July was defined by the collapse of the US–Iran MoU that had initially reopened the Strait of Hormuz and driven energy prices and inflation expectations sharply lower in June. The ceasefire broke, and a renewed cycle of strikes and tanker attacks sent energy prices higher, reversing all of June's selloff.

The soft June inflation prints released mid-July captured the ceasefire window, and the Warsh-led Fed held rates with three members dissenting in favour of a hike, and the long end of the curve breaking out to a 19-year high.

Inflation was an encouraging surprise, though it predates the ceasefire's collapse. June headline CPI fell 0.4% month-on-month, marking the first monthly decline since April 2020 and bringing down the yearly rate to 3.5% from 4.2%. The caveat is that this was driven by energy and especially gasoline, which has since rallied to fresh highs. Core CPI was flat on the month and eased to 2.6% year-on-year from a seven-month high of 2.9%. The Fed's preferred core PCE slowed to 3.3%, from 3.4%, and PPI fell to 5.5% from 6.0%. The June ISM prices index dropped 9.1 points to 73.0, its largest fall since 2022, with headline manufacturing still expanding at 53.3.

Growth and labour softened with Q2 GDP printing 1.5% from 2.1%; however, consumption rebounded to 3.2% from just 0.5% in Q1 while the main negative came from imports and a fifth straight inventory drawdown. June retail sales rose 0.2%, held back entirely by lower gasoline receipts (−5.3%); excluding that, sales rose 0.7%.

On the labour front, non-farm payrolls printed 57k for June, a miss from the 110k projected and 179k previously. This follows three consecutive months of beating expectations, so not much of a warning sign yet. The unemployment rate also ticked down to 4.2%. That said, wages have slowed to 3.2% year-on-year, a 5-year low, while private sector wages fell by 0.4%, the first drop in 4 years.

UK inflation surprised to the downside with June CPI easing to 2.6%, from 2.8%, the lowest since March 2025. Similar to the US, this was driven by lower pump prices, especially diesel, which is now history with diesel hitting a new high. Crucially, services inflation, which is the Bank of England's key metric, also edged down to 3.6% from 3.7%. 

Growth-wise, May GDP rose 0.1% (in line with expectations), with services increasing by 0.3%, and the July flash PMIs rebounded to a three-month high, with the composite at 52.1 (from 49.3), services 51.8 and manufacturing at 52.8. The Bank of England in its last meeting held rates at 3.75%, as expected. Similar to the Fed, the BoE has room to wait with the softer inflation prints; however, it's almost certain that next prints will be higher as the declines were driven by refined oil products (gasoline for the US, diesel for the UK). 

China's Q2 GDP slowed to 4.3% year-on-year, marking its weakest in over three years. Retail sales rebounded to +1%, from −0.6%, and industrial output re-accelerated to +5.3%. Property prices remained the sour area, with fixed-asset investment dropping 5.7%, real-estate investment dropping 18%, and new home prices falling 3.3% year-on-year, marking the 36th straight monthly decline but the mildest since February. As always, Shanghai (+3.1%) was the sole exception. The forward-looking July PMIs also disappointed, with the official manufacturing index dropping into contraction at 49.2 (from 50.3), and non-manufacturing to 49.0. High-tech and equipment manufacturing stayed in expansion.

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