Tech Rally in Focus Today

MACRO FRAME

The military exchanges between the US and Iran re-inflate the geopolitical risk premium in energy and add a hawkish skew to the macro backdrop.

STOCK INDEX FUTURES

Equity index futures were lower overnight as US and Iran exchanged drone and missile attacks over the weekend and into the Monday. Iran target several Gulf states: Bahrain, Kuwait, Oman, Jordan. Trump has publicly said the interim agreement is “over” and that the US is “beating them up,” while still nominally leaving the door open to talks; Iran’s lead negotiator is similarly framing this as the end of “one‑sided deals,” with explicit warnings that breaking the framework carries a price. Control of Hormuz has become the central battleground: Iran says the strait remains closed and has announced a permit‑ and fee‑based regime once “stability and calm” return. The US disputes Iran’s claim to control the strait, asserting that “traffic is flowing” and saying around 20 vessels have been escorted through in 24 hours, but ship‑tracking data show flows have fallen materially (vessel activity down by roughly half versus the prior week). Prices remain below the earlier war‑time peaks, but the renewed move adds an energy risk premium and fresh upside risk to global inflation expectations and bond yields in a week that brings fresh inflation data to the US.

CPI and PPI prints will give a clearer read on how prior energy moves and Middle East developments are feeding into inflation. Earnings season is ramping up, with major banks such as JPMorgan and Goldman Sachs reporting on Tuesday, which will be important for gauging credit conditions, capital markets activity, and management views on the macro backdrop. Despite a strong IPO, SK Hynix’s Seoul‑listed shares fell about 15% on Monday, putting tech under renewed scrutiny amid the geopolitical backdrop.

Watch point: Equity volatility is being driven by increasingly concentrated bets in tech and semis, and that argues for a deliberate shift toward industrials and broader, real‑economy exposure amid the renewed fighting.

CURRENCIES

US DOLLAR: The USD index is little changed at 100.90 after initially firming at the start of the session. The main story for the currencies is that the dollar is softer despite the pick up in fighting between the US and Iran. However, unlike earlier phases of the conflict, the dollar is starting from a stronger base and with expectations of Fed tightening already priced in, so the scope for an additional war-driven surge is limited. The bias for the dollar is higher given Fed policy expectations and interest rate differentials that remain favorable to the dollar. Markets are pricing roughly 39 bps of Fed tightening priced by December and nearly 50 bps by April 2027. The next catalyst for a breakout move in the dollar will be CPI (Tuesday), PPI (Wednesday), and Warsh’s testimony to Congress for validating or challenging a path higher.

Watch point: Recent data has reinforced expectations that Fed policy will move higher before year-end. For now, markets will look to inflation signals for guidance on potential rate-hike timing.

EURO: The euro is little changed at $1.1421. For the euro, this week will be less about new shocks and more about confirmation of trends with final CPI figures for several countries this week. Allianz expects inflation to have already peaked, however, the weekend’s fighting brings renewed risks that inflation could flare up or at least remain elevated as geopolitical risk premium remains priced in. Industrial production figures on Wednesday will also be closely watched as to how the growth narrative has been impacted by higher energy prices, any downside in the reading reinforces the stagnation narrative. Currency traders will likely pay close attention to this data for signals on potential growth underperformance vs. the US and its impact on spreads. Meanwhile, expectations that the European Central Bank will hike rates one more time before the end of the year have grown with traders pricing around 38 bps of tightening by December 46 bps of tightening by March 2027. The ECB’s account of its June noted that “headline inflation was set to rise further over the summer and remain well above target into the first half of 2027, despite almost three 25bp interest rate hikes being embedded in the projections.”

Watch point: With the MOU seemingly done with, policy expectations are biased upwards though performance of EUR remains dependent on US inflation data and domestic growth factors.

BRITISH POUND: Sterling is 0.10% lower at $1.3396. Inflation concerns and safe haven flows to the dollar are pressuring the pound to start the week off. Traders have increased bets on Fed rate hikes, pricing roughly 39 bps of Fed tightening vs. 33 bps for the Bank of England by year end. The combination of higher oil and a Fed that has explicitly signaled willingness to raise rates in response to upside inflation risks is flagged as a potentially stronger bullish catalyst for the dollar going forward. Inflation data out of the US this week will be closely watched. For the UK, focus this week will center around the growth story with monthly GDP data due. A weak number reinforces the “stagflation‑lite” narrative, while a stronger print would support the idea that the economy has retained more resilience than feared. BoE Governor Andrew Bailey and Treasury chief Rachel Reeves will be speaking at Mansion House on Tuesday, giving markets a chance to recalibrate policy expectations around the current “higher for longer” stance.

JAPANESE YEN: The yen weakened 0.30% to 162.17 yen per dollar. The yen’s rally on Friday followed comments from Finance Minister Katayama about encouraging pension funds (including GPIF) to allocate more to domestic assets. However, there are no imminent plans to change GPIF’s medium‑term portfolio objectives; any shift will be incremental within existing ranges, which removed part of the support and helped push yen weaker again. For the yen, bearish pressure in expected to continue in the near-term. The JGB market will help lead JPY direction this week with a 20-year JGB auction on Tuesday; weaker demand could support upward pressure on yields and the currency, while the yen could receive some limited support from a strong auction result. Investors also await official intervention data later this month to determine whether the government was behind the yen’s sharp but short-lived rally on July 2. The market sees a total of 22 bps of tightening by year-end, with a move expected to come in January of 2027.

Watch point: With the yen sustaining a break above the 160 level, intervention from the government appears to be the greatest near-term risk against further depreciation.

AUSTRALIAN DOLLAR: The Aussie is little changed at $0.6942. intensified fighting in the Gulf has pressured that risk-sensitive Aussie, though it has regained losses from earlier in the session. It remains another thin week of economic data in Australia, leaving the focus on the Fed policy path with US inflation data. The main story for the AUD is that traders largely believe the Reserve Bank of Australia is done raising rates this year. However, minutes of the RBA’s June policy meeting showed the board still saw upside risks for inflation and stood ready to raise rates again if needed, having already hiked three times this year. At the same time, members at the RBA were concerned about the risk of a downturn in the housing market, though the RBA’s chief economist has noted there were few signs of a market slowdown in the domestic economy. With markets awaiting further data on the economy, the Aussie is likely to remain subject to geopolitical developments, mainly regarding moves in oil. As for RBA policy, the path forward appears favorable to a halt on policy action for the remainder of the year. Markets imply a 47% chance the RBA will hike this year.

TREASURY FUTURES

Yields moved higher across the curve in a flattening move. Tuesday’s inflation data is expected to show a -0.1% MoM drop, thanks to a dramatic fall in gasoline prices. Focus remains on core inflation, which is expected to rise +0.2% MoM to leave the YoY rate at 2.9%, exactly where it was a year ago. That dynamic alone appears strong enough to encourage the Fed to retain a hawkish bias. Consumer inflation expectations are also drifting — the NY Fed’s latest survey showed 1-year expectations at 3.7% (highest since September 2023) and 3-year expectations at 3.3%, a dynamic Warsh will be watching closely given his 2% mandate commitment. New York Fed President Williams said among factors driving inflation, he is most focused on demand by AI. Ultimately, the Fed’s next move is largely dependent on incoming CPI and PCE prints. Markets are priced for a move higher in October and see a total of 39 bps of tightening by year-end.

Watch point: Mainly, the renewed fighting and prospect that core inflation could remain unchanged YoY reinforce a hawkish backdrop for the Fed. A credible reduction in core inflation would materially lower Fed rate hike expectations.

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