Oil Prices Plunge While Stocks and Bonds Hold Steady Ahead of Fed Decision
Market Overview and Key Developments
By Jamie McGeever
Oil prices declined on Monday as the United States and Iran exchanged attacks for dialogue, while U.S. equities and Treasury yields moved within narrow ranges ahead of major technology earnings and the Federal Reserve’s upcoming policy decision.
Federal Reserve Policy Outlook
In this analysis, we examine the upcoming Fed meeting. Should Chair Kevin Warsh seek to reinforce — or restore — the central bank’s credibility in combating inflation, a rate hike would be advisable. However, market pricing assigns only a one‑in‑three chance of such a move. The question is whether the Fed can risk surprising markets, or conversely, risk failing to act.
Recommended Reading
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
- Chipmaker CXMT vaults to top of China’s valuation with 466% surge in Shanghai debut
- Nvidia in talks with OpenAI to guarantee $250 billion financing for data center, WSJ reports
- Trump economy at 18 months is a tale of shocks, resilience, and signs of stalled progress
- Bank of England to keep rate steady despite oil and gas price rebound
- Bank of Japan to signal more rate hikes as price pressures build
Today’s Key Market Moves
Stocks Performance
• STOCKS: China’s benchmark indices up 1-3%; Europe flat, UK +0.4%; Dow +0.5%, S&P 500 and Nasdaq little changed.
Sectors and Shares
• SECTORS/SHARES: Seven sectors on the S&P 500 rise, four fall. Comms services and consumer staples +1.5%, energy -2%, tech -1%. Workday +9%, Palantir +7%, Sandisk -11%, Nvidia -5%.
Foreign Exchange Markets
• FX: Dollar index flat. NOK down almost 1% on oil slide, IDR slides on cenbank chief exit. INR logs best day in six weeks.
Bond Markets
• BONDS: U.S. yields down 1-4 bps, curve bull flattens a bit. 2-year auction pretty soft, 5-year auction very weak.
Commodities and Metals
• COMMODITIES/METALS: Oil tumbles: WTI crude -7.5%, Brent -9%. Gold +1%.
Today’s Talking Points
AI Froth
Equity investors, already nervous ahead of a pivotal earnings week for global technology firms, were reminded on Monday of the lingering exuberance surrounding artificial‑intelligence investments, despite recent sell‑offs. Notably, Chinese chipmaker CXMT Corp surged over 500 % on its debut, topping Asia’s largest IPO of the year and becoming the region’s most valuable listed company.
Fed (In)visibility
The possibility of a rate hike at the Wednesday meeting remains, though it is not expected to be a shock. Earlier on Monday, fed‑funds futures indicated a 40 % probability of a 25‑basis‑point increase, a figure that has since receded to about 35 %, still elevated given the two‑day lead‑time.
Bonds Ignore Oil
Global benchmark oil prices fell 7–9 % on Monday, marking their steepest decline in more than two months; from Thursday’s peak to the current trough, West Texas Intermediate dropped as much as 12 %. In contrast, Treasury yields moved modestly, with the 10‑year note closing at 4.64 %, just 7 basis points below the prior week’s peak of 4.71 %.
What Could Move Markets Tomorrow?
Upcoming Events
- SK Hynix earnings
- European earnings, including Barclays and Unilever
- U.S. consumer confidence (July)
- U.S. Treasury sells $44 billion of 7-year notes at auction
- U.S. earnings, including Visa, Coca-Cola, Boeing, Seagate Technology
