Morning Bid: Melting core

• Futures markets have almost entirely priced out the possibility of a Fed rate hike later this month following the inflation data, though pricing for a hike later in 2026 remains
• Corporate earnings were mixed: Goldman Sachs surged 9% on strong trading and IPO fees, while IBM plunged 25% in its largest one-day drop ever after missing forecasts and admitting it mishandled the shift from software services to AI data center buildouts
• China's Q2 GDP growth slowed to 4.3% (below forecasts), while global oil prices remain elevated above $85/barrel amid resumed U.S.-Iran tensions and potential shipping tolls in the Strait of Hormuz

Market Summary: U.S. Inflation Cools, Bank Earnings Surge

Key Developments

U.S. consumer price inflation showed significant cooling in June, with monthly core CPI declining 0.02%—the first drop in over six years. Annual core inflation fell to 2.6%, driven by decreases in auto insurance, communication, healthcare, and hotel prices. Headline inflation dropped to 3.5% year-over-year, tracking energy price swings.

Market Impact

Federal Reserve rate hike expectations for July were nearly eliminated following the inflation data. Treasury yields declined sharply. However, futures markets still price in potential hikes later this year, as several sectors remain well above the Fed's 2% target. Fed Chair Kevin Warsh reaffirmed commitment to reaching the 2% inflation goal.

Corporate Earnings

Banking Sector: Major banks delivered strong results on volatile trading activity and robust IPO fees. Goldman Sachs surged 9%, leading the pack. Morgan Stanley and BlackRock also reported positive earnings.

Technology: Results were mixed. IBM plummeted 25% in its largest one-day decline ever after missing forecasts and acknowledging failures in transitioning from software services to AI data center buildouts. The company noted AI spending was cannibalizing software budgets, dragging down related stocks. Conversely, Europe's ASML reported blockbuster results, raising annual revenue forecasts amid continued chip sector demand.

Global Developments

Oil prices climbed above $85/barrel as U.S.-Iran tensions escalated, with Iran ship blockade resuming. China's Q2 GDP growth disappointed at 4.3%, though June industrial and retail data exceeded estimates. Asian stocks traded mixed.

Upcoming: June PPI data, Fed Beige Book release, and speeches from multiple Fed officials scheduled.