Oil tops $100, Fed faces its first big test
Oil reclaimed the market's attention this week. Brent crude broke $100 for the first time since the Iran conflict reignited, pushing Treasury yields to their highest since January 2025 and reviving September hike odds to roughly 80%. A blockbuster Big Tech earnings stretch delivered strong headline beats but exposed the first-ever negative free cash flow quarters at both Alphabet and Tesla, as AI capex outpaces record revenue growth. Add a surprise UK prime-ministerial change and an unresolved Nasdaq-Seoul pricing anomaly in SK Hynix, and all three major US indexes closed lower despite a Friday rebound.
Macro & markets
[Middle East] Oil breaks $100, drags yields and inflation expectations higher
Brent crude topped $100 a barrel for the first time since the ceasefire collapsed, as US strikes on Iran continued into a 13th consecutive night and Houthi attacks opened a new front against Red Sea tankers. The Caspian Pipeline Consortium also suspended loadings at its Black Sea terminal, disrupting roughly 80% of Kazakhstan's exports. Crude pulled back toward $97 by Friday on reports of a possible China-brokered path to talks, but still finished the week up roughly 10%. The 10-year Treasury yield rose to 4.69%, its highest since January 2025, and futures now price an ~80% probability of a September Fed hike, sharply up from earlier in the month.
[US] Equities: broad weekly declines despite Friday rebound
The S&P 500 closed the week at 7,411.98 (+0.05% Friday, -1.0% w/w), the Nasdaq Composite at 24,975.82 (-0.64% Friday, -2.0% w/w - its worst week since the conflict reignited), and the Dow Jones at 51,947.25 (+0.46% Friday, -0.4% w/w). All three finished lower as a sharp Thursday sell-off in AI-adjacent names outweighed Friday's recovery. The VIX closed near 18.6, still below levels associated with genuine panic.
[Eurozone] Composite PMI jumps to 51.9, ECB holds rates but turns hawkish
The Eurozone flash Composite PMI rose to 51.9 in July from 50.6, its first reading above the 50 expansion threshold in four months and well ahead of the 50.2 consensus. The ECB held its key rate at 2.4%, as expected, but President Christine Lagarde struck a hawkish tone, flagging that rising energy prices have materially increased the odds of a September hike. EUR/USD slipped to 1.1377 from 1.1392 as the data reinforced dollar strength amid rising US yields.
[US] Flash PMI hits eight-month high, but underlying picture is mixed
The US flash Composite PMI showed business activity expanding at its fastest pace in eight months in July, driven by services strength, even as manufacturing growth slowed and price pressures intensified - consistent with the "higher-for-longer" narrative building around the Fed. Weekly initial jobless claims came in at 187,000, well below consensus of 209,000, reinforcing a resilient labor market that gives the Fed less reason to cut.
[UK] New PM Andy Burnham rattles gilts on first day, chancellor works to calm markets
Andy Burnham was confirmed as UK prime minister on July 20, replacing Keir Starmer, and appointed John Healey - previously defence secretary - as Chancellor. Burnham's comment that his government would "make full use of any flexibility" within the UK's fiscal rules triggered an immediate gilt sell-off: the 30-year yield jumped to a two-month high of 5.75%, and the 10-year rose above 5% - the highest among G7 economies. Sterling fell against both the dollar and euro. Healey has since sought to reassure markets, pledging "a buffer against uncertainty" in the public finances, and the government cut the sales tax on household electricity bills from 5% to 0% from October, funded by scrapping a planned Digital ID programme.
[Gold & FX] Gold holds the $4,000 floor as dollar strengthens
Gold drifted between roughly $4,028 and $4,070 through the week, holding above the closely-watched $4,000 support for a third consecutive week despite a stronger dollar and rising real yields. The US Dollar Index closed near 101.4. Central bank gold demand remains structurally firm, with a record share of surveyed reserve managers planning further purchases over the next year.
Sector & company watch
Alphabet & Tesla - Q2 beats overshadowed by first-ever negative free cash flow
Both beat revenue expectations after Tuesday's close - Alphabet at $119.8 billion (+24% YoY) and Tesla at $28.2 billion (+26% YoY, a Q2-record 480,126 deliveries) - yet both posted the first negative quarterly free cash flow in their histories as capex surged. Alphabet's capex reached $44.9 billion against $39.1 billion in operating cash flow (a $5.9 billion FCF deficit), and it raised full-year capex guidance by $15 billion to $195-205 billion; its headline beat was also heavily inflated by a one-off $98 billion GAAP gain tied to an investment stake, without which S&P 500 aggregate earnings growth this quarter would fall from roughly 38% to 26%. Tesla's operating margin compressed to 1.4% as capex jumped 142% to $5.8 billion, driving a $1.1 billion FCF deficit. Both stocks fell 3-4.5% after-hours.
Intel - fastest revenue growth in 15 years, but a volatile market reaction
Intel's Q2 revenue rose 25% YoY to $16.1 billion (vs. $14.4 billion consensus), with non-GAAP EPS of $0.42, roughly double the $0.21 estimate, and management raised 2026 capex guidance above $20 billion. Data centre and AI revenue posted its strongest growth on record. Despite the beat and above-consensus Q3 outlook, shares whipsawed - rallying as much as 12-13% after-hours before falling nearly 8% Friday as the broader chip sector (Broadcom, AMD) also declined, a reminder that a single-name beat isn't being read as a sector-wide signal this season.
SK Hynix - a 26.5 billion dollar ADR premium anomaly stays unresolved
SK Hynix's record $26.5 billion Nasdaq ADR offering this month has left US-listed shares trading at a persistent premium over the Seoul-listed stock - as high as 51% shortly after listing, still around 30% this week. The Korea Securities Depository confirmed the 2.5% cap on converting local shares into ADRs was fully exhausted during the offering, blocking arbitrage trades that would normally close such a gap. Two-way conversion resumes July 29, though structural constraints - similar to the long-standing premium on TSMC's ADRs - may keep the gap wider than typical for longer than expected.
Psyll's perspective
The most instructive story of the week may not be the oil spike itself, but how differently equity and rates markets are pricing the same input. A Brent move to $100 would, in past cycles, have triggered a straightforward risk-off equity reaction. This time the S&P 500 fell only modestly while the 10-year yield surged to an 18-month high - suggesting bonds, not equities, are doing the primary work of pricing in an energy shock's inflationary consequences, just as Chair Warsh's Fed faces its first real test of independence from a White House vocal about wanting lower rates. If oil holds near current levels into next week's FOMC statement, the wording around "inflation risks" versus "policy caution" will likely matter more than the widely-expected hold decision.
The Alphabet/Tesla cash flow story is worth watching for a different reason: it is the first quarter in which two of the market's largest AI spenders simultaneously crossed from "investing heavily" to "burning cash to invest." That doesn't necessarily signal trouble - both retain ready capital-market access, as shown by Alphabet's $49.6 billion equity-and-preferred raise and $20.3 billion bond issuance this quarter - but it marks a shift in how AI capex gets financed, from operating cash flow toward external capital. Whether that gap widens or narrows across next week's remaining reports (Microsoft, Meta, Apple, Amazon all report July 29-30) may matter more for the AI trade's durability than any single revenue beat.
Read on Psyll.com
Startups Early adopters: The 16% that control markets
Why the 16% of "innovators" and "early adopters" in Rogers' diffusion curve - not the mainstream majority - determine whether a new product survives.
Trade & Supply Chains How shipping data predicts corporate earnings
Freight rates and port congestion, now at a four-year high, act as a six-month leading indicator for margins - useful context amid this week's crosscurrents.
What to watch this week
- Wed, July 29 - FOMC rate decision and Chair Warsh press conference. Rates are widely expected to hold at 3.50-3.75%, but commentary on oil-driven inflation risk will be scrutinised for September hike signals.
- Wed, July 29 - Microsoft and Meta report Q2 earnings, with AI capex guidance in sharp focus after Alphabet and Tesla's cash flow results.
- Thu, July 30 - Apple and Amazon report Q2 earnings; advance Q2 GDP estimate and weekly jobless claims also due.
- Thu, July 30 - SK Hynix reports Q2 earnings, alongside the scheduled resumption of two-way ADR conversion.
- Fri, July 31 - June core PCE price index (the Fed's preferred gauge) and the employment cost index, both watched ahead of the September decision.
- Ongoing - Middle East developments, particularly any progress on reported China/Pakistan-brokered talks between the US and Iran, remain the single largest swing factor for oil, yields, and risk sentiment.
Disclaimer
This newsletter is provided for informational and analytical purposes only. It does not constitute investment advice, a recommendation under applicable financial-instruments trading regulations, or a solicitation to buy, sell, or hold any security. Readers act at their own risk and should consult a licensed financial advisor before acting on anything presented here.