Report by Renta 4
Flat opening (Eurostoxx futures down 0.2%, S&P unchanged, Nasdaq up 0.2%), whilst in Asia Japan is closed today and South Korea is seeing a rebound from Friday’s falls (of 4%). Today, Burnham is set to be appointed British Prime Minister.
On the geopolitical front, this marks the ninth night of US strikes against Iran, with targets extending beyond strictly military sites (bridges, infrastructure, ports), a sign that the prospects of a return to a ceasefire are minimal. Iran’s counter-attacks continue, with Kuwait among the countries hardest hit by Iranian retaliation (an oil facility suffering significant material damage and evacuated, and two power and desalination plants struck).
Iran has formally announced that the 17 June MoU has collapsed, with the new Supreme Leader Mojtaba Khamenei warning of “unforgettable lessons” for the US and Iranian Foreign Minister Araghchi acknowledging that certain nuclear demands may be “irresolvable”. The Iranian Revolutionary Guard has vowed that “not a single drop of oil, gas or fertiliser will pass through the Strait of Hormuz without coordination and permission”, whilst global stocks – excluding China – are at historic lows, leaving the world with little margin for error.
Against this backdrop, Brent crude has risen above $90 per barrel for the first time since mid-June (up 3% today, up 30% since early July). The Strait of Hormuz is virtually paralysed. This is a scenario likely to see bonds continue to suffer (with yields rising).
As for technology, the results from Alphabet and Tesla (on Wednesday) will be the immediate test to determine whether the narrative of AI monetisation can withstand the pressure. If Alphabet disappoints, the correction in the technology sector could accelerate. If it shows real momentum in cloud computing and AI, it could be the catalyst for a rebound. All this comes after the technology sector was the worst performer last week (Nasdaq down 4 per cent, the Philadelphia Semiconductor Index down 10 per cent for the week and down 20 per cent from its highs), amid doubts over the monetisation of the hyperscalers’ high capital expenditure, which have led to sharp falls in free cash flow estimates. The key will lie in how much AI revenue is being generated for every dollar of capital expenditure. Microsoft, Meta, Apple (the best performer among the ‘Magnificent Seven’, in a market that appears to reward capital discipline over investment ambition, having avoided major capital expenditure by preferring to partner with model providers rather than build its own infrastructure) and Amazon will report next week, with Nvidia following in August.
Meanwhile, the Chinese firm Moonshot is considering an IPO in Hong Kong in six months’ time, with a valuation of over $30 billion. Its new model, Kimi K3, has generated such high demand that Moonshot has temporarily paused new subscriptions, and specialist media outlets rank it ahead of Anthropic’s Opus 4.8.
One of the key events this week will be the ECB meeting (Thursday), where we expect interest rates to remain stable at 2.25 per cent (deposit rate; the consensus gives only an 11 per cent probability of a rise) following June’s 25-basis-point hike, which was driven by the need to contain inflation expectations against the backdrop of the energy shock triggered by the US-Iran conflict -Iran and its impact on the Strait of Hormuz, through which around 20 per cent of global energy supplies pass. The signing of the MoU (a provisional peace agreement opening a 60-day period of negotiations) allowed oil prices to ease from their highs, which has eased pressure on June’s CPI (a sharper slowdown than expected), reducing the urgency for a second consecutive rate rise. However, with the MoU broken and the resumption of cross-fire between the parties, vigilance regarding the Strait of Hormuz and energy prices must be extreme, and it is likely that Lagarde will maintain a stance of “data dependence” and “decision-making on a meeting-by-meeting basis”, which brings us to the 10 September meeting, where they will also update their macroeconomic outlook (GDP, inflation), a date the market views as the most likely for a further 25 bp hike (95% probability), to which it adds a further 25 bp in Q1 2027.
On the macro front, the agenda will be dominated by the release of the preliminary July PMIs (Friday), which will be published globally. In the US, a recovery is expected in the manufacturing component and stability in the services component, whilst in the Eurozone there will be little change compared with the previous month. The same data will also be released in several European countries (Germany and France), as well as in the UK and Japan. The July ZEW survey for Germany and the Eurozone (Tuesday) will also be significant, providing the most up-to-date insight into the expectations of financial analysts and institutional investors.
On the corporate front, the second-quarter earnings season is gathering pace, with high expectations needed to justify current valuations. This week, Spanish listed companies will begin reporting their results, and international firms will continue to publish their figures (for further details, see the corporate calendar).
Against a complex macroeconomic backdrop (inflationary risks), with upward pressure on interest rates hampering the expansion of stock market multiples, the stock markets will need to justify their valuations strictly on the basis of second-quarter corporate earnings (2Q26). The guidance provided by management will be decisive.
We believe the market continues to show a degree of optimism, assuming a ‘soft landing’ scenario and an imminent pause in interest rates. However, the combination of a resurgence of tensions in the Strait of Hormuz – which will shape the future trajectory of inflation and growth, and therefore monetary policy decisions – doubts surrounding AI, and Kevin Warsh’s arrival at the Fed with the aim of establishing new ‘rules of the game’ may be underestimated. Volatility is not a temporary phenomenon this week; it is the new normal for the rest of 2026.
