Ceasefire Pause Eases Oil and Inflation Fears (27 – 31 July)

Global markets began the week on a more positive footing after a pause in US and Iranian military operations reduced immediate concerns over energy supplies and inflation. The United States quietly suspended its nearly two-week strike campaign against Iran late Friday, while Tehran halted retaliatory operations and entered discussions with Oman regarding the Strait of Hormuz. The developments pushed oil prices sharply lower, supporting precious metals and government bonds after weeks of pressure from rising energy costs.

Despite the improvement in geopolitical sentiment, markets remain sensitive to developments across the Strait of Hormuz and the Red Sea. Brent crude has risen nearly 40% during July as disruptions expanded across major shipping routes, while reported Houthi attacks on Saudi Aramco facilities showed that regional risks have not disappeared. Investors are also preparing for a busy macroeconomic week featuring the Federal Reserve’s policy decision, US second-quarter GDP, PCE inflation data, the Bank of Japan meeting, and major corporate earnings.

Market Drivers & Catalysts

• US-Iran Ceasefire Pause: The United States suspended strikes against Iran for a second consecutive night, while Iran ended retaliatory operations and discussed the Strait of Hormuz with Oman.
• Oil Prices Retreat: Brent crude fell as much as 7% below $90 before recovering part of the decline, easing immediate concerns over energy supplies and inflation.
• Regional Risks Remain: Houthi forces claimed attacks on Saudi Aramco facilities in the Red Sea, while oil remains nearly 40% higher during July following disruptions across the Hormuz and Red Sea routes.
• Federal Reserve Decision: The Fed is widely expected to leave interest rates unchanged before potentially delivering a rate hike in September.
• ECB Policy Outlook: The European Central Bank kept rates unchanged in July after raising them by 25 basis points in June, while signaling that another increase is likely in September.
• US Tariffs: The United States introduced new tariffs of 10% to 12.5% on dozens of countries and imposed measures on 60 trading partners, including the European Union. The United Kingdom said its existing trade agreement remains intact.

Fixed Income

• US 10-Year Treasury Note Yield: The US 10-year Treasury yield declined to around 4.64%, retreating from six-month highs after the pause in US-Iran military operations pushed oil prices lower. The reduction in immediate supply and inflation concerns supported government bonds. Markets are now focused on the Federal Reserve’s interest rate decision, second-quarter GDP, PCE inflation data, and major corporate earnings.
• UK 10-Year Bond Yield: The UK 10-year gilt yield eased to 5.07%, pulling back from Thursday’s two-month high after oil prices retreated from levels near $100 per barrel. UK retail sales rose 1% in June, far exceeding forecasts, as warm weather and World Cup-related spending supported consumption. Consumer confidence also reached a six-month high, while PMI figures showed business activity returning to growth. The United States imposed new tariffs of 10% to 12.5% on several countries, including the UK, although Britain said its existing trade deal remains in place.
• Japan 10-Year Government Bond Yield: Japan’s 10-year government bond yield rose to around 2.81%, increasing for a fourth consecutive session and reaching a two-week high as expectations for further Bank of Japan tightening strengthened. June inflation accelerated to a six-month high of 1.7%, supporting the case for higher interest rates, although the BOJ is expected to leave policy unchanged at its upcoming meeting. Brent crude’s earlier move above $100 and US Treasury yields above 4.7% also added upward pressure, alongside growing concerns over Japan’s fiscal outlook.
• Germany 10-Year Bund Yield: Germany’s 10-year Bund yield eased below 3.2%, although it remained close to Thursday’s 15-year high. The decline followed the pullback in Brent crude after prices briefly reached $100. Eurozone business activity returned to growth in July, supported by a strong recovery in German manufacturing, although consumer confidence weakened slightly. The ECB kept rates unchanged but indicated that a September rate increase remains likely, as energy prices continue to pose inflation risks.

Commodities

Gold rose around 1% toward $4,100 per ounce, recovering from nine-month lows as the decline in oil prices eased inflation and interest rate concerns. The move followed the weekend pause in US-Iran military operations, with Washington suspending its nearly two-week strike campaign and Iran ending retaliatory attacks. Tehran also entered discussions with Oman regarding the Strait of Hormuz. Gold had struggled in previous sessions as disruptions spread from the Strait of Hormuz to the Red Sea. The Federal Reserve is widely expected to leave rates unchanged on Wednesday before potentially raising them in September.

Silver climbed more than 2% toward $60 per ounce, moving away from eight-month lows as falling oil prices reduced supply and inflation concerns. The rebound followed the pause in US-Iran military activity, with both sides suspending operations and Iran entering talks with Oman over Hormuz. Precious metals had previously come under pressure as regional disruptions expanded, while markets expect the Fed to keep rates unchanged before a possible September hike.

Currencies

• U.S. Dollar Index (DXY): The dollar index fell to around 101.2, giving back earlier gains as lower oil prices reduced inflation and supply concerns. The decline followed the pause in US and Iranian military operations over the weekend. Markets are now awaiting the Federal Reserve decision, US second-quarter GDP, PCE inflation figures, and major corporate earnings.
• Euro: The euro traded below $1.14, remaining close to its one-year low reached in June. Investors assessed the ECB’s policy outlook, stronger Eurozone PMI data, continued dollar demand linked to Middle East risks, and new US tariffs. The ECB left rates unchanged but indicated that a September hike is likely after rising oil and gas prices increased inflation concerns. Eurozone business activity performed better than expectations, while the United States imposed new tariffs on 60 trading partners.
• British Pound: Sterling traded around $1.33, close to its weakest level since July 1, as investors balanced stronger UK economic figures against broad dollar strength. UK retail sales increased 1% in June, far above expectations, supported by warm weather and World Cup spending. Consumer confidence reached a six-month high. The United States introduced tariffs of 10% to 12.5% on dozens of countries, although the UK’s existing trade agreement remains intact.
• Japanese Yen: The yen traded around 163.8 per dollar after touching a fresh 40-year low of 163.99. Intervention warnings from Japanese officials failed to provide lasting support as broad dollar strength, fiscal concerns, and Middle East tensions continued to weigh on the currency. Traders also dismissed reports that the Bank of Japan may be open to faster interest rate increases. June inflation reached a six-month high, strengthening the argument for additional BOJ tightening. The yen ended the week down around 0.9%.

Economic Data Highlights

• Euro Area Interest Rate Decision: The European Central Bank left interest rates unchanged in July after delivering a 25-basis-point increase in June, its first hike in three years. Policymakers adopted a cautious wait-and-see approach as softer inflation and economic activity reduced the urgency for immediate action. The energy outlook remains broadly consistent with the ECB’s June projections, although uncertainty persists. ECB President Christine Lagarde warned that prolonged high energy prices could create wider inflation through second-round effects.
• US Durable Goods Orders: Durable goods orders fell 4.5% to $332 billion in May, matching forecasts after April’s revised 8.5% increase. This was the steepest decline since June 2025. Transport equipment orders dropped 14%, led by a 51.8% decline in aircraft orders, while capital goods demand also weakened. Excluding transportation, orders increased 1.3%, exceeding forecasts. Core capital goods orders, an important measure of business investment, rose 1.6% after a revised decline in April.
• UK Unemployment Rate: The unemployment rate remained at 4.9% in the three months to May, better than forecasts for an increase to 5.0%. The number of unemployed people declined by 17,000 to 1.76 million, although it remained 81,000 higher than a year earlier. Employment increased by 148,000 to 34.475 million, far exceeding forecasts and marking the strongest increase since July 2025. Employment was up 340,000 from the previous year, supported by growth in both full-time and part-time positions. The number of people holding a second job rose to 1.278 million, representing 3.7% of all employed people.

Macro Calendar Highlights

• Federal Reserve Interest Rate Decision
• Federal Reserve Press Conference
• US Second-Quarter GDP
• Bank of Japan Interest Rate Decision
• US Personal Consumption Expenditures Price Index
• Core PCE Price Index
• Personal Income
• Personal Spending.