The Daily: Inflation Cools Off, Oil Whipsaws, Warsh on Capitol Hill

MACRO - What’s Driving Overnight Risk?

Overnight Price Action

• Asia: Mixed; chips stabilized after Monday’s selloff, while broader regional risk stayed cautious around Hormuz, CPI, and bank earnings
• Europe: Lower; oil-sensitive sectors, airlines, and cyclicals lagged as Brent stayed above $80
• U.S.: Futures mixed; Dow and S&P 500 contracts are lower, while Nasdaq futures are firmer as chip shares try to recover
• Rates: Treasury yields eased after June CPI cooled, pulling July hike pricing back and leaving markets closer to one 25-bps hike this year
• FX: Dollar softened after the CPI print, though war risk and global reserve stress keep dollar liquidity in focus
• Commodities: Oil remains hot; Brent is above $80 after Trump said the U.S. will charge ships for Hormuz security and Iran risk escalated again

Catalysts

• June CPI cooled from May’s 4.2% y/y pace as gasoline prices retreated during the temporary U.S.-Iran truce.
• Core CPI rose 0.2% m/m and stayed near 2.8% to 2.9% y/y, keeping underlying inflation above the Fed’s comfort zone.
• Fed pricing retraced after the CPI report, with markets moving back toward just one 25-bps hike this year.
• Fed Chair Kevin Warsh delivers his semi-annual monetary policy report to Congress today.
• JPMorgan reported Q2 profit of $21.2B, or $7.70/share, but shares slipped after the bank raised its 2026 expense forecast to $107.5B.
• Goldman Sachs earned $20.98/share, well ahead of estimates, helped by record equities trading revenue of $7.42B and a 55% jump in investment-banking fees.
• Bank of America earned $1.21/share on $31.6B revenue, with trading revenue hitting a record $7.1B and net interest income rising 9%.
• Wells Fargo earned $2.00/share on $22.6B revenue, beating expectations as investment banking and wealth management improved.
• Trump said the Strait of Hormuz will stay open with or without Iran and that the U.S. will charge a 20% fee tied to maritime security costs.

Stat of the Day: Forward 12-month earnings relative to cyclically adjusted earnings are over 90%, an all-time high.

Market Implication

The market just got inflation relief, but not an all-clear. CPI cooled enough to take immediate July hike pressure out of the tape. Core inflation is still too firm for Warsh to sound relaxed in front of Congress. Bank earnings are strong, though investors are already questioning expenses, credit quality, and repeatability of trading revenue. The cleaner setup is lower yields helping equities while Brent above $80 keeps the Fed from walking away from the inflation fight.

THEMATIC - Forces Behind the Tape

1. CPI Took July Off the Table, Not Inflation

The June CPI report gave traders the relief they needed after the oil spike. Headline inflation cooled from May’s 4.2% y/y pace as gasoline prices fell during the temporary Gulf truce. Core inflation stayed sticky, rising 0.2% m/m and holding near 2.8% to 2.9% y/y. That combination matters. It reduces the urgency for a July hike, while keeping one move this year firmly alive.

The market reaction makes sense. Fed pricing has retraced toward one 25-bps hike this year, which gives equities room and takes some pressure off the 2Y yield. The catch is timing. This CPI report mostly captures the period before Brent pushed back above $80 and before Trump’s Hormuz security-fee comments.

Warsh now has a delicate testimony setup. He can acknowledge progress in headline inflation, but core inflation, energy risk, and services pressure still prevent a victory lap. For traders, the 2Y is still the tell. Below 4.25% helps growth. A move back through 4.35% would say the market is looking through the CPI relief.

2. Bank Earnings are Strong, But the Market Wants Expense and Credit Discipline

The banks delivered real numbers. JPMorgan printed $21.2B of profit and $7.70/share of earnings. Goldman smashed estimates with $20.98/share and record equities trading revenue. Bank of America beat with $1.21/share on $31.6B of revenue. Wells Fargo beat with $2.00/share and $22.6B of revenue. Trading desks benefited from volatility, capital markets reopened, and deal activity improved.

The reaction is more complicated. JPMorgan fell after raising its full-year expense outlook. Bank of America slipped despite the beat. That tells you investors are already moving past the headline profit numbers. They want to know how much of the revenue came from volatility, how much can repeat, and how much cost pressure is creeping back into the model. Higher rates help net interest income, but they also keep pressure on borrowers, deposits, and credit quality.

3. Hormuz is Becoming a Toll, Insurance, and Logistics Trade

Trump’s latest Hormuz stance changes the market’s energy framework. He said the strait will stay open with or without Iran and that the U.S. will charge a 20% fee tied to security costs. That turns the shipping lane into a policy and logistics issue, not just a military flashpoint.

Oil is reacting because the cost of movement is going up. A fee, higher insurance, slower transit, transponder-off voyages, and rerouting all work the same way for buyers. They raise the effective cost of barrels. The Strait of Hormuz still handles a critical share of global oil and LNG movement, so the market does not need a full closure to price stress. It only needs uncertainty around cargo timing, ownership risk, and protection costs.

MICRO - Today’s Catalysts

Economic Calendar (CT)

• 7:30 - Consumer Price Index, Core CPI
• 9:00 - Fed Chair Kevin Warsh delivers monetary policy report to Congress
• 13:00 - Treasury Budget follow-through
• Wednesday - Producer Price Index
• Thursday - Retail Sales, Industrial Production, Weekly Jobless Claims

TRENDING - Retail Radar

• CPI cools, one Fed hike priced this year
• Warsh testimony
• Brent above $80 amid Hormuz fee threat
• JPMorgan earnings, Goldman trading surge, Bank of America record trading, Wells Fargo beat

KEY LEVELS TO WATCH

• S&P 500 (/ESU6) – Support/Resistance: 7452/7648
• Nasdaq 100 (/NQU6) – Support/Resistance: 29341/30094
• Crude Oil (/CLQ6) – Support/Resistance: 72.26/76.08
• U.S. 10Y Yield – 4.563%, up nearly 20-bps since the late-June low
• VIX – 16.42 pre-market, closed 15.03 on Friday

Trade Setup Bias

Tactical and post-CPI constructive, with oil risk still limiting the upside. The CPI print reduces immediate Fed pressure and supports duration-sensitive equities. I would still avoid chasing strength if Brent holds above $80 and Warsh leans hard into inflation during testimony. Banks can work if credit commentary stays clean and expense concerns do not spread. Energy remains tradable while Brent stays firm. Airlines, transports, and consumer cyclicals need caution. Semis can bounce if yields stabilize, though TSMC remains the real confirmation point later this week.

Bottom Line

The CPI report gave the market breathing room. Headline inflation cooled, core inflation stayed sticky, and Fed pricing moved back toward one hike this year. That helps equities, especially growth. The problem is that the report looks backward while oil is moving forward. Brent above $80 and Trump’s Hormuz security-fee threat keep energy inside the inflation story. Banks are producing strong profits, but investors are pressing on expenses and credit. The tape can stabilize if Warsh does not push back too hard, the 2Y stays capped, and crude stops climbing.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx