontersen) Phase 3 trial missed its primary endpoint in ATTR cardiomyopathy. The miss delays a major growth opportunity for AstraZeneca and partner Ionis, benefits ATTR-CM incumbents (Pfizer, BridgeBio, Alnylam), and is dragging the wider European healthcare sector lower. Full results are due at the ESC Congress in August.

- A few other threads merit attention. China CPI came in soft at 1.0% y/y (half the PBOC's target) while PPI stayed elevated above 4%, squeezing corporate margins but potentially opening room for future easing. On central banks, expectations are building for possible September ECB and October BOJ hikes (BOJ regional reports showed resilient activity despite Middle East headwinds), while Bank of Korea is expected to hike 25bps on July 16th with won weakness the key focus. On trade, the USTR is reportedly preparing a "menu" of Spanish products (wine, olive oil, Zara/apparel, footwear) for a possible embargo after Spain declined to accommodate US forces during the Iran conflict - a watch item for names like Inditex. In single stocks, Hugo Boss rejected Frasers' €38.00/share takeover offer as undervaluing the company, and the euro edged up 0.2% to ~$1.1436, showing resilience to the oil spike.

- Maine Democratic Senate nominee Graham Platner confirmed to have suspended his campaign, delivering a major setback to progressive hopes of flipping the seat and proving that charismatic left-wing outsiders can succeed in tough races. He was even drawing some national buzz as a potential future presidential contender. Democrats now face a narrow window until July 27 to replace him on the ballot; while this offers a chance to field a stronger establishment candidate, it risks disillusioning Platner’s energized base and further complicating their path to Senate control in 2026. Polymarket bets now expect GOP to keep Senate control this autumn.

- Asia closed mixed with Shanghai outperforming +1.7%. EU indices -0.5% to +1.2%. US futures +0.1-0.7%. Gold +0.8%, DXY -0.1%; Commodity: Brent -0.6%, WTI -0.6%; Crypto: BTC +1.3%, ETH +1.0%.

Asia

- China Jun CPI Y/Y: 1.0% v 1.1%e; CPI Core Y/Y: 1.0% 1.1%e.

- South Korea Jun Total Bank Lending To Household (KRW): 1.189T v 1,182T prior.

- New Zealand Jun Manufacturing PMI: 59.7 v 51.3 prior (9th month of expansion).

- Japan sold ¥2.5T vs. ¥2.5T indicated in 5-year JGB Bonds; Avg Yield: 2.0200% v 1.9050% prior; bid-to-cover: 3.43x v 3.11x prior.

- BOK Gov Shin noted of being in discussions with other Central Banks all the time to discuss markets. Noted of a need to raise rates at proper time.

- Moody's on Japan noted that its sovereign rating looked Stable despite plans for large-scale government spending.

Global conflict/tensions

- US launched strikes on Iran for the second day. Iran Army noted that it had used drones to attack various US targets in Kuwait, Qatar and Bahrain.

- President Trump later stated that Iran wanted to resume negotiations, claiming Tehran had reached out for renewed diplomacy shortly after the US carried out its first strikes on Iranian infrastructure since the Apr 8th ceasefire.

Europe

- UK Jun RICS House Price Balance: -33% v -30.0%e.

Americas

- FOMC Jun Minutes noted members concurred statement would convey commitment to dual mandate goals and emphasize the FOMC would deliver price stability. Might need to raise interest rates if inflation remained elevated. Had a growing concerns that AI investment, Middle East tensions, and tariffs could prolong inflation risks.

- US May Consumer Credit: -$0.2B v $17.5Be (1st drop since Nov 2024).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.31%, FTSE -0.52% at 10435.00, DAX +0.25% at 24928.88, CAC-40 +0.34% at 8281.02, IBEX-35 +1.29% at 19294.42, FTSE MIB +0.89% at 52280.50, SMI +0.09% at 14187.00, S&P 500 Futures +0.23%].

Market focal points/key themes: European shares are attempting a modest recovery on Thursday after the STOXX 600 suffered its steepest single-day decline in nearly 4 months. The pan-European benchmark rose 0.5% in early trade, rebounding from Wednesday’s 1.6% plunge triggered by escalating geopolitical tensions in the Middle East. Major indices showed mixed performance, with Germany’s DAX up 0.7%, France’s CAC 40 up 0.6%, and Italy’s FTSE MIB up 0.8%, while the UK’s FTSE 100 slipped 0.2%. Some individual stocks moved sharply — Schott Pharma surged 20% on strong results and AstraZeneca fell nearly 9% after Phase 3 clinical trial disappointment, while European tech names catching up with yesterday’s Nvidia-led gains in US.

Equities

- Consumer discretionary: Barry Callebaut [BARN.CH] -1.5% (earnings).

- Healthcare: Astrazeneca [AZN.UK] -9.0% (Phase 3 trial missed endpoints), Ipsen [IPN.FR] +1.0% (trial results).

- Technology: Playtech [PLAY.UK] +16.5% (trading update), ASML [ASML.NL] +2.5% (China said to approve purchase of some H200 chips), Computacenter [CCC.UK] +11.5% (trading update).

- Materials: Covestro [1COV.DE] -1.0% (raises EBITDA outlook).

Speakers

- Malaysia Central Bank Policy Statement reiterated view that current OPR level and monetary policy stance was appropriate and consistent with outlook. Saw solid Q2 growth. Expected both 2026 headline and core CPI to remain contained from impact of Middle East conflict.

- Iran Army noted that it had used drones to attack US targets in Kuwait, Qatar and Bahrain.

- Iran Foreign Ministry stated that it would not allow US ceasefire breaches and bullying.

Currencies/fixed income

- Oil prices drifted lower despite prolonging global inflation anxieties.

- USD was slightly softer against the major pairs. Various Asian currencies were off recent worst levels as intervention threats loomed large among them (TWD, KRW and JPY). Some risk sentiment was percolating after President Trump later said Iran had called him seeking a deal. Dealers also noted that the most recent Fed minutes policymakers were split over the future course.
of rates. Members agreed that inflation would cool as energy prices fell and one-off tariff impacts subsided but some voices expressed concern of persistent underlying price pressures.

- EUR/USD at 1.1430 by mid-session.

- GBP/USD at 1.3415.

- USD/JPY at 162.35.

- 10-year German Bund yield last at 3.06%, France 10-year Oat at 3.89% and 10-year Gilt yield at 4.93% 10-year Treasury yield: 4.56%; 10-year JGB: 2.86%.

Economic data

- (DE) Germany May Trade Balance : €19.1B v €14.8Be; Exports M/M: +0.9% v -0.4%e; Imports M/M: -2.5% v -0.8%e.

- (FI) Finland May Preliminary Trade Balance: -€0.9B v -€0.3B prior.

- (DK) Denmark May Current Account Balance (DKK): 30.7B v 32.5B prior.

- (RO) Romania Q1 Final GDP Q/Q: 0.0% v 0.0% prelim; Y/Y: -1.2% v -1.2% prelim.

- (JP) Japan Jun Preliminary Machine Tool Orders Y/Y: 52.8% v 37.5% prior.

- (CZ) Czech May Industrial Output Y/Y: -1.0% v +1.2%e; Construction Output Y/Y: 4.4% v 7.7% prior.

- (MY) Malaysia Central Bank (BNM) left the Overnight Policy Rate unchanged at 2.75% (as expected).

- (CZ) Czech Jun Unemployment Rate: 4.8% v 4.8%e.

- (TW) Taiwan Jun Trade Balance: $12.2B v $19.0Be; Exports Y/Y: 40.3% v 49.9%e; Imports Y/Y: 51.8% v 48.0%e.

- (GR) Greece Jun CPI Y/Y: 4.4% v 5.2% prior; CPI EU Harmonized Y/Y: 3.9% v 4.9% prior.

- (IS) Iceland Jun International Reserves (ISK): 973B v 1.01T prior.

Fixed income issuance

- (IT) Italy Debt Agency (Tesoro) sold €8.0B vs. €8.0B indicated in 12-month bills.

- (IE) Ireland Debt Agency (NTMA) sold total €1.25B vs. €1.0-1.25B indicated range in 2036 and 2055 IGB bonds.

Looking ahead

- (EU) Eurogroup meeting.

- (EG) Egypt Central Bank (CBE) Interest Rate Decision: Expected to leave Key Rates unchanged.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-year, 5-year and 10-year bonds.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 06:00 (IL) Israel May Chain Store Sales M/M: No est v 3.2% prior.

- 06:00 (IE) Ireland Jun CPI M/M: No est v -0.1% prior; Y/Y: No est v 3.6% prior.

- 06:00 (IE) Ireland Jun CPI EU Harmonized (final) M/M: No est v 0.3% prelim; Y/Y: No est v 3.3% prelim.

- 07:00 (ZA) South Africa May Manufacturing Production M/M: No est v -2.7% prior; Y/Y: -3.1%e v -2.9% prior.

- 07:00 (UR) Ukraine Jun CPI M/M: No est v 0.9% prior; Y/Y: 7.8%e v 8.2% prior.

- 07:30 (EU) ECB Publishes Account of Jun Meeting (aka Minutes).

- 08:00 (MX) Mexico Jun CPI M/M: -0.2%e v -0.2% prior; Y/Y: 3.5%e v 3.9% prior.

- 08:00 (MX) Mexico Jun CPI Core M/M: 0.3%e v 0.2% prior; Y/Y: 4.1%e v 4.2% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Initial Jobless Claims: 218Ke v 215K prior; Continuing Claims: 1.82Me v 1.814M prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e July 7th: No est v $715.2B prior.

- 09:00 (US) Fed’s Williams.

- 09:00 (PL) Poland Central Bank (NBP) Gov Glapinski post rate decision press conference.

- 10:00 (US) Jun Existing Home Sales: 4.20Me v 4.17M prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (MX) Mexico Central Bank (Banxico) Jun Minutes.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CH) SNB’s Martin.

- 13:00 (US) Treasury to sell 30-Year Bond Reopening.

- 13:30 (US) Fed’s Logan.

- 15:30 (UK) BOE’s Breeden.

- 19:00 (PE) Peru Central Bank Interest Rate Decision: Expected to leave Reference Rate unchanged at 4.25%.

- 19:50 (JP) Japan Jun PPI (domestic CGPI) M/M: No est v 0.9% prior; Y/Y: No est v 6.3% prior.

- 22:35 (CN) China to sell 3-year and 7-Year Bonds.

- 23:30 (JP) Japan to sell 3-Month Bill.