Oil and chips remain the twin engine themes driving the market through AI frenzy

EU mid-market update: Oil and chips remain the twin engine themes driving the market through AI frenzy and supply chain issues.

Notes/observations

- US-Iran conflict intensified through the overnight session and remains the primary market driver. Washington issued a fresh round of sanctions and froze over $130M in Iranian digital assets, while Defense Sec Hegseth signaled a troop drawdown from Iraq by Sept 30th. Signals were genuinely mixed: earlier in the day Trump appeared to offer an olive branch - taking the 20% Strait of Hormuz "reimbursement fee" off the table in favor of Gulf-state trade and investment deals, and citing ongoing contacts with Iranian representatives - but the tone hardened as the evening progressed. In a pre-recorded Fox interview, Trump said the US will strike Iranian power plants and bridges next week and doesn't want to negotiate "right now," and Axios reported a situation-room meeting weighing a wider offensive. CENTCOM confirmed further strikes and accused Iran of deliberately targeting civilians and seven commercial ships; the IRGC claimed the Strait will stay closed and asserted strikes on US facilities in Kuwait and Bahrain. With the US reinstating a naval blockade on Iranian ports, Brent pushed to a one-month high just shy of $86, feeding the inflation trade - bond yields higher across the board, with 10-year gilts up 4.2bps to ~4.99% and Bunds up ~3bps. NBC estimates the war could cost Iran up to $100B. Net: escalation is the base case for now, but watch for the negotiation off-ramp Trump keeps dangling.

- ASML crushed Q2 and dramatically raised its FY26 outlook, lifting revenue guidance to €43-45B (from €36-40B) and gross margin to 54-56% (from 51-53%), while guiding strong Q3. This reflects unprecedented customer visibility and long-term commitments fueled by AI, with advanced Logic revenue expected +25% and Memory +75% this year, plus over 30% growth in the high-margin Installed Base business. Capacity response is aggressive: ASML is adding ~30% to its 2026 low-NA EUV capacity (~65 tools) for 2027 and is already investigating another 30% increase for 2028. The same 30%+30% expansion plan applies to DUV immersion. Installed Base Management (upgrades + service) is on track for >30% growth this year and continues to be a major profit driver. The updated guidance explicitly includes demand from Elon Musk’s Terafab project, and China is still expected to represent ~20% of total net sales in 2026. Overall, this is one of the strongest AI-pull signals yet from the semiconductor equipment supply chain.

- IBM plunged a historic 25% - its first negative pre-announcement since 2002 - after flagging a big Q2 miss driven by a shortfall in infrastructure revenue as clients abruptly pivoted spending from software toward servers, storage and memory ahead of expected price hikes. The read-across is a sharpening bifurcation within the AI trade: "pick-and-shovel" hardware and chips are winning at the expense of software and services. Beneficiaries include Dell, HPE and Lenovo (server infra), with Nvidia hitting one-month highs (Huang confirmed Vera Rubin is in production) and SK Hynix surging 8–11% in Seoul. The DAX is underperforming European peers on the IBM-driven tech drag. CoreWeave is reportedly exploring derivatives to hedge against future memory/storage chip price drops. TSMC earnings tomorrow (July 16) are the next key catalyst.

- UK PM transition and Chancellor battle: Nominations to replace Keir Starmer close July 16th (tomorrow), with Burnham - the only expected candidate - likely announced as Labour leader on July 17th and becoming prime minister after meeting King Charles III on July 20th. Burnham has 349 nominations already, meaning its nearly impossible for another candidate to get required 81 nominations to challenge. The immediate flashpoint is the Chancellor pick, which markets are watching as the first real signal of how Burnham intends to govern. His team is openly split: many on the Labour left had expected him to hand the Treasury to Energy Secretary Ed Miliband, but another faction is arguing strongly against it and increasingly believes Miliband won't get the job. Miliband is the betting favorite but is viewed in the private sector as anti-business and less committed to fiscal discipline than the incumbent, Rachel Reeves, who is not expected to stay. Wes Streeting has also been linked to the role after declining to challenge Burnham for the leadership. The uncertainty lands at an awkward moment for gilts, which are selling off on the oil-led inflation impulse (10-year yields near 4.99%), with a market-unfriendly Chancellor appointment posing a further risk to UK duration and sterling.

- PJM’s 2028/2029 capacity auction cleared at the $325/MW-day administrative price cap for the second consecutive year, falling 6.8 GW short of the reliability requirement—despite a modest 3.7 GW rise in cleared UCAP—signaling persistent structural supply constraints amid surging data center and load growth that continues to outpace new dependable capacity additions. Without the cap, prices would have cleared sharply higher ($555/MW-day region-wide, over $775 in ComEd territory), underscoring that the market cannot procure adequate resources at regulated levels; the cleared mix heavily favored existing gas-fired and dispatchable fleets through better accreditation, conversions, and re-participation, with only 525 MW of true new build/uprates, highlighting how interconnection, permitting, and construction lags prevent rapid supply response. The repeated shortfall despite PJM’s downward revision to peak-load forecasts reinforces a binding physical capacity shortage rather than forecasting error, masking the true scarcity signal behind the cap and supporting tighter earnings for incumbent dispatchable generators and grid investment—though upcoming September backstop procurement and potential large-load management may partially mitigate or redistribute costs before full scarcity pricing materializes.

- Anthropic said to be in the final stages of preparing Claude Opus 5 for launch, with traders circulating unverified speculation of a release as early as this week or next to hit their two-week target window. They currently have no plans to extend Fable’s inclusion in subscriptions beyond July 19, intending instead to launch a successor in August to compete with GPT-6 while releasing Opus 5 relatively soon and at a cheaper inference cost.

- Traders are circulating unverified social media chatter that “Apple Intelligence” LLM has now been officially registered with mobile phone-side AI services in China. Follow-up reports suggest that Alibaba’s Qwen AI model is being integrated into Apple Intelligence for the Chinese market to enable compliant on-device and cloud AI features on iPhones.

- Important pre-market note: PayPal (+16% premarket) reportedly received a >$53B joint takeover offer from Stripe and Advent International earlier in July at $60.50/share. PayPal has yet to respond publicly, but the news added a bid to risk sentiment during the Asian session.

-Asia closed mixed with KOSPI outperforming +6.2%. EU indices -0.5% to 0.0%. US futures +0.1-0.4%. Gold -0.5%, DXY 0.0%; Commodity: Brent -0.1%, WTI +0.1%; Crypto: BTC +3.5%, ETH +5.3%.

Asia

- China Q2 GDP Q/Q: 0.9% v 0.9%e; Y/Y: 4.3% v 4.5%e (weakest pace since 2022).

- China Jun Retail Sales Y/Y: +1.0% v -0.1%e.

- China Jun Industrial Production Y/Y: 5.3% v 4.6%e.

- China Jun Fixed Urban Assets YTD Y/Y: -5.7% v -5.0%e.

- China Jun Surveyed Jobless Rate: 5.0% v 5.1%e.

- China Jun Property Investment YTD Y/Y: -18.0% v -16.8%e.

- China Jun New Home Prices M/M: -0.2% v -0.2% prior; Used Home Prices M/M: -0.3% v -0.3% prior.

- Japan May Core Machine Orders M/M: -12.4% v -4.2%e; Y/Y: -1.9% v +12.3%e.

- South Korea Jun Unemployment Rate: 2.7% v 2.8%e.

Global conflict/tensions

- Pres. Trump stated that he had decided to replace the 20% United States Reimbursement Fee with Trade and Investment Deals that the various Gulf States will be making into the United States.

- President Trump held situation room meeting on Iranian strikes on Tuesday and discussed wider scope of strikes on Iran. Threatened to strike Iran's power plants and bridges next week unless Iran returned to the table and negotiate.

- Trump expanded US. Strikes on Iran for a third straight night. US targeting military assets around the Strait of Hormuz. Trump said to be considering an attack on Pickaxe Mountain, a heavily fortified site believed by Western officials to house key elements of Iran’s nuclear program.

Europe

- BOE Gov Bailey used his Mansion House speech to press incoming PM Andy Burnham on growth and fiscal discipline.

Americas

- US May Total Net TIC Flows: $132.2B v $76.61B prior; Net Long-term TIC Flows: $232.7B v $104.8B prior.

- Fed Chair Warsh told Congress yesterday that June's better than expected inflation data isn't "mission accomplished”.

Energy

- Weekly API Crude Oil Inventories: -0.6M v -0.4M prior.

- US blockade Strait of Hormuz blockade was re-imposed on Tuesday.

- IRGC: Strait of Hormuz to remain closed until 'end of America's evils'.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.01%, FTSE -0.23% at 10,504.79, DAX -0.53% at 25,010.20, CAC-40 -0.05% at 8,363.05, IBEX-35 -0.64% at 19,232.12, FTSE MIB -0.36% at 52,674.50, SMI +0.06% at 14,250.50, S&P 500 Futures +0.17%].

Market focal points/key themes: European markets trading mixed, with the STOXX 600 hovering near flat amid a tug-of-war between ASML’s AI-fueled triumph and IBM’s historic 25% rout. ASML climbed ~4% after delivering a decisive Q2 earnings beat on explosive demand for AI lithography equipment, raising full-year guidance and reinforcing the hardware backbone of the AI supercycle, while providing a rare bright spot for European tech.

IBM’s shocking revenue miss and explicit warning that enterprises are pivoting budgets aggressively toward AI servers/storage—at the expense of legacy software and infrastructure—triggered broad pressure on tech and software peers, including SAP (-2.1%) and Capgemini, highlighting risks of a lopsided AI spending shift. In a notable luxury counterpoint, Richemont surged 5-8% after its Q1 results significantly beat expectations, driven by 20%+ constant-currency sales growth led by resilient jewelry demand (Cartier, Van Cleef) and improving watches.

Equities

- Consumer discretionary: Richemont [CFR.CH] +6.0% (earnings), Galliford Try [GFRD.UK] +6.5% (trading update), TomTom [TOM2.NL] -12.0% (earnings).

- Consumer staples: B&M European Value Retail [BME.UK] -4.0% (trading update).

- Industrials: ABB [ABB.CH] -0.5% (PJM auction results), Barratt Redrow [BDRW.UK] +2.5% (trading update).

- Technology: ASML [ASML.NL] +5.0% (earnings; raised outlook).

- Materials: Antofagasta [ANTO.UK] -2.0% (production).

Speakers

- ECB’s Nagel (Germany): Monetary policy would maintain its vigilant stance. ECB must act decisively if necessary.

- ECB’s Panetta (Italy) stated that ECB resolve was to keep price expectations anchored. - Inflation in the Eurozone was currently hovering around 3% and was expected to remain above that level until early 2027.

- ECB's Kocher (Austria) stated that was prepared to make actions at any time if needed to bring inflation down to target in the medium term. No 2nd round effects of inflation seen at this time.

- ECB Cipollone reiterates currently not seeing second-round inflation effects, but monitoring inflation expectations 'very closely'.

- Japan PM Takaichi still plan to limit food sales tax cut to 2 years.

- PBOC Deputy Gov Zou Lan reiterated to implement 'moderately loose' monetary policy; To step up counter-cyclical and cross-cyclical policies; 7-day reverse repo is still the main policy rate.

Currencies/fixed income

- USD was steady as oil prices continued its rise as US re-imposed the naval blockade on Iran. Trump did withdrew a proposal to impose transit fees on ships using Hormuz but continued Gulf tensions weighing upon risk sentiment. Greenback able to shake off a recent softer US CPI reading.

- EUR/USD at 1.1425 area by mid-session.

- USD/JPY staying above the 162 level and not too far from recent 40-year lows for the yen currency.

- Higher oil prices translated into higher bond yields. 10-year German Bund yield last at 3.13%, France 10-year Oat at 3.92% and 10-year Gilt yield at 4.99% 10-year Treasury yield: 4.60%; 10-year JGB: 2.68%.

Economic data

- (SE) Sweden Jun Final CPI M/M: 0.4% v 0.4% prelim; Y/Y: 0.7% v 0.7% prelim.

- (SE) Sweden Jun Final CPIF M/M: 0.3% v 0.3% prelim; Y/Y: 1.3% v 1.3% prelim.

- (SE) Sweden Jun Final CPIF (ex-energy) M/M: 0.6% v 0.6% prelim; Y/Y: 0.4% v 0.4% prelim; CPI Level: 125.56 v 125.09 prior.

- (NO) Norway Jun CPI Underlying M/M: -0.1% v +0.4% prior; Y/Y: 2.7% v 3.3%e.

- (NO) Norway Jun Trade Balance (NOK): 61.9B v 62.2B prior.

- (ES) Spain Jun Final CPI M/M: 0.6% v 0.6% prelim; Y/Y: 3.2% v 3.2% prelim.

- (ES) Spain Jun CPI EU Harmonized M/M: 0.6% v 0.6% prelim; Y/Y: 3.6% v 3.6% prelim.

- (ES) Spain Jun CPI Core M/M: 0.4% v 0.2% prior; Y/Y: 2.9% v 2.9% prelim.

- (CN) China Jun YTD New Yuan Loans (CNY): 10.72T v 11.060Te.

- (CN) China Jun CNY Aggregate Financing: 20.84T v 21.190Te.

- (CN) China Jun M2 Money Supply Y/Y: 8.0% v 8.5%e.

- (PL) Poland Jun Final CPI M/M: -0.5% v -0.5% prelim; Y/Y: 2.5% v 2.5% prelim.

- (IT) Italy May General Government Debt: €3.181T v €3.154T prior (record high).

- (CA) Canada Jun Existing Home Sales M/M: 0.5% v 5.5% prior.

- (EU) Euro Zone May Industrial Production M/M: -0.2% v +0.3%e ; Y/Y: -1.2% v -0.4%e.

Fixed income issuance

- (IN) India sold total INR240B vs. INR240B indicated in 3-month, 6-month and 12-month bills.

Looking ahead

- (NG) Nigeria Jun CPI Y/Y: No est v 15.9% prior.

- (CO) Colombia Jun Consumer Confidence: No est v 17.8 prior.

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

- 05:30 (DE) Germany to sell combined €3.0B in 2052, 2054 and 2056 Bunds.

- 05:30 (PL) Poland to sell Bonds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays.

- 06:00 (IE) Ireland May Trade Balance: No est v €4.9B prior.

- 06:00 (IE) Ireland May Property Prices M/M: No est v 0.0% prior; Y/Y: No est v 6.2% prior.

- 06:30 (IN) India Jun Unemployment Rate: No est v 5.5% prior.

- 07:00 (US) MBA Mortgage Applications w/e July 10th: No est v -2.2% prior.

- 07:00 (RU) Russia to sell OFZ Bonds.

- 07:00 (CZ) Czech Republic to sell combined CZK 4.0B in 2035 and 2037 bonds.

- 07:00 (UK) Weekly PM Question time in House.

- 08:00 (BR) Brazil May IBGE Services Volume M/M: 0.0%e v 1.2% prior; Y/Y: 0.6%e v 1.9% prior.

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

- 08:00 (DE) German Chancellor Merz.

- 08:30 (US) July Empire Manufacturing: 9.2e v 5.7 prior.

- 08:30 (US) Jun PPI Final Demand M/M: 0.0%e v 1.1% prior; Y/Y: 6.2%e v 6.5% prior.

- 08:30 (US) Jun PPI (ex-food/energy) M/M: 0.3%e v 0.4% prior; Y/Y: 5.2%e v 4.9% prior.

- 08:30 (US) Jun PPI (ex-food/energy/trade) M/M: 0.3%e v 0.8% prior; Y/Y: 5.2%e v 5.1% prior.

- 08:30 (CA) Canada May Wholesale Sales (ex-petroleum) M/M: -0.7%e v +0.6% prior; Manufacturing Sales M/M: 1.1%e v 4.2% prior

- 08:45 (US) Fed’s Williams.

- 09:45 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 2.25%.

- 10:00 (US) Fed Gov Warsh.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:00 (PE) Peru Jun Unemployment Rate: 5.0%e v 5.0% prior.

- 11:00 (PE) Peru May Economic Activity Index (Monthly GDP) Y/Y: 3.1%e v 3.7% prior.

- 11:00 (CO) Colombia May Retail Sales Y/Y: 11.6%e v 14.9% prior.

- 11:00 (CO) Colombia May Manufacturing Production Y/Y: 1.9%e v 2.0% prior; Industrial Production Y/Y: 2.1%e v 3.0% prior.

- 11:30 (IL) Israel Jun CPI M/M: -0.1%e v -0.3% prior; Y/Y: 1.6%e v 1.9% prior.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (DE) ECB’s Nagel (Germany).

- 13:00 (US) Fed’s Cook.

- 14:00 (US) Fed Beige Book.

- 18:30 (US) Fed’s Musalem.

- 21:00 (AU) Australia July Consumer Inflation Expectation: No est v 5.5% prior.

- (KR) Bank of Korea (BOK) Interest Rate Decision: Expected to raise the 7-Day Repo Rate by 25bps to 2.75%.

- 23:30 (JP) Japan to sell 12-Month Bills.