Oil and rates feel the heat of the Iran conflict

EU mid-market update: Earnings drives sentiment but AI capex concerns weigh; Oil and rates feel heat of Iran conflict; ECB expected to hold, watch for Sept guidance.

Notes/observations

- Overnight US tech results set a cautious tone despite headline beats. Alphabet delivered a strong quarter (Rev ex-TAC $103.6B vs $101.2Be, Cloud revenue accelerating to +82% y/y, Gemini app at 950M MAUs), yet the stock fell ~3% after the company lifted its already enormous capex guidance to $195-215B, while Tesla slid ~4% on an adjusted EPS miss ($0.33 vs $0.51e), compressed automotive margins (op margin 1.4%) and negative FCF of -$1.09B as it triples capex to "more than $25B" on its physical AI/robotics pivot. Both names reporting negative free cash flow alongside higher spending plans crystallised market unease about the AI capex cycle - reinforced by OpenAI raising projected cloud spend through 2030 to $750B (from $600B). IBM trimmed the lower end of its FY26 revenue outlook, while Texas Instruments and ServiceNow beat with solid guidance. In Europe, the earnings calendar was heavy: BNP Paribas beat on net income and affirmed targets through 2028; UniCredit beat and raised FY26/28/30 net profit guidance "well above" prior levels, with the CEO signalling openness to engage on Commerzbank; STMicro beat sharply and flagged improved visibility and tightening supply; Nestlé and Roche affirmed FY guidance (Nestlé also selling 50% of its waters business to Platinum Equity); Nokia nudged its FY operating profit range; Repsol posted strong energy-driven results plus a €500M buyback; easyJet's PBT fell sharply y/y with the COO stepping down; BT adjusted its FY27 revenue outlook lower. European indices opened in the red, though the narrative was shifting more upbeat after cautious initial reactions.

- Middle East conflict intensified on multiple fronts. US CENTCOM completed a 12th consecutive night of strikes on Iran, with Axios reporting the first B-1 long-range bomber mission of the campaign (capable of carrying the GBU-72 bunker-buster), while a regional source said Iranian leadership has not accepted the mediators' latest proposal. Iran retaliated by attacking US bases in Kuwait (Arifjan and Doha camps), with Kuwaiti air defenses intercepting drone threats - following earlier Iranian strikes on Kuwaiti power and desalination plants. Maritime risk is spreading: the IRGC said one of three oil tankers caught fire after an explosion south of the Strait of Hormuz, and the Houthis claimed strikes on Saudi tankers in the Red Sea (the Encelia hit, crew safe) under their newly declared "maritime embargo" on Saudi Arabia. Brent surged ~3.8% to $97.6, dragging yields higher across the curve - 10-year Bund and Treasury yields hit two-month highs, 10-year gilts touched 5.08% - while gold slipped 1% as rate-hike fears offset haven demand. Notably, WSJ reports the US is surging forces and weaponry to the region as President Trump considers expanding the conflict.

- Google’s 8% FY26 capex raise to $195-205B is a sober acceleration of physical infrastructure delivery to satisfy near-term demand, backed by robust Cloud backlog growth and consumption metrics that validate near-term returns, yet it occurs against already enormous contractual commitments and assets under construction that lock in spending years ahead. The raise underscores how capex has become an industrial claim on scarce resources rather than flexible budgeting, with model delays paradoxically sustaining or increasing utilization through layered inference, post-training, and next-gen runs. Google is betting massive capital on owning the pipes while China optimizes the flow, potentially allowing cheaper intelligence to erode the long-term scarcity premium on American-hosted compute even as hyperscalers keep writing the hosting checks.

- ECB announces at 08:15 ET (12:15 GMT) and is widely expected to keep rates on hold after June's hike, with all attention on guidance for September, when markets price an ~84-90% chance of a 25bp rise and updated projections are due. The oil-driven inflation impulse adds spice: commentators expect Lagarde to open the door to September without pre-committing. Some analysts flag the possibility of a post-meeting media leak signalling a hike. FX-wise for the euro, some downside bias on the view that markets are "dangerously complacent" about Middle East escalation, and Commerzbank notes a confirmed September path is largely priced. The energy shock is also reshaping expectations elsewhere - markets now fully price a BoE hike in November with a second nearly priced for December, and the Fed is expected to hold next week but hike by September.

- At 12:30 ET today, Lisa Su's keynote at the Advancing AI event is expected to unveil AMD's 2nm Venice server CPU as the computational anchor for a new wave of Instinct accelerators, including MI450 and MI455 positioned to rival NVIDIA's Rubin in mid-to-high tiers, plus the MI550 targeting the Ultra variant. Venice promises unprecedented core scaling and memory bandwidth with UALink coherence for lower-latency CPU-GPU symbiosis, while native CPO using Sivers lasers and Ayar Labs TeraPHY chiplets delivers open, power-efficient scaling that lowers TCO and accelerates multi-vendor adoption. By emphasizing modular optics, diversified supply chains, and ecosystem openness over monolithic lock-in, AMD aims to establish long-term leadership in sustainable AI infrastructure. Just yesterday, AMD deepened this momentum by signing a major deal with Anthropic—committing up to $5B equity investment while securing up to 2GW of MI450 deployments in Helios racks starting H1 2027—marking its third hyperscale design win and validating the platform through multi-vendor hedging rather than Nvidia displacement.

- IBM’s warning a few weeks ago highlighted potential softening in large-deal timing and IT spending, yet its Q2 call framed June’s shortfall as customers redirecting budgets toward constrained AI hardware (servers, storage, memory) rather than outright demand destruction, with many slipped deals already closing in early Q3. Management cut FY26 revenue growth to 4–5% but raised Infrastructure expectations and noted accelerating recurring Software growth, while maintaining that the pipeline remains intact with typical conversion patterns. In contrast, ServiceNow reported no signs of sales-cycle elongation from hardware or AI infrastructure prioritization, instead citing positive trends like rising active seats and lengthening contracts, delivering a Q2 beat and a modest FY26 raise to $15.77B subscription revenue (+21% cc).

- Asia closed higher with KOSPI outperforming +4.4%. EU indices -0.1% to -1.6%. US futures -0.3%. Gold -0.8%, DXY 0.0%; Commodity: Brent +4.1%, WTI +3.3%; Crypto: BTC -0.3%, ETH +0.3%.

Asia.

- South Korea Q2 Advance GDP Q/Q: 0.6% v 0.4%e; Y/Y: 3.7% v 3.5%e.

- Australia Jun Employment Change: +76.3K v +15.0Ke; Unemployment Rate: 4.4% v 4.4%e.

- China Jun Swift Global Payments (CNY): 3.1% v 2.8% prior.

Global conflict/tensions

- US CENTCOM completed its 12th consecutive night of Iran strikes. Reports circulated that US used a B-1 bomber to strike IRGC targets in Iran, the first such mission since fighting resumed.

- President Trump warned Iran that the US would retaliate aggressively against any attacks on shipping in the Strait of Hormuz. US would strike bridges, power plants, and other infrastructure for every vessel targeted.

- US said to be reinforcing its military presence in the Middle East by deploying additional special operations forces, bomber aircraft and military equipment.

- Yemen’s Houthi rebels said they struck the Saudi tankers Encelia and Layla with missiles and drones in the Red Sea.

Europe

- UK PM Burnham said to cut business rates for pubs and clubs; live music venues.

Americas

- US House of Representatives approved a $1.15T defense policy bill (Note: largely along party lines).

- House Republicans agreed to begin drafting a $95B package to fund the war with Iran.

Trade

- US Treasury Sec Bessent stated that sanctions and entity list designations would be on the table when Chinese firms conduct covert, industrial-scale distillation attacks.

Energy

- QatarEnergy prepared to extend LNG force majeure into Oct.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE -0.08% at 10,708.21, DAX -0.49% at 25,050.63, CAC-40 -0.85% at 8,366.22, IBEX-35 -0.51% at 19,471.39, FTSE MIB -1.43% at 52,036.00, SMI -0.86% at 14,192.50, S&P 500 Futures -0.28%].

Market Focal Points/Key Themes: European indices today being mainly driven by chip names move. European semiconductor stocks showed sharp divergence on Thursday. STMicroelectronics plunged nearly 15% in Milan to as low as €49.51 after issuing Q3 revenue guidance of $3.70 billion at the midpoint, missing consensus by about 2% and the weak guidance and misses on EBITDA/free cash flow dominated sentiment. Soitec surged as much as 22% on better-than-expected results driven by strong photonics demand, while BE Semiconductor (BESI) fell around 3.7% despite robust orders (+129% y/y) and an improved book-to-bill, partly due to limited hybrid bonding news. Broader chip peers were mostly lower, with Infineon down up to 4.4%, ASML -1%, and ASM International -1.7%. The moves came as the ECB was widely expected to hold rates steady, adding limited new catalyst for rate-sensitive European growth stocks.

Equities

- Consumer staples: Nestle [NESN.CH] -6.5% (earnings).

- Energy: TotalEnergies [TTE.FR] +2.5% (earnings).

- Financials: BNP Paribas [BNP.FR] -1.5% (earnings), Unicredit [UCG.IT] -2.5% (earnings).

- Healthcare: Roche [ROG.CH] +2.5% (earnings).

- Industrials: Daimler Truck [DTG.DE] +4.0% (earnings).

- Technology: ASML [ASML.NL] -0.5% (STMicro results; Google capex raise), STMicroelectronics [STM.FR] -13.5% (earnings).

- Materials: Givaudan [GIVN.CH] -5.5% (earnings; price increases).

Speakers

- Czech Central Bank (CNB) Member Kubicek noted that rate setters could hike rates once more (**Insight: Czech Central Bank moved into tightening in Jun 2026 with its 1st rate hike since Jun 2022).

- EU countries agree to freeze Russia oil price cap for 12 months; To allow some continued transfer of Russian LNG.

- US Sec of State Rubio stated that had a good conversation with Russia's Lavrov; looked to have a constructive role in ending Ukraine war. On Iran he noted that the country was intending to double missile stockpile. Iran was begging to make a deal everyday but not one they could live with. Hope Houthis would stop with attacks in Red Sea.

Currencies

- USD was steady to slightly higher on safe-haven flows. US said to be prepared to send more forces, medics and weaponry to the Middle East to provide President Trump with more military options.

- EUR/USD at 1.1425 by mid-session. Focus on ECB and the rate decision later today. Markets currently pricing approx 5% probability of a hike this week but an 85% of a move higher in Sept. ECB expected to reiterate its data dependent approach at this time.

- GBP/USD at 1.3375 as market now see 75bps of rate hikes over the next 12 months. BOE meets next week and is also expected to keep its powder dry at this time with Sept also viewed as the time to move into tightening.

- USD/JPY hit fresh 40-year highs above 163.40 in the session. Yen currency unable to find its mojo despite reports that the BOJ might pick up the pace of rate hikes depending on upside inflation risks.

- End to the ceasefire and resumption of the US/Iran war is now accompanied by a destruction of Russian oil/refined product infrastructure keeping upside risks to inflation.

- Session saw another rise in global bond yield as the continued conflict in the Middle East broadened. Yemen Houthi began strikes in the Red Sea with the situation boosting concerns over supply disruptions in the region. 10-year German Bund yield last at 3.20%, France 10-year Oat at 4.01% and 10-year Gilt yield at 5.08% 10-year Treasury yield: 4.68%; 10-year JGB: 2.75%.

Economic data

- (EU) EU27 Jun New Car Registrations: 13.6% v 3.2% prior.

- (NL) Netherlands July Consumer Confidence: -35 v -39 prior.

- (DK) Denmark July Consumer Confidence: -14.7 v -14.0 prior.

- (FR) France July Business Confidence: 97 v 95e; Manufacturing Confidence: 101 v 101e.

- (TR) Turkey July Consumer Confidence: 89.8 v 87.9 prior.

- (PL) Poland Jun Unemployment Rate: 5.8% v 5.8%e.

- (TW) Taiwan Jun Industrial Production Y/Y: 23.0% v 17.5%e.

- (TW) Taiwan Jun M2 Money Supply Y/Y: 8.1% v 7.8% prior; M1 Money Supply Y/Y: 9.4% v 9.6% prior.

- (IS) Iceland July CPI M/M: % v 0.9% prior; Y/Y: % v 5.2% prior.

- (IS) Iceland Jun Wage Index M/M: % v -0.3% prior; Y/Y: % v 5.9% prior.

Fixed income issuance

- (UK) DMO sold £500M in 4.0% Oct 2063 Gilts via Tender; Avg Yield: % v % prior; bid-to-cover: x v x prior.

Looking ahead

- (RO) Romania Jun M3 Money Supply Y/Y: No est v 7.5% prior.

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

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

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

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

- 06:00 (UK) July CBI Industrial Trends Total Orders: -40e v -45 prior; Selling Prices: No est v 22 prior.

- 07:00 (CA) Canada July CFIB Business Barometer: No est v 49.6 prior.

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-Week Repo Rate unchanged at 37.00%.

- 08:00 (MX) Mexico May IGAE Economic Activity Index (Monthly GDP) M/M: -0.4%e v +1.2% prior; Y/Y: 1.1%e v 2.3% prior.

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

- 08:15 (EU) ECB Interest Rate Decision: Expected to leave Key Rates unchanged.

- 08:30 (US) Initial Jobless Claims: 210Ke v 208K prior; Continuing Claims: 1.81Me v 1.805M prior.

- 08:30 (US) Jun Chicago Fed National Activity Index: 0.00e v -0.10 prior.

- 08:30 (CA) Canada May Retail Sales M/M: 1.0%e v 0.5% prior; Retail Sales (ex-auto) M/M: 1.3%e v 0.1% prior.

- 08:30 (CL) Chile Central Bank Traders Survey.

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

- 08:45 (EU) ECB Chief Lagarde post rate decision press conference.

- 09:00 (RU) Russia Gold and Forex Reserve w/e July 21st: No est v $722.4B prior.

- 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to raise Interest Rates by 25bps to 7.25%.

- 10:00 (EU) Euro Zone July Advance Consumer Confidence: -17.0e v -17.7 prior.

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

- 11:00 (US) July Kansas City Fed Manufacturing Activity: 13e v 11 prior.

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

- 13:00 (US) Treasury to sell 10-Year TIPS.

- 19:00 (AU) Australia July Preliminary PMI Manufacturing: No est v 51.5 prior; PMI Services: No est v 50.5 prior; Composite: No est v 50.4 prior.

- 19:01 (UK) July GfK Consumer Confidence: -22e v -23 prior.

- 19:30 (JP) Japan Jun National CPI Y/Y: 1.7%e v 1.5% prior; CPI (ex-fresh food) Y/Y: 1.6%e v 1.4% prior; CPI (ex-fresh food/energy) Y/Y: 1.8%e v 1.8% prior.

- 20:30 (JP) Japan July Preliminary PMI Manufacturing: No est v 54.8 prior; PMI Services: No est v 52.2 prior; PMI Composite: No est v 52.8 prior.

- 22:35 (CN) China to sell 10-Year Additional Bonds.

- 23:30 (JP) Japan to sell ¥3.8T in 3-Month Bills.