Market snapshot
The S&P 500 rose 0.38 percent to 7,543. The Nasdaq added 0.9 percent to 26,107, pulled along by semiconductors. The Dow barely moved at 52,508, because IBM fell about a quarter after warning of weaker quarterly profit. One name took away what the chips gave.
Oil is holding at monthly highs. WTI closed above $79 and Brent climbed toward $86, the highest since mid-June. There is one reason, Hormuz. While the strait is unsafe, the price of energy carries a geopolitical premium that has nothing to do with supply and demand.
Gold and bitcoin pulled back. Gold fell 0.77 percent to roughly $4,109, and bitcoin slid to $63,500, down a percent. The DXY dollar index eased to 100.9 after a soft inflation reading. A weaker dollar, but not from growth, from cooler expectations of a rate hike.
Lithuania and the Baltics
The Seimas blessed Mindaugas Sinkevičius’s government. The programme got 72 votes in favour, 29 against and 4 abstentions. Lithuania’s twenty-first government begins work and the prime minister has been sworn in. Presenting the programme, Sinkevičius began with demography and ended with defence, which is probably the most precise indication of the order of priorities.
No new tax rises are promised. Sinkevičius says the necessary reform has already been done and took effect this year, with income, property and profit taxes changed and a sugar tax plus an additional health insurance levy added. The incoming finance minister Taurimas Valys names economic growth as the main instrument for raising the budget. It sounds good, but growth is easier to promise than to produce.
More than 5.38 percent of GDP for defence is, in the prime minister’s view, too ambitious. The focus is on content rather than the number, on air defence, protection against drones and the Baltic defence line. President Nausėda meanwhile hinted that countercyclical policy may be needed next year, while keeping fiscal responsibility.
The Seimas approved the development of the southern part of Klaipėda port and passed the milk law regulating the production sector. The spring session, long extended, is closed.
Europe
The EU and the United Kingdom agreed on Gibraltar. The new agreement removes border checks between Gibraltar and Spain, one of the last unresolved knots of Brexit, meaning the legacy questions of leaving the EU.
David Sánchez, brother of Spain’s prime minister, has been barred from public office for nine years. The political context in Madrid remains tense.
Ukraine
Yulia Svyrydenko’s government resigned, and the Rada confirmed it on July 14. Zelensky speaks of a change of political strategy and of new challenges. Ukrainian media name Naftogaz head Serhiy Koretskyi as the successor. Svyrydenko, appointed barely a year ago and well connected in Washington, may get a new role handling relations with the main partner.
Ukraine shot down five Russian ballistic missiles, and air defence is being reinforced. Polish fighters intercepted a Russian reconnaissance aircraft over the Baltic Sea. A forest fire broke out again in the closed Chernobyl zone.
Geopolitics
The United States and Iran are striking each other for a third day running. CENTCOM carried out dozens of strikes in Iran aimed at limiting its ability to attack ships in Hormuz. Iran answered with a wave of missiles and drones against the UAE, Qatar, Kuwait, Oman and Bahrain. This is no longer a single incident, it is a prolonged cycle of exchanges.
Trump declared Hormuz a zone of US custody. A blockade of Iranian ports and transit fees for ships are promised. Before the escalation about 130 ships passed through the strait each day, and the flow is now shrinking to prewar levels or below. When one state starts collecting a fee on the world’s oil artery, that is no longer a security operation, it is rent.
US forces will withdraw completely from Iraq by the end of September. A withdrawal from one point in the region and a blockade in another at the same time tells you the military weight is being moved rather than reduced.
In Gaza an Israeli strike on a police station took eight lives, according to local health authorities.
Central banks
US inflation in June cooled more than expected. The annual rate fell to 3.5 percent from 4.2 percent, core to 2.6 percent, and the monthly reading was minus 0.4 percent, the first fall since 2020. Energy prices helped. Except that Hormuz may take that help away next month.
The Fed’s stance is still on the hiking side rather than the cutting side. After the soft inflation reading, the probability of a July hike fell to 12 percent from 40, and September to 59 percent from 74. Waller and Warsh spoke hawkishly, but the inflation number took away part of their argument. The market exhaled and the dollar eased.
What to watch tomorrow
Oil and Hormuz. Whether Brent settles above $86, and whether Iran carries out its threats against the strait. That is the one variable that can rewrite the inflation story in a single move.
Ukraine’s new prime minister. Whether Koretskyi is appointed, and what a change of strategy means for talks with Washington.
The first steps of the new Lithuanian government, especially statements from the finance and defence ministers about next year’s budget.
The continuation of US bank results after a better than expected showing from Goldman Sachs and the warning from IBM.
Fed speakers after the soft inflation figure, and whether the hawkish tone holds.
Meška’s comment
A day with two opposing currents. On one side inflation cooled and the markets cheered, on the other oil is holding at monthly highs because the United States and Iran are fighting over the strait through which the world’s energy blood flows. The soft inflation reading is the past, Hormuz is the future, and if the strait closes, the June number will become the shortest-lived piece of good news this year.
Structurally another line matters more. The United States is withdrawing from Iraq and at the same time declaring itself the guardian of Hormuz with a right to collect a transit fee. A hegemon that can no longer be a force everywhere starts collecting rent on what it does control, and that is not a sign of power, it is the conversion of power into money before losing it.