Strikes and the Oil Reaction
The U.S. hit just over 80 targets in Iran overnight, retaliation for Iran firing on three vessels in the Strait of Hormuz the day before. The response was harsh. President Trump has abandoned interest in the memorandum of understanding and launched a series of powerful strikes. Who actually runs Iran right now is murky: the Ayatollahs, the Parliament, and the IRGC are all in the mix, and it's unclear who is negotiating. Trump spoke abroad about a ceasefire in harsh terms while saying negotiations can continue if Iran wants them.
Markets moved on the news. Crude oil pulled back off its highs, and futures on the E-minis and Nasdaq climbed off their lows, though stocks were still set to open lower and trade unsteadily. The Iran shock looks to be fading in effect as the market shifts toward the approaching earnings season. Oil had fallen fast, faster than many expected, dropping from roughly $120 to below $70, and it hit $67 on July 2nd before this rally pushed it back up.
Central Banks and Rates Back in Play
The oil decline had handed Kevin Warsh relief from inflationary pressure. That relief is reversing. Rate-hike bets are climbing again, with the possibility of hikes from the Fed, the Bank of England, and the Bank of Japan back on the table. The 10-year yield is back above 4.5% as crude sits significantly higher than where it was.
Fed minutes land today at 2:00 p.m. Eastern, and they carry extra weight because this covers Warsh's first meeting. On the day of that meeting, June 17th, crude traded around $75, so the recent rally has returned oil to mid-June levels. Warsh introduced five task forces to examine different parts of what the Fed does. A mid-June snapshot showed eight or nine of the 18 Fed members expecting one rate hike this year. That count has probably softened since, but today's action undercuts any case for stability or for rate cuts by year-end. The minutes should reveal how his first meeting actually went.
Housing Feels the Squeeze
Weekly mortgage application data, released every Wednesday, showed the 30-year mortgage rate slipping only slightly, from 6.58% to 6.57%. The barely-lower rate failed to lift demand. The overall composite fell 2.2%, with purchases down 0.6% and refinances down 4.1%, weak across the board. A higher-rate environment remains a drag on housing.
