Inflation came in so cool the Fed might actually have to find a new excuse while half the oil on earth forgets how to exit a strait · Daily Briefing

In 30 seconds: June CPI and PPI both came in significantly softer than consensus forecasts, reducing odds of a July Fed rate hike while keeping September tightening on the table, with Fed Governor Cook and incoming Chair Warsh both signaling patience but readiness to act if inflation persists. China's Q2 GDP growth slowed to 4.3% year-on-year, missing the official 5% target, while analysts scrutinize PBOC currency management, state bank foreign asset accumulation, and the Trump administration's softening stance toward Beijing ahead of a planned Xi state visit. Oil flows through the Strait of Hormuz have fallen to roughly half their late-June peak at ~7.5 million barrels per day, hammering Chinese crude imports and pushing WTI prices down to the $80/barrel range despite earlier US-Iran tensions. ASML reported blowout earnings driven by surging memory chip demand, lifting semiconductor stocks broadly, though analysts warn the sector's parabolic valuations and stretched multiples echo dot-com-era bubble dynamics.

Headline CPI was flat month over month at 0%, a sharp deceleration from the prior month's 1.1% gain. Core CPI rose 0.3% on the month, down from 0.4% previously. Core goods CPI stood at 0.8% year over year while core services came in at 3.2%, both showing notable easing in June. Producer prices told the same story, only louder. Core PPI up 0.2% monthly.

The yuan's march from 7.17 to 6.8 has been pretty steady, driven by stronger fixes — a clear signal from the PBOC. Getting the yuan to move to 6.3 will require a political decision, and allowing the currency to strengthen beyond that would require a much bigger one. China's true holdings at SAFE and the CIC are approximately $2 trillion in US assets.

The Strait of Hormuz used to move ~20 million barrels per day of crude. Now the 10-day average oil flow exiting Hormuz has fallen to ~7.5 million barrels per day, a -50% decline from the late-June high-water mark, when exits surged and stranded Gulf oil-on-water was rapidly drawn down. That is a sentence you can read twice and it does not get less alarming. The downstream effects are exactly what you would expect. Chinese seaborne oil offloadings: ~5.5 million barrels per day. For context, China's pre-war import rate was 10-12 million barrels per day. So roughly half the oil is gone. China's petroleum refiners cut crude processing for the third month running in June, processing just 51 million tonnes versus 62 million in the same month a year ago. When your feedstock gets cut in half you do not keep the furnaces running for fun. Combined Saudi Red Sea + UAE Fujairah oil flow: ~7.5 million barrels per day. The barrels that cannot get through Hormuz simply do not have a clear path to market — the alternative routes handle only ~7.5 million barrels per day combined, against a pre-war Hormuz flow of ~20 million barrels per day. The price action is the confusing part. Escalating US-Iran skirmishes have pushed both WTI and Brent crude back into the $80 per barrel range. WTI averaged $98.5 in May, fell to $82.0 in June, and is tracking $80.0 in July. Even after a 15%+ rally off the low, crude oil is on pace for a lower average price in July than June. You would think losing half the flow through the world's most important chokepoint would send crude to the moon. The barrels are not getting through, and Chinese import data suggests demand on the other side has not recovered to fill the gap.

ASML through the roof on expectations. Memory chips accounted for 51% of system sales, a figure that reflects the frenzy among DRAM makers as they race to swap multi-patterning DUV for single-exposure EUV. The demand story is simple: there is one company on earth that makes EUV machines, and it is capacity-constrained. Tech has been consolidating for the last month and a half without breaking down, following a two-month gain described as a gain for the ages in April and May. Fab5 earnings growth expectations are through the roof for years. The capex spend will all eventually go to those who make the stuff that makes the chips. That is the bull case, stated plainly. The bear case is also stated plainly: bubblicious. Fab5 earnings expectations and multiples are bubblicious. The valuation debate has a historical overlay: the semiconductor ETF dot-com analog has continued to track, both in terms of price and the 5-year CAPE. On the other hand, today's fundamentals are backing up the valuations, and booming earnings are so far keeping valuations in check.