Financial Markets Panel - Risk Insight

What happened in July 2026

July began with hopes that June's ceasefire-driven energy prices disinflation trend would hold. By month-end, renewed US-Iran hostilities had reversed that relief and oil surged again.  Against that backdrop both the ECB and the Fed opted for holding rates at their current levels rather than committing to a direction but seems that  markets already have their own opinion regarding future rates.

A hawkish hold, not a pause  

Effective 23 July, the ECB left all three key rates unchanged at 2.25%/2.40%/2.65%. The Governing Council kept September hike possibility fully live, saying it is closely monitoring the intensity and duration of the energy shock rather than signaling the cycle is over.

Key considerations: elevated energy prices and June's relief that didn't last.

HICP had cooled to 2.8% in June (a four-month low) as the earlier US-Iran ceasefire seemingly fed through to lower energy costs. That reversed within weeks: the July flash jumped back to 2.9%, with energy inflation accelerating from 8.5% to 10.0% y/y as hostilities resumed.

While growth surprised to the upside, when Q2 GDP grew 0.4% q/q, beating forecasts of 0.2%. This represents the strongest quarter since early 2025. Markets interpreted that as additional argument for potential rates hike and responded by fully pricing the deposit rate reaching 2.75% by early 2027 — two more hikes, the first potentially in September.

A hold with intention. 

The FOMC kept the fed funds range at 3.50%–3.75% on 29 July, but three regional presidents, Hammack (Cleveland), Kashkari (Minneapolis) and Logan (Dallas), dissented in favour of a hike.  

June's inflation relief could serve as justification but was it real trend changer or brief pause. 

CPI fell 0.4% m/m in June, its steepest drop since April 2020, pulling the annual rate to 3.5% from 4.2% as energy prices plunged on the earlier ceasefire; core CPI eased to 2.6%.

Warsh doubled down, in Congress and after the FOMC meeting: 

in 14–15 July testimony, Kevin Warsh pledged the Committee has “no tolerance for persistently elevated inflation”; at the 29 July press conference he welcomed rising bond yields, saying markets are “learning to play the ball, not the referee” and are doing some of the Fed's tightening for it. And the markets seem to play along.  

Yield curve steepened, with the long end telling the story, the 30-year Treasury yield touched its highest level since 2007 (~5.23%) as term premium built; on the short end, markets now price 63–65% odds of a September hike.

View on the markets

After a short-lived ceasefire between the US and Iran, July brought a sharp reversal, with a fresh wave of military operations in the Middle East. Oil prices reacted accordingly: Brent crude surged roughly 23% in July, rising from a post-ceasefire low of around $72 to approximately $88 by month-end. It seems that broader financial markets - especially equities driven by earnings season and prospects associated with the AI transformation – have gradually grown immune to news from Middle East and are marching to the beat of their own drum. While equities initially whipsawed in response to the news, they continued to rebound. The U.S. Dow 30 Index still closed out a fourth consecutive winning month and reached an all-time high. Elsewhere in the world, the technology-heavy Korea Composite Stock Price Index (KOSPI) crashed by around 40% over a few weeks, marked by several trading halts and double-digit losing days, before recording a record-breaking single-day rebound of almost 18% during the final week of July.

What it means for banks & risk managers

Relief proved temporary and the policy conversation split further apart — what the July developments mean for trading, treasury and risk teams.

The implications, key takeaways, and market figures that frame them.

Inflation is still driving conversation, guidance is thin, risks are elevated and volatility is increasing

Central banks in the US and EU are responding to price pressure, not growth weakness. The conversation has flipped 180° from “when do cuts resume” to “is another hike coming.” Eurozone policymakers still see the energy shock working through the system; Fed Chair Warsh continues to stress an “unambiguous and unanimous” commitment to price stability. With the Fed's forward guidance gone and the ECB guiding meeting-by-meeting, policy needs to be read off real economy data releases, not speeches and facts, not tweets. June's sharp drop in US CPI and eurozone HICP seemed an energy-price effect tied to a ceasefire that lasted barely a month. July's renewed conflict, underlining how fragile “core progress” claims are when driven by geopolitical interests, and how challenging price stability goals can be when narratives are shaped by unpredictable supply shocks rather than genuine demand cooling. With the energy/geopolitical drivers still reversible in any direction any time, we expect more day-to-day volatility. The case for near-neutral and more defensive risk positioning made in June remains the reasonable default.

Term premium in focus: higher-for-longer may be a tailwind, not a headwind, for bank earnings

With the 30-year Treasury at its highest yield since 2007 and Brent swinging over 20% within a single month, cross-asset volatility is being driven less by central bank communication and rates discussion but more by the reversibility of geopolitical events and real economy impacts. Elevated volatility and market rates now appear to persist longer than markets expected just weeks ago. Although risks remain high, if economic activity is only immaterially impacted by higher energy and borrowing costs then for banks, it will be crucial to observe revenue-risk-directions: the latest round of quarterly results showed both core banking revenues (lending and fees) and trading revenues (typically correlated with market volatility) surprising to the upside and banks record earnings beating analyst consensus across the sector, even in circumstances of increasing risk provisions and valuation adjustments. 

Key financial market figures — 31 July 2026

Sources: 
ECB Governing Council (23 Jul 2026); Federal Reserve FOMC statement (29 Jul 2026); US BLS; Eurostat;
US BLS; Eurostat/ECB; Federal Reserve H.15; Deutsche Bundesbank; ECB euro reference rates;