Markets struggle to understand where the US-Iran war is heading
Markets are going into this week struggling to understand the trajectory and future implications of the US-Iran War. Several new and significant turns have taken place in the last few days that are changing the complexion of the war. The first being Houthi forces in Yemen, at the behest of Iran, attacked two Saudi oil tankers on July 23rd in the Red Sea with a combination of missiles and drones following a declaration they were imposing a “maritime embargo” on Saudi Arabia overall, which followed a Saudi air attack on Sanaa, Yemen, which appeared to be targeting Iranian military advisors and senior Houthi military leaders. Overall, more than a dozen ships have been attacked in and around the Red Sea/Hormuz corridor since July 6th. And in the last 24 hours, Houthis have fired missiles at a Saudi Aramco (Saudi Arabian Oil Company) oil refinery inside Saudi Arabia.

The second event happened Saturday (July 25th) and, for the first time, merged the US-Iran War with the Ukraine War when Ukrainian forces conducted long-range strikes against an Iranian cargo ship and an Iranian naval vessel in the Caspian Sea. Ukrainian officials said the cargo ship was carrying drone and missile components bound for Iran and that Kyiv considers such cargo “legitimate military targets.” Iran's Foreign Ministry summoned Ukraine's chargé d'affaires, calling it a “hostile and criminal act” and saying it was done “at Israel's behest to drag Europe into its war.” Iranian Foreign Minister Hossein Amir-Abdollahian has been on calls with Russia's Lavrov and the European Union (EU)'s Kallas about a response, saying it “cannot go unanswered.” This coincided with Ukrainian President Volodymyr Zelenskiy remarking that Kyiv had noted Russia was passing on its satellite observations in the Middle East to Iran to enable it to direct strikes in the region.

If there is any good news coming out of the US-Iran War, it is that there were no attacks launched by either the US or Iran over the last two nights. It appears this is the result of a new round of negotiations between Iran and Oman, from which there are reports of “progress.”

We will continue to monitor the situation closely and will provide updates during the course of the week.

Economic concerns mount among Midwest banks
We had several meetings and discussions with regional and local bank presidents in the Midwest this past week. We came away seeing a significantly heightened sense of anxiety and concern over economic conditions. The fears are three-fold: 1) the unpredictability of when hostilities might end with Iran, which is causing oil prices, especially diesel prices, to spike; 2) rising risk that the Federal Reserve may feel compelled to raise interest rates this week; and 3) President Trump imposing yet another round of tariffs, ranging from 10% to 12.5%, on 60 major trading partners while threatening new 50% tariffs on Canada in retaliation for wildfires burning in Canada.

Funeral for Senator Graham brings world leaders to Washington
Washington will see a remarkable and sad event this week: the funeral of Senator Lindsey Graham (R-SC). President Trump is scheduled to give the eulogy, and several world leaders are traveling to Washington to attend the service. Among them are Israeli Prime Minister Benjamin Netanyahu and Ukrainian President Volodymyr Zelenskyy. Both leaders will meet with Trump separately at the White House.

Zelenskyy hopes to revive peace talks with Russia
Zelenskyy is hoping to find a way to revive peace talks with Russia, but for now, Russia does not seem interested in pursuing a new peace track. Ukrainian long-range drone and missile strikes have been causing considerable damage to Russian military and energy facilities, as well as logistical targets (including nine Wildberries facilities. Wildberries is Russia's largest e-commerce platform and is considered the Amazon of Russia).

Fujimori becomes Peru's president
Peru will inaugurate Keiko Fujimori as the country's new president, the country's 10th president since 2016, after winning the race by less than 50,000 votes. It was Fujimori's fourth presidential bid. Her win, alongside Abelardo de la Espriella's in Colombia and José Antonio Kast's in Chile, is being read as part of a broader regional shift toward the conservative wing in Latin America, a reversal from the Chávez/Lula-era left tilt.

Big week for central banks and earnings
Looking at the global economic and financial radar screen this week, this will be a particularly busy week. Three major central bank meetings are taking place alongside a heavy data release schedule and a cascade of corporate earnings reports.

Breaking it down, in the US, the Federal Reserve's Open Market Committee meets this week. While the Fed is likely to keep rates on hold, there has been a clear rise in market chatter suggesting a possible hike, creating a somewhat jittery market (as alluded to above in our meetings with bank presidents). We are firmly with the consensus that they will hold. Also this week, the Personal Consumption Expenditures (PCE) Index, which is the Fed's preferred measure of inflation, is out Friday. It comes after the Conference Board's consumer confidence index on Tuesday, the Q2 Gross Domestic Product (GDP) release on Thursday, and the PCE on Friday.

In Asia, the Bank of Japan meets on Friday on interest rates. We are in consensus that they are likely to hold rates. Also out on Friday will be the July Tokyo Consumer Price Index (CPI), June retail sales, labor market data, housing start data, and industrial production figures. China releases June industrial profits on Monday and July Purchasing Managers' Indexes (PMIs) on Friday.

Europe also has a busy week. The Bank of England meets on Thursday to decide on interest rates, also likely to hold. The German Ifo Survey is out on Monday, and July CPIs for Germany and Spain are out on Thursday, with Italy and France reporting on Friday.

Finally, the corporate earnings schedule is massive this week, led by several major global technology and financial firms.

Financial Regulatory Week Ahead

Washington is quickly going quiet in advance of the traditional August recess. The House of Representatives is now gone until September 7th, and the Senate is here for two more weeks before leaving for their August recess.

Funding and defense spending bills advance
The House was able to vote on two major bills before they left, including a “clean” Continuing Resolution (CR) to extend current funding levels for the federal government through December 4th. It is highly unusual for Congress to move so early in the year on a CR, but with the very limited legislative calendar between now and the November midterms (by our count, 15 days), House Speaker Michael Johnson (R-LA) decided it would be better to err on the side of caution and avoid a government shutdown just before the elections.

While the Senate is highly unlikely to approve the House version, negotiations between the House and Senate have already begun in the hope that the House and Senate can vote on a compromise in September before the end of the fiscal year, thereby avoiding a shutdown.

The other major bill the House voted on before leaving is a new Reconciliation bill – the 3rd reconciliation bill of this Congress. While the majority of the bill is focused on defense and intelligence spending ($73 billion combined), there is also $12 billion for farm relief and assistance programs for farmers.

Crypto CLARITY Act is on a knife’s edge
With that in mind, there are still several financial services-related bills hoping to reach the finish line before the midterm elections. Perhaps the biggest is the landmark crypto bill – the CLARITY Act – which is hung up in the Senate despite months of bipartisan negotiations. This past week, a new revised version – 616 pages long – was unveiled. But that giant THUD! sound you might have heard was the Democrats’ reaction to it. The biggest issue is that they are not happy with the bill’s ethics provisions aimed at policing the involvement of senior politicians and government employees. For Senate Democrats looking at President Trump’s family crypto business, this is a “Must Do/Must Have” issue. But the White House has strongly opposed all Democratic proposals on the issue – and without Democrats’ support, we think the bill will end up dying this year. However, there are reports a last-minute bipartisan group of senators is working to come up with compromise ethics language – so, let’s see if that works before declaring the bill dead.

Congressional stock-trading ban looks unlikely
Also, this past week, the House voted on legislation restricting the ability of members of Congress and their families to buy and sell stocks. However, this bill is also on death’s door as House Republicans inserted a last-minute provision in the bill that is effectively the SAVE Act – the election reform measure President Trump is demanding that requires proof of citizenship and photo ID to register to vote in federal elections (and no way is going to pass in the Senate – so it either comes out of the bill or the whole bill dies in September).

The CFPB is a step closer to a new director
Also, this past week, Brian Johnson, President Trump’s choice to run the Consumer Financial Protection Bureau (CFPB), had his confirmation hearing in the Senate Banking Committee. Our guess is that there is a slim chance Johnson could be confirmed before the Senate leaves for the August recess, but more likely in September. The most interesting part of his confirmation hearing was that he refused to endorse efforts to eliminate the agency. Several Senate Republicans have been seeking either to close the agency or roll it up into another bank regulatory agency – something most observers thought the Trump Administration was aiming to do.

DoJ’s Antitrust Division streamlines merger reviews
Meanwhile, over at the Justice Department, the Antitrust Division announced it intends to further revamp merger review guidelines, as well as present a new model timing agreement. All in all, the effort is aimed at substantially reducing what companies will be required to produce as part of the reviews.

Also of note, President Trump nominated Adam Candeub, the General Counsel of the Federal Communications Commission, to be the new Assistant Attorney General for Antitrust. He will fill the gap created when Gail Slater was fired as Assistant Attorney General last year.

Looking ahead, it is going to be very quiet. No congressional hearings, no major regulatory meetings, and no speeches by Fed Governors or other major regulators.