Macro Bar Talks

Good morning everyone, and welcome back at this new edition of this new publication (totally free for everyone) talking about macro assets.

This was a brutal week for risk assets, driven by two simultaneous shocks: the full collapse of the US-Iran ceasefire sent oil surging back above $85/bbl, while the release of China's Kimi K3 AI model on Friday triggered a "DeepSeek moment" . The combination of geopolitical escalation, a hawkish Warsh testimony, and renewed AI competition/capex boom anxiety overwhelmed an otherwise stellar bank earnings season.

Equities fell sharply across the board — with Japan and EM hit hardest — while oil surged, gold retreated, and bonds sold off on the Iran-driven inflation repricing.

Key Market-Moving Events

1. US-Iran War Resumes — Full Escalation

The ceasefire that had held since late June collapsed definitively on Monday, July 14, as the US reimposed a naval blockade on Iranian ports and launched a new wave of airstrikes. Six consecutive nights of strikes followed — each widening in scope — targeting missile sites, coastal surveillance, bridges, energy infrastructure, and port facilities. Iran retaliated by attacking American bases in Kuwait and Jordan; by Saturday morning, Kuwait airport had suspended flights after one of the heaviest Iranian barrages since the conflict began, with an oil facility also struck. Hormuz shipping traffic slumped materially through the week, and global oil supply buffers — already worn thin during the first phase of the war — are now under renewed stress, with analysts warning the risk of a genuine price spike has risen sharply.

2. Warsh Congressional Testimony — Inner Hawk on Display

Fed Chair Warsh appeared before Congress on Tuesday, delivering his starkest inflation message yet: "The members of our committee have no tolerance for persistently elevated inflation." The testimony pushed July hike probabilities from below 10% to approximately 50% by Monday morning — before the soft CPI print reversed the move. Warsh's deliberate refusal to offer forward guidance is itself becoming a source of volatility, with markets now pricing a contested FOMC debate at the September and November meetings. On this point I must admit I differ from the consensus and I think that more than anything else, he wants to play on credibility to appear hawkish.

3. US CPI — Surprise Disinflation, Then Oil Takes It Back

Tuesday's CPI print was the week's most market-friendly data point: headline CPI fell 0.4% in June — its first monthly decline since 2020 — dragged down by the largest drop in gasoline prices since 2022. Core CPI was flat month-on-month. The relief was short-lived: by Wednesday, the renewed Iran escalation and oil's surge back above $85 had effectively negated the disinflationary signal, and rate hike pricing crept back up through the end of the week.

4. Kimi K3 — Another "DeepSeek Moment"

The week's most damaging market event for equities came on Friday, when Alibaba-backed Chinese startup Moonshot released Kimi K3 — a 2.8 trillion-parameter open-weight model reportedly rivalling top-tier offerings from OpenAI and Anthropic. The news shook the market, awakening from the dream of the American primary and hopes of a 6/8 month advantage between the two AI ecosystems. The release triggered an immediate and violent unwind of the AI/semiconductor trade. Nvidia fell 4.6%, AMD 8.1%, Intel 7.6%, and Micron 4.8% on Friday. The Philadelphia Semiconductor Index entered bear market territory, down 20% from its late-June record. The core fear: cheap, open-weight Chinese models could undercut the capex supercycle thesis that had driven the memory and chip rally all year.

5. Korea — Leveraged ETF Chaos and Regulatory Response

South Korea was the week's most dramatic single-market story, combining violent price action with a significant regulatory intervention. The Kospi had already entered a technical bear market the prior week as the AI rotation trade gathered pace, but the week of July 14 brought a fresh wave of selling. On Monday, the index fell as much as 8.2%, triggering a 20-minute circuit-breaker suspension, as Samsung and SK Hynix each dropped more than 10% at their intraday lows and foreign investors withdrew 3.3 trillion won ($2.17 billion) worth of Kospi shares in a single session. After a brief two-day rebound, the Kospi fell another 6.4% on Thursday — with SK Hynix down 11.5% — as the Philadelphia Semiconductor Index's Wednesday decline of 2.1% and Micron's 8% drop cascaded into Seoul overnight. The Korea Exchange activated its sidecar mechanism to temporarily halt program trading.

The proximate cause of the amplified volatility was a new breed of single-stock leveraged ETFs tied to Samsung and SK Hynix, which had surged in popularity since their listings in late May. The largest of these — the Samsung KODEX SK Hynix Single Stock Leverage — had fallen approximately 45% from its peak by Monday, threatening steep losses for the retail investors who had used them to chase amplified returns on the AI memory trade. The forced deleveraging of these products created a self-reinforcing selling loop that exacerbated the underlying moves in both directions.

On Thursday afternoon, the Financial Services Commission announced a package of emergency measures: a temporary suspension of new listings of single-stock leveraged ETFs until market conditions stabilize; a tripling of the minimum cash deposit required to trade such products, from 10 million won to 30 million won (approximately $20,300); and a ban on securities firms and asset managers from advertising or marketing the products.

Markets

Equities

The S&P 500 fell 1.6% on the week to 7,458, while the Nasdaq 100 dropped 4.1% to 28,593 — its worst week in nearly a month — as the Kimi K3 shock hit semiconductors hard into Friday's close. The Stoxx 600 was essentially flat (+0.1% to 641.5), as European banks' strong earnings offset the geopolitical drag. The Nikkei 225 was the worst performer among major indices, falling 6.4% to 64,141, hit by a combination of yen strength, AI trade unwind, and Samsung/memory sector contagion. MSCI EM dropped 4.1% to 1,621, pressured by the Iran escalation and China growth disappointment.

Bonds

The US 10Y opened the week at 4.585% before rallying sharply on Tuesday's soft CPI print to 4.553%, then drifting back to 4.543% by Thursday as oil's surge kept inflation expectations elevated. The German 10Y Bund rose from 3.113% on Monday to 3.126% by Thursday, as the oil-driven inflation repricing offset the CPI-driven relief. The UK 10Y Gilt moved from 4.977% to 4.951% over the same period. The net weekly direction across all three benchmarks was higher yields (back near of the top of the past ranges), reflecting the Iran-driven inflation shock overwhelming the CPI disinflation signal. Further upward pressure is to be expected in the future, with the price of gas and refined petroleum products set to rise even further.

Commodities

Oil was the commodity story of the week. Brent surged from $85.14 on Monday to $88.26 by Thursday — its highest level since the first phase of the war — as Hormuz shipping traffic collapsed and the US widened its strike targets to include Iranian port infrastructure. WTI followed, closing Thursday at $82.47. Gold retreated from $4,053 on Monday to $4,017 by Thursday, as the dollar held firm and some safe-haven flows rotated into oil-linked hedges. Copper slipped from $13,606 to $13,510, reflecting the China growth disappointment and AI capex uncertainty. As of Saturday morning, oil was pushing sharply higher again following Iran's attack on Kuwait, with supply buffer concerns intensifying.

FX

The dollar was broadly stable on the week, with the DXY moving narrowly between 100.49 and 100.94. EUR/USD held in a tight 1.142–1.146 range, as the ECB's inflation dilemma — caught between a soft CPI print and a renewed oil shock — kept the pair anchored. GBP/USD was the G10 outperformer, rising from 1.339 to a high of 1.354 on Tuesday before settling at 1.345 by Thursday. USD/JPY remained stubbornly elevated near 162.2–162.4 despite the Nikkei's sharp selloff, as the BoJ's ultra-loose stance continued to cap yen appreciation — the yen's failure to rally meaningfully despite a 6.4% Nikkei decline underscoring the structural constraints on Japanese monetary and fiscal policies.

It’s all for today, have a nice weekend.

Credit from Macro to Micro.

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