Market Overview

Oil prices took a breather on Friday after five straight days of gains following reports that China attempted to restart stalled peace talks between the U.S. and Iran, giving stock markets a brief boost. Even so, global bond yields remained near multi-year highs, driving the U.S. dollar toward its biggest weekly gain in five weeks while the Japanese yen suffered its worst week since May. European Central Bank Chief Economist Philip Lane acknowledged that Europe is dealing with a mid-sized inflation shock, though he expects inflation to return to its 2% target in about a year. Meanwhile, U.S. new home sales picked up in June, but high interest rates continue to create affordability challenges for buyers. Overall, weaker currencies outside the U.S. make imported goods more expensive, meaning a single day of falling oil prices does not eliminate high inflation or tight energy supplies.

The United States has imposed new tariffs on more than 80 countries, including the UK and EU, covering 99.4% of American trade. The administration is using a law from 1974 designed to punish unfair trade practices, but legal experts say they are using it in a way that was never intended—as a sweeping tariff tool rather than a targeted response to specific unfair behavior. Two small businesses have already sued, arguing this is an attempt to revive a tariff system that courts already rejected five months ago. Behind the scenes, the move appears connected to Europe's decision to fine Google for abusing its dominant position in search and apps; Trump launched an investigation into the EU and promised tariffs, framing European regulation as theft from American taxpayers. This matters because it signals that tariff policy is now being used to punish decisions the president dislikes and to favor certain companies—Google praised Trump's "engagement"—rather than follow traditional trade rules. Courts will likely strike down these tariffs, as they did before, but that could take months or years, during which time the tariffs will hurt economic growth and create confusion in supply chains. Until courts intervene, assume the tariffs are real; once litigation moves forward, expect them to be cancelled, which will cause sharp market swings. The fundamental shift: trade policy is now whatever the president decides it is, with courts as the only check—and courts move slowly.

Saudi Arabia tried to reduce its reliance on the Persian Gulf by sending oil westward through a pipeline to the Red Sea port of Yanbu, but that plan has backfired. Since March, attacks by Houthi forces in the Red Sea have sharply cut Saudi exports from Yanbu, and overall Saudi oil exports have dropped significantly from both routes. The Houthis, backed by Iran, are blocking the Bab el-Mandeb Strait—a narrow waterway where about 12% of global trade and a quarter of the world's shipping passes through. This creates a second crisis point alongside the Strait of Hormuz in the Persian Gulf, meaning Saudi Arabia now faces threats in two places instead of one. The Suez Canal and Egypt's pipeline cannot handle the massive volumes normally flowing through the Red Sea bottleneck, so oil must take longer routes at higher shipping costs. This oil supply crunch is already pushing up prices for fertilizer and grain globally; the blockade has cut Middle Eastern fertilizer exports, forcing producers to cut operations to prevent spoilage, while crop prices are near multi-year highs due to disruptions in the Black Sea. The United Nations warns that sustained high energy and fertilizer costs could push millions more people into hunger worldwide. For investors, this marks the moment when energy price spikes start driving up food prices and creating currency stress in countries dependent on grain and fertilizer imports, with potential knock-on effects across financial markets.