James Brodie
Head of Learning & Development, Flux
Missile Strikes Continue, Hawkish Fed, Rhine’s Kaud Chokepoint at Lows
Oil surges on US-Iran tensions. Markets rotate into energy as yields rise, tech weakens, and Rhine drought disrupts logistics.
Energy prices spiked again. More missile strikes overnight between US-Iran, Donald Trump reinstating the blockade of the Straits and demanding a 20% fee on all cargoes shipped through the waterway, plus missile strikes between the Houthis and Saudi Arabia restart after 4 years ‘peace’.
Brent futures are up 11% from Friday close, and European diesel making new highs (Chart 1, Flux), with jet fuel also 12% higher. Nasdaq fell 1.9%, 2-year yields jumped 8bp to new cycle highs (with the OIS pricing 43bp hikes by year end, EZ +46bp, UK +47bp), the dollar rallied and gold fell 2.6% as real rates surged on rising inflation expectations again. SK Hynix fell 15.4% in Seoul, and the Kospi went through another circuit breaker overnight, though it has bounced and is now up on the day.
Equity markets rotated away from technology and semiconductors into energy and defensive sectors, as rising crude prices, higher yields and geopolitical uncertainty prompted investors to increase downside hedging.
On the positive side, the equal-weight S&P closed dead flat, 53% S&P stocks were up on the day, and six of eleven sectors finished GREEN on the ugliest geopolitical tape in a month. Also, Apple has surged 17% in just 10 trading sessions, adding nearly $700 billion in market value as investors reward its capital discipline over the AI spending spree of its peers. While Microsoft, Meta, Amazon and Alphabet continue investing heavily in AI infrastructure, Apple's stronger free cash flow and resilient core business are becoming increasingly attractive in a market questioning whether massive AI capex will generate adequate returns.
Hawkish Fed
Fed’s Chris Waller - “If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term,” Waller said Monday, Having said that today’s CPI print is not expected to be hot as oil prices fell last month, expectations are for 3.8% YoY (last month 4.2%), the more likely risk is for next months CPI print to spike.
When leverage breaks
As of July 13, 1.2 million Korean leveraged retail accounts triggered margin calls; of these, 320,000–360,000 accounts were fully forcibly liquidated by brokers (some had partial negative balances owed to brokers).
SpaceX has fallen to $137. Since trading began at $150 per share, ever single retail investor is now underwater on the stock.
German Rhine supply chain shock
The Rhine’s Kaub chokepoint is at its lowest water level for this time of year in decades. Barges can carry less than 20% of normal loads, diesel freight rates from Rotterdam to Karlsruhe jumped 56% – and another heat wave is turning drought into a supply-chain shock. (Bloomberg)
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