Strong Earnings Modulate Mideast Uncertainty

For the week ending 24 July 2026

As of midday Friday, global equities were modestly lower on the week amid surging oil prices and bond yields, though strong earnings reports were supportive. The yield on the US 10-year Treasury note rose 13 basis points to 4.68%, while the price of a barrel of West Texas Intermediate crude added $8 to $89.60. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), was little changed at 19.1.

MACRO NEWS

US–Iran conflict widens

Regional spillover in the Middle East deepened this week with the Houthis first imposing a naval blockade on Saudi Arabia and later striking two Saudi tankers in the Red Sea. Amid this latest supply disruption, South Asian oil buyers are reportedly considering rerouting Saudi cargoes through the Suez Canal and around Africa, which could lengthen delivery times to as long as one month. US President Donald Trump said he would hold Iran — and the Houthis as proxies for Iran — responsible.

US strikes intensified after four US service members lost their lives in the region this week. Trump said Iran would pay for the deaths of US troops “many times over” and threatened to destroy one bridge or power plant in Iran, including in Tehran, each time Iran fires a missile or drone at a ship in the strait. Iran, in turn, threatened to attack energy sites if its infrastructure is targeted, and Parliament Speaker Mohammad Bagher Ghalibaf said the situation in the strait “will not return to prewar conditions” and that “if our security is not ensured, no infrastructure will be safe.” Iranian Foreign Minister Abbas Araghchi also warned that those who support the US attacks are “legitimate targets” and vowed an “eye for an eye,” to which US Secretary of State Marco Rubio countered that the US will seek “a head for an eye.” On Wednesday, the Pentagon said that the war has cost roughly $37.5 billion so far.

Thursday morning, Trump told Axios that he is seriously considering restarting major combat operations in Iran, including even larger strikes than those carried out in first phase of the war. Iran on Friday reportedly rejected a ceasefire proposal offered by the prime minister of Iraq.

Bond yields jump with oil

Global bond yields rose sharply this week as Brent crude prices topped $100 per barrel. The US 10-year Treasury yield climbed as high as 4.71%, its highest level since January 2025, and rate-hike expectations firmed across developed markets. The European Central Bank left its policy rate unchanged at 2.25% and reiterated a data-dependent, meeting-by-meeting approach while signaling that a September hike is likely. Markets have priced in 43 basis points of tightening by the US Federal Reserve by year end, 45 bps by the ECB and 44 bps from the Bank of England.

Tariff shuffle continues

As temporary 10% global tariffs expired on Friday, the Trump administration imposed new tariffs of up to 12.5% on 60 trading partners, citing lax forced-labor standards under Section 301 of the Trade Act of 1974. The Supreme Court earlier this year struck down Trump’s broad emergency-powers tariffs, prompting the administration to pivot to alternative legal authorities to rebuild its tariff regime.

On Monday, President Trump said he will impose 50% tariffs on certain Canadian imports using Section 338 of the Tariff Act of 1930, a provision that allows the president to levy duties of up to 50% without congressional involvement on countries deemed to discriminate in trade against the United States. Unlike the prior rounds of tariffs, products covered under the US–Mexico–Canada Agreement will not be exempt. The administration said it is further along in USMCA-related negotiations with Mexico than with Canada. Canadian Prime Minister Mark Carney said he spoke with Trump and agreed to intensify talks with the aim of reaching a comprehensive trade deal. Carney added on Thursday that “everything is on the table” if there is no trade deal with the US by August 19.

Trump also announced that generic drug manufacturers must move production to the US or face a 100% import duty starting in August 2028 and rising to 200% in August 2029. Separately, US Trade Representative Jamieson Greer said the US views AI “distillation” as a form of intellectual property theft, and Treasury Secretary Scott Bessent said the US could sanction AI models that steal IP, though he also emphasized his support for open-source models. And, in an incident that reads like science fiction, OpenAI disclosed an “unprecedented” cyber incident involving an AI agent that “escaped” a testing environment, gained internet access, and obtained login credentials to hack a competitor.

AI capex concerns linger

AI and semiconductor stocks came under renewed pressure this week. The Philadelphia Semiconductor Index entered a technical bear market before bouncing back modestly as investors weighed reports that AI datacenter projects are facing multi-billion-dollar cost overruns and delays, alongside concerns about the return profile of the capex cycle. The debate over open-weight AI models added to the uncertainty as broader access to lower-cost models could ultimately support productivity through faster and cheaper AI adoption, but also raises the risk of a capex overcycle if returns on US AI infrastructure compress and could intensify geopolitical fragmentation as competing technology stacks emerge.

QUICK HITS

June’s respite from Mideast tensions saw global PMIs jump last month.

US weekly jobless claims plunged to 187,000 in the week ended July 18, the lowest reading since September 1969 and a sign that, with the labor market solid, the Fed can maintain its focus on the inflation part of its dual mandate.

In Japan, senior officials warned they are prepared to act as the yen weakened to its lowest level against the US dollar since 1986. Bank of Japan officials are reportedly open to raising interest rates at a faster pace than the consensus as continued yen weakness adds to upside inflation risks.

China mounted one of its broadest efforts in years to steady the stock market after a selloff in tech shares. Central-government-linked funds disclosed purchases of nearly RMB 60 billion ($8.9 billion) of stocks late Sunday, helping lift Chinese indices Monday even as other Asian markets fell. The chip-heavy STAR 50 Index surged 11% on Tuesday, its biggest one-day gain in nearly two years, after falling roughly 17% the prior week.

After the European Union hit Google with another billion-dollar fine on Thursday, the Trump administration said the fine poses a real risk to US trade ties with the EU.

Andy Burnham assumed the office of UK prime minister and named John Healey as Chancellor of the Exchequer. Burnham said he will stick with the government’s fiscal rules but will use any flexibility within them. Healey said his first priority is fiscal discipline and pledged to back wealth creation. 

Fueled by unusually hot weather and the World Cup, UK retail sales rose a stronger-than-expected 4.2% year over year.

According to PitchBook, the net asset value of US private-equity assets stuck in funds at least a decade old (i.e., well beyond their intended lifespans) reached an all-time high of $348.5 billion at the end of 2025 — roughly 3.5 times the 2015 level and more than 100 times the 2005 level. 

On Wednesday, the US and Saudi Arabia were close to finalizing a nuclear technology sharing deal that could potentially allow US companies to build reactors in the kingdom. However, President Trump said Thursday that Saudi Arabia would have to agree to normalize relations with Israel in order to receive the technology, casting doubt over the agreement.

The US Department of Justice outlined a new merger review model that focuses on the most apparent ways a proposed transaction may reduce competition.

China’s cabinet pledged to meet its 4.5%–5% full-year growth target after Q2 growth slipped below the official range. The Politburo is expected to focus on speeding up bond issuance to fund infrastructure spending as domestic demand remains weak.

EARNINGS NEWS

While the bar was high heading into earnings season, results to date have mostly cleared it. With about 27% of the constituents of the S&P 500 Index having reported, blended earnings per share (which combines reported data with estimates for those that have yet to report) rose 38% compared with the same quarter last year, according to data from FactSet. Blended sales rose 12.9% over the same period. 

THE WEEK AHEAD

Monday: US durable goods orders

Tuesday: US trade balance

Wednesday: US FOMC meeting

Thursday: Eurozone GDP, unemployment; Bank of England meeting; US core PCE, Q2 GDP

Friday: Bank of Japan meeting; Eurozone CPI

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.