Sunrise Market Commentary

Markets

Renewed US missile strikes against Iran prompted retaliatory action across the Middle East over the weekend with conflicting messaging over whether Hormuz is open or not. Since strikes were launched back-and-forth early this week, pressure on the fragile cease-fire (what’s in the name?) agreed under the MoU keeps building. Brent crude prices this morning jump north of $79/b compared with last week’s close just above $75/b. The Dutch TTF gas future trades above €50/MWh. A move beyond €53.55 would bring us to highest levels since March. The US dollar opened stronger, but the greenback fails to really gain momentum in this morning’s Asian session (EUR/USD 1.14; USD/JPY 162). Asian stock markets cede ground with European and US equity futures also pointing to a softer start. Core bond futures are lower with recent developments both impacting thoughts on central bank reaction functions and inflation expectations. Today’s empty eco calendar implies that the Iranian headline roulette is back in play to drive intraday moves. Erring on the side of caution (higher oil, weaker bonds/stocks and stronger USD) seems to be the way to go. Only after European close, speeches by ECB Schnabel, Fed Waller and BoE chief economist Pill offer some distraction.

Tomorrow, things get more interesting with the release of June CPI inflation numbers and Fed Chair Warsh’s inaugural semiannual testimony before US Congress. Consensus expects headline inflation to be 0.1% lower M/M thanks to gas prices, which would pull headline CPI from 4.2% Y/Y to 3.8% Y/Y. Core CPI is forecast at 0.2% M/M and 2.9% Y/Y (unchanged). Especially a slightly stronger (monthly) core CPI pace would be unnerving with minutes of the June FOMC meeting already showing “a few” in favour of a rate hike. Tariffs, energy and fertilizer disruptions and the AI boom are pushing up inflation, leading US money markets into Fed tightening bets. The market implied probability of July action stands at 33% with a first hike almost fully discounted by the September meeting. Fed chair Warsh held his cards close to his chest for now, in line with his overall goal to reduce Fed communication and forward guidance. It’s unclear whether he’ll be more open in front of Congress, but markets will take any clues especially on the assessment of inflation (risks). Other things to watch in the US this week are the start of Q2 earnings season, retail sales (Thursday) and University of Michigan consumer confidence (Friday) and some final other Fed speakers before the start of the blackout period (July 18).

News & Views

The Czech National Bank was cautious in drawing conclusions from June’s unexpectedly sharp CPI deceleration. Price growth fell from 2.1% to 1.5%, final figures showed Friday – below the CNB’s 2% mid-point target. That was, however, thanks to steep falls in notoriously volatile fuel and food prices. Fuel for example had raised March and April inflation by almost 1 ppt but had been correcting lower since. Food for its part fell an exceptional 1.3% m/m, reducing headline inflation by 0.6 ppts. The CNB doesn’t expect this trend to continue in the months ahead, adding that inflation excluding these volatile items “saw minimal changes and broadly followed the previous trend.” Core CPI eased only marginally to 2.8%. It remains supported by strong services inflation (4.5%). CNB deputy governor Zamrazilova flagged concern about consumer demand being so strong and to be the driver of future inflation. The CNB expects headline inflation to be close to 2% in 2026H2 and slightly surpass it towards year-end. Elevated core inflation and the increase in global inflation pressures remain reasons for increased caution, it concluded.

Hungary’s parliament is all but certain to oust the incumbent and Orban-allied president Sulyok under a fast-track approval process later today. While the Hungarian president has a largely ceremonial role, prime minister Magyar is trying to avoid getting trapped in a Polish situation. The pro-European government led by Tusk there is hampered in rolling out policies due to the president’s veto powers. The removal of Sulyok would therefore be more a symbolical move that underscores Magyar’s pledge to not only oust Orban during the last elections but the complete system he had created. His pro-European course along with a longer-term pledge to join the euro area had caused a massive Czechia-like convergence trade that pushed and kept the forint near multi-year highs and triggered regional outperformance of Hungarian bonds.