Sunrise Market Commentary

Markets

US President Trump nicknamed the USA “THE GUARDIAN OF THE HORMUZ STRAIGHT”. As US military campaigns against Iran intensify, president Trump reinstated the Iranian blockade aimed at stopping Iran’s ships or customers from entering or leaving. A new feature for other vessels is that they’ll have to pay the GUARDIAN a rate of 20% on all cargo as a matter of FAIRNESS in return for providing safety and security in this very volatile section of the World. In less than a month, the US shifts from statements like “no country is allowed to charge tolls or fees on an international waterway” to charging tolls themselves. All animals are equal, but some animals are more equal than other animals. Energy and supply chain disruptions are here to stay and markets adjust. Brent crude oil prices moved past $85/b this morning compared with last week’s close around $75/b and the early July corrective bottom just above $70/b. The European reference gas contract (Dutch TTF) tested the highest level since March at €53.55/MWh. Core bonds sold off with curves bear steepening as money markets rapidly shift back to central bank tightening bets. Daily changes on the US yield curve ranged between +4.5 bps (30-yr) and +7.6 bps (2-yr; highest level since February 2025). Hawkish comments by Fed governor Waller added to the momentum that lifted the probability of a July rate hike to 50%: “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”. June CPI inflation numbers are due this afternoon. 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 after the Waller comments and with minutes of the June FOMC meeting already showing “a few” in favour of a rate hike. Our KBC Nowcast model also suggests (minor) upside risks with headline CPI seen at 3.92% Y/Y and core at 2.85% Y/Y. After inflation numbers, Fed Chair Warsh will give his first semiannual testimony before US Congress. He 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). As the Fed blackout period approaches (July 18), today’s developments are highly likely to decide on the outcome of July 23 FOMC meeting. Erring on the side of caution (higher oil, weaker bonds/stocks and stronger USD) with hawkish repositioning remains the way to go.

News & Views

The central bank of New Zealand’s chief economist warned, citing research, that companies today are more prepared than in the past to pass on costs to consumers. Paul Conway said it’s the result of repeated global fuel price shocks. After years of above-target inflation, such shocks hold increased risks to trigger persistent rather than temporary inflation. Conway’s comments come after oil prices recently surged higher again amid renewed escalations in the Middle East conflict. It raises chances for the central bank to tighten policy further after last week’s rate increase to 2.5%. The market implied probability for a follow-up move in September rose to 90%. For the remainder of 2026 more than two hikes are priced in. The kiwi dollar extends a recent rebound on the RBNZ’s hawkish shift with NZD/USD appreciating towards 0.58, the highest in a month.

“European countries face rising spending pressures and higher interest costs that could sharply increase debt and threaten growth if left unaddressed. […] maintaining fiscal sustainability requires a coordinated strategy combining structural reforms and fiscal consolidation, and in some cases deeper changes to the role of government, as incremental approaches are no longer sufficient.” A new IMF paper titled “Europe’s Fiscal Squeeze: Tackling Rising Spending pressures” is once again an inconvenient truth. Researchers warn that increasingly pressing challenges such as population aging, the energy transition and rearmament mean a “piecemeal” approach to fixing public finances falls way short and instead risks triggering reform fatigue. The authors estimate that spending will climb to an average of 5% of GDP by 2040, putting the public debt ratio on an unsustainable path towards 130% (vs about half of that today). Fiscal adjustments will be needed in most countries while some (mostly highly indebted) governments need to rethink their role and reassess the scope of public services. For Belgium (and France & Norway), the IMF sees particular room for improvement in targeting social spending.