Daily Summary: Lower inflation weakens the dollar and awakens gold and S&P 500 to gains

📊 Macroeconomics and Central Banks

• The key publication of today was the U.S. CPI inflation for June, which brought a significantly lower reading than market expectations.

• The inflation rate fell to 3.5% y/y from the previous level of 4.2% y/y, with market forecasts at 3.8% y/y. On a monthly basis, prices decreased by 0.4% m/m, marking the largest monthly drop since 2020. Meanwhile, annual core inflation fell to 2.6% y/y from 2.9% y/y, also turning out lower than market expectations.
• During a hearing before the U.S. Congress, Kevin Warsh outlined his plan for changes in Federal Reserve (Fed) communication and indicated that the central bank's main task is to return inflation to the target after more than 60 months of continuously staying above the 2% level.
• The lack of concrete, hawkish declarations that interest rates are currently too low to return inflation to the target makes Warsh's current stance appear somewhat more blurred than during his first meeting.
• Warsh emphasized the need for changes in communication and in the way inflation, the labor market, and overall economic growth are perceived.
• He also noted that the mission to restore price stability is not yet over, although he admitted that the June CPI reading itself looks positive.

💱 Currencies

• In response to the drop in inflation, the EURUSD currency pair rose by approximately 50 pips from the 1.1400 level. Part of this upward move was later erased during Kevin Warsh's testimony before the U.S. Congress.

🌍 Geopolitics

• Further escalation of the situation in the Middle East means that fears of a resurgence in inflation are constantly alive. Although crude oil prices rose very strongly at the beginning of today's session, continuing the sharp gains from the beginning of the week, the market is far from the level of concern that prevailed in March and April.
• The United States carried out its third consecutive missile strike, which aimed to limit Iran's capability to attack commercial vessels in the Strait of Hormuz.
• Donald Trump declared that the Strait of Hormuz remains open and the United States will be its security guarantor, despite Iran already carrying out overt attacks on supertankers.
• Trump withdrew from the idea of imposing a 20 percent fee for security guarantees in the Strait of Hormuz, announcing at the same time that this issue would be resolved through investments and new trade agreements with Persian Gulf countries.

🛢️ Commodities

• Crude oil prices are pulling back from today's highs, which in the case of Brent crude were $87.5 per barrel, and for WTI crude reached $81.5 per barrel. Currently, prices are correcting toward $85 and $79 per barrel, respectively.
• The price of gold rebounded dynamically by nearly $100 per ounce from the $4000 level, currently reaching quotes around $4060 per ounce. It is worth noting that a growing challenge for the US is the massive deficit, which, as inflation fears fade, could trigger additional demand for gold, already attracting increased interest from speculators in the futures market.
• Cocoa prices continue to move up during today's trading, despite a recent correction, and are approaching the $6000 per ton barrier again. Investors in this market fear more weak processing data, which will be published this Thursday.

📈 Stock Market

• The drop in inflation and improvement in market sentiment led to a clear recovery in the equity markets today. S&P 500 futures (US500) are rising by over 0.4%, while tech Nasdaq 100 futures (US100) are gaining as much as 1.3%. It is worth highlighting that the US100 index is just 3% away from its all-time highs, while the US500 is only 0.5% from its record.
• European stock markets saw moderate gains today in the 0.3–0.6% range. Among the major European indices, the Polish WIG20 clearly stood out, gaining about 1%.

🏢 Companies and Financial Results

• The financial results publication season unofficially kicked off on Wall Street, started by the largest American financial institutions. Goldman Sachs shares are gaining nearly 8% today after the bank beat market earnings per share (EPS) forecasts by 45% and showed net revenues exceeding $20 billion.
• JPMorgan, Bank of America, and Wells Fargo also presented results better than market expectations, which investors took as a favorable test of economic health and credit demand in the US. Market attention focused primarily on the results of the trading and investment departments, as well as comments regarding the quality of the loan portfolio and the outlook for the second half of the year. It is worth noting that Bank of America reported record equity trading revenues, while JPMorgan disappointed with forecasts indicating higher costs.
• Sentiment in the technology sector was dampened by preliminary IBM financial results, sparking concerns about the health of software providers. IBM reported revenues at $17.2 billion (against the forecasted $17.8 billion) and EPS of $2.93 (with a consensus of $3). Following strong gains in recent quarters, IBM's stock collapsed by 25% today, marking the company's largest single-day crash since the bursting of the dot-com bubble.
• The heavy sell-off in IBM translated into declines for other industry giants, such as Microsoft, whose shares lost up to 3% during the day (eventually, this loss was reduced to 1%).
• IBM stated in an official communication that corporate clients are significantly cutting software spending, which led to a sell-off in other companies in this sector. Stock declines for entities such as Accenture, Cognizant, ServiceNow, Salesforce, Workday, and Adobe ranged from 3% to 8% today.