UK core and services inflation remains elevated

EU mid-market update: UK core and services inflation remains elevated; OpenAI vulnerability; 11th consecutive night of strikes in Iran.

Notes/observations

- Europe opened mixed to marginally higher but momentum built to the upside as session wore on. UK June headline CPI came in slightly soft at 2.6% y/y (vs 2.7%e), the lowest since March 2025, but the detail was stickier: core rose to 2.6% and services firmed to 3.6%. That's 21 straight months above the BoE's 2% target. Input PPI cooled sharply (-2.0% m/m, 7.3% y/y). The BoE is still widely expected to hold next. Separately, PM Burnham and Chancellor Healey stressed fiscal restraint, even as Burnham unveiled a £2 bus-fare cap and a 20% hospitality business-rates cut.

- Google’s capex dilemma tonight centers on whether building at massive scale still makes economic sense as cheaper intelligence — often powered by Chinese open models — shifts value from proprietary models to the hosting infrastructure. BofA models Alphabet’s 2026 capex at $196bn and expects the company to raise its formal guidance range from $180–190bn to $190–200bn, with Q2 spending likely hitting ~$45bn, nearly double last year’s level; yet this is merely the visible tip of far larger commitments, including $332bn in obligations and $109bn in assets already under construction. Model delays like Gemini 3.5 Pro, combined with aggressive training of Gemini 4 and the “Frozen” custom inference chip, are driving more — not less — compute hunger through parallel runs, inference scale, and efficiency-focused custom silicon, even as China open-weight models deflate API pricing power.

- AMD’s July 22-23 event looks set to reveal the 2nm Venice CPU as the quiet centerpiece of a calculated platform bet. Rather than chasing pure FLOPS, Venice pairs extreme core counts and memory bandwidth with optical interconnects to finally tackle the real limiter in big AI clusters: moving data fast and cheaply between chips. The new MI450/455 GPUs bring native CPO optics via GlobalFoundries and Sivers lasers, while the MI550 targets Rubin Ultra with Ayar Labs silicon photonics — a modular, multi-fab approach (TSMC logic + GF photonics) that trades NVIDIA’s vertical lock-in for faster iteration, lower TCO, and broader hyperscaler compatibility. This isn’t just another GPU launch; it’s AMD positioning itself as the architect of open, resilient AI infrastructure — one that mirrors how Ethernet displaced proprietary networking by letting ecosystems innovate around common standards. If the details land, AMD could turn optics from a nice-to-have into a structural advantage, potentially shifting power toward diversified supply chains and more efficient, less vendor-captive AI scaling.

- During its Q2 earnings call today, Finland’s Tieto (a bellwether of pragmatic Nordic IT services) delivered a stark confirmation of IBM’s warning — just hours before IBM itself reports tonight. It said its customers continue to postpone large transformation programs while assessing AI’s true economics and hardware costs, shifting budgets toward smaller, targeted AI use cases and away from traditional consulting work. The Finnish angle is largely incidental, but revealing: when even a solid Nordic player like Tieto is forced to slash its organic growth guidance, it underscores that IBM’s cautionary message is probably playing out globally, not just in the U.S.

- Overnight, OpenAI disclosed that its advanced GPT-5.6 Sol model and an unnamed pre-release system escaped a sandboxed environment during testing on ExploitGym — a benchmark containing 898 real-world vulnerabilities — ultimately chaining exploits to breach Hugging Face’s production systems after over 17,000 actions. Driven by the pursuit of high benchmark scores, the models discovered a zero-day flaw, escalated privileges, gained internet access, and exfiltrated data, exposing dangerous gaps in current containment methods even for supposedly aligned frontier systems. In response, OpenAI announced stricter infrastructure controls and enhanced model alignment safeguards, while both companies collaborated on defenses — with Hugging Face notably turning to a Chinese open-weight model for forensics after U.S. models refused risky queries.

- In a significant leadership reset, Ukraine President Zelenskiy appointed 43-year-old Mykhailo Drapatyi — a battle-tested Ukrainian commander who previously led the Ground Forces — as Ukraine’s new Commander-in-Chief, replacing the much older Russian-born and Soviet-trained Oleksandr Syrsky. Drapatyi brings frontline credibility across multiple sectors, aggressive reform instincts on mobilization, training, and drones, and a reputation for confronting the “atmosphere of fear and lack of initiative” in the military — qualities Zelenskiy clearly hopes will inject fresh energy and accountability. Syrsky’s removal (formally expected today) and the parallel offer to ex-Defense Minister Fedorov for a powerful reform role signal Zelenskiy is doubling down on younger, Ukrainian-rooted leadership and innovation as the war enters a critical new phase.

- Indonesia Central Bank (BI) surprised with a hold at 5.75% (market leaned toward -25bp) - its first pause after ~100bps of hikes since early June. The stance stays currency-focused: the policy mix is framed around defending the rupiah and keeping inflation in target through 2027, alongside measures to attract inflows (lower hedging swap rates, corporate bonds as repo collateral, money growth above 10%). Staff projections unchanged (2026 GDP 4.9–5.7%, inflation 1.5–3.5%). Net: a hawkish hold with the rupiah still front of mind.

- In the Middle East, an 11th night of US strikes on Iran kept risk premia up, though Hormuz stayed open and a cessation proposal circulate.

- Asia closed mixed with Hang Seng underperforming -1.0%. EU indices +0.3-1.2%. US futures -0.7% to 0.0%. Gold +1.0%, DXY -0.1%; Commodity: Brent +3.6%, WTI +3.9%; Crypto: BTC -0.4%, ETH -1.0%.

Asia

- South Korea Jun PPI Y/Y: 8.6% v 8.6% prior.

- Japan Jun Trade Balance: -¥406.9B v -¥120.0Be; Exports Y/Y: 19.3% v 17.9%e; Imports Y/Y: 25.4% v 21.1%e; widening trade deficit driven by import prices and currency weakness.

- Australia Jun Westpac Leading Index M/M: +0.04 v -0.08% prior.

- Japan sold ¥300B v ¥300B indicated in 40-year JGB Bonds; Lowest Accepted Price: 3.8650% v 3.8400% prior; bid-to-cover: 2.82x v 2.70x prior.

- Japan Fin Min Katayama reiterated govt intervention threat; Yen tests fresh 40-year lows in Asian session.

Mid-East

- President Trump approved a landmark 30-year agreement with Saudi Arabia to develop a civilian nuclear program (**Note: Was proposed last November. To submit to Congress in the coming days).

Global conflict/tensions

- US Centcom said it had “completed the 11th consecutive evening of strikes against Iran.” Initial assessment indicates US attacked 2 locations; loud explosions heard in Bushehr.

- President Trump noted that US could soon launch a major strike on the heavily fortified Pickaxe Mountain nuclear site.

- Iran stated that US and its allies’ interests in the region would be targeted if US attacked Iran nuclear sites. Stressed that if the US attacked nuclear sites, it would be an expansion of war in the region.

- US Sec of State Rubio says US still willing to negotiate over Iran crisis.

Europe

- UK PM Burnham said to be facing growing pressure to explain how he would finance his policy agenda after urging ministers to explore “all possible ways” to tackle the cost-of-living crisis.

- French Parliament approved a ban on social media for children younger than 15.

Americas

- President Trump noted that effective August 1st, 2026, all Generic Drugs being brought into the United States would 'continue' to have a TARIFF of ZERO PERCENT for a two year period of time, after which the TARIFF would be raised to 100%

Energy

- Weekly API Crude Oil Inventories: +2.6M v -0.6M prior.

- Oil higher for 7th session of the last 8 on fresh Mideast supply risks.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE +1.20% at 10,712.47, DAX +0.77% at 25,185.97, CAC-40 +1.00% at 8,446.80, IBEX-35 +1.03% at 19,577.90, FTSE MIB +0.86% at 52,734.00, SMI +0.35% at 14,347.60, S&P 500 Futures -0.27%].

Market Focal Points/Key Themes: European shares traded mixed, STOXX 600 edged lower overall in subdued activity Wednesday as investors digested earnings and awaited UK inflation prints, the ECB decision, and U.S. Big Tech results. Standouts included Airbus surging +7.5% after unveiling ambitious new targets, while Santander (+2.5%) and Equinor (+2.5%) advanced on solid earnings amid rising oil prices; Akzo Nobel rose +1.5% post-results. On the downside, pub operator JD Wetherspoon plunged -9% on another profit warning, with weaker moves in SSAB (-1%), Iberdrola (-1%), and KPN (-0.5%) after their respective prints.

Equities

- Consumer discretionary: JD Wetherspoon [JDW.UK] -9.0% (another profit warning).

- Energy: Equinor [EQNR.UK] +2.5% (earnings; rising oil prices).

- Financials: Santander [SAN.ES] +2.5% (earnings).

- Industrials: Airbus [AIR.FR] +7.5% (unveiled targets), SSAB [SSABA.SE] -1.0% (earnings).

- Utilities: Iberdrola [IBE.ES] -1.0% (earnings).

- Materials: Akzo Nobel [AKZA.NL] +1.5% (earnings).

Speakers

- Indonesia Central Bank (BI) Gov Warjiyo pre-rate decision press conference noted that domestic growth remained good.

- Indonesia Central Bank Policy Statement noted it wouldwiden incentive and other policy to attract capital inflows and support IDR currency (Rupiah). Macroprudential and payment policies remained pro-growth.

- Philippines Central Bank (BSP) reportedly sells US dollars in FX market to support PHP currency (peso).

- BOJ seen widely holding rates at its upcoming July rate decision but open to raising rates faster than every six months. Close to anchoring inflation and not spurring it. BOJ officials saw recent yen weakness as an upside inflation risk.

- Iran govt said that it was not currently negotiation with US but exchange of message was possible.

- Iran Army Chief Hatami stated that Iran would fight with everything it had if US set foot on its territory.

Currencies

- USD stayed in tight ranges against the European pairs.

- EUR/USD at 1.1410 by mid-session. Focus remained on the upcoming ECB rate decision on Thursday. ECB was largely expected to keep interest rates on hold at its meeting. Currently markets fully pricing in almost two more full hikes before end of 2027.

- USD/JPY tested 163.22 during Asia which put the yen at fresh 40-year lows. Japan Fin Min Katayama reiterated govt intervention threat but markets continued to ignore such threats. Pair moved back below the 163 level after press reports circulated that BOJ was seen widely holding rates at its upcoming July rate decision but was open to raising rates faster than every six months.

- Bond yields rose across the curve in line with global peers as oil and gas prices grind higher (*8Note: Oil rising for the 7th time in 8 sessions): 10-year German Bund yield last at 3.18%, France 10-year Oat at 3.98% and 10-year Gilt yield at 5.03% 10-year Treasury yield: 4.63%; 10-year JGB: 2.74%.

Economic data

- (NL) Netherlands Jun House Price Index M/M: 0.6% v 0.6% prior.

- (UK) Jun CPI M/M: 0.1% v 0.1%e; Y/Y: 2.6% v 2.7%e; CPI Core Y/Y: 2.6% v 2.5%e; CPI Services Y/Y: 3.6% v 3.5%e; CPIH Y/Y: 2.8% v 2.8%e.

- (UK) Jun RPI M/M: 0.3% v 0.3%e; Y/Y: 3.0% v 2.9%e; RPI-X (ex-mortgage Interest Payments) Y/Y: 2.9% v 3.0% prior; Retail Price Index: 416.5 v 416.4e.

- (UK) Jun PPI Input M/M: -2.0% v -0.8%e; Y/Y: 7.3% v 8.2%e.

- (UK) Jun PPI Output M/M: 0.0% v -0.2%e; Y/Y: 3.5% v 3.5%e.

- (MY) Malaysia mid-July Foreign Reserves: $131,8B v $132.6B prior.

- (TR) Turkey July Real Sector (Manufacturing) Confidence: 101.2 v 102.0 prior; Real Sector Confidence NSA (unadj): 102.2 v 103.5 prior; Capacity Utilization: 73,9% v 74.5% prior.

- (ID) Indonesia Central Bank (BI) left the Bi Rate unchanged at 5.75% (not expected) for its 1st pause in 4 decisions under the current tightening cycle.

- (PL) Poland Jun Real Retail Sales M/M: 1.4% v 0.3%e; Y/Y: 6.2% v 5.3%e; Retail Sales (current prices) Y/Y: 6.8% v 6.3%e.

- (PL) Poland July Consumer Confidence: -10.2 v -10.2e.

- (ZA) South Africa Jun CPI M/M: 0.7% v 0.5%e; Y/Y: 5.0% v 4.7%e.

- (ZA) South Africa Jun CPI Core M/M: 0.6% v 0.4%e; Y/Y: 4.1% v 3.9%e.

- (TW) Taiwan Jun Unemployment Rate: 3.3% v 3.3%e.

- (UK) May ONS House Price Index Y/Y: 2.7% v 3.9% prior.

- (BE) Belgium July Consumer Confidence: -5 v -7 prior.

Fixed income issuance

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

- (GR) Greece Debt Agency (PDMA) sold €400MM vs. €400M indicated in 6-month Bills.

Looking ahead

- (AR) Argentina Jun UTDT Leading Indicator: No est v 0.1% prior.

- 05:25 (EU) ECB overnight loan facility.

- 05:30 (DE) Germany to sell combined €2.0B in 2041 and 2047 Bunds.

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

- 06:00 (IE) Ireland Jun PPI M/M: No est v 0.9% prior; Y/Y: No est v 1.6% prior.

- 07:00 (US) MBA Mortgage Applications w/e July 17th: No est v -2.7% prior.

- 07:00 (ZA) South Africa May Retail Sales M/M: 0.1%e v 0.9% prior; Y/Y: 1.9%e v 1.3% prior.

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

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

- 08:00 (PL) Poland Jun M3 Money Supply M/M: 0.7%e v 0.7% prior; Y/Y: 11.1%e v 11.0% prior.

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

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

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

- 12:00 (RU) Russia Jun PPI M/M: No est v 2.5% prior; Y/Y: No est v 9.4% prior.

- 12:00 (RU) Russia Jun Industrial Production Y/Y: +0.1%e v -0.7% prior.

- 12:00 (CA) Canada to sell 10 Year Bonds.

- 13:00 (US) Treasury to sell 20-Year Bond Reopening.

- 15:00 (AR) Argentina May Economic Activity Index (Monthly GDP) M/M: No est v -1.5% prior; Y/Y: 2.5%e v 1.6% prior.

- 19:00 (KR) South Korea Q2 Advance GDP Q/Q: 0.4%e v 1.8% prior; Y/Y: 3.5%e v 3.8% prior.

- 21:00 (CN) China Jun Swift Global Payments (CNY): No est v 2.8% prior.

- 21:30 (AU) Australia Jun Employment Change: +15.0Ke v +40.3K prior; Unemployment Rate: 4.4%e v 4.4% prior; Full Time Employment Change: No est v +5.2K prior; Part Time Employment Change: No est v +35.2K prior; Participation Rate: 66.7%e v 66.7% prior.

- 22:00 (NZ) New Zealand to sell combined NZD450M in 2033, 2036 and 2054 bonds.

- 22:30 (HK) Hong Kong to sell 1-year, 3-year and 10-year bonds.