Markets Plunge as Trump Threatens Tehran with Attacks, a Reinstatement of the Hormuz Blockade: July 8, 2026

Escalating tensions between Washington and Tehran are sparking turbulence on Wall Street as President Trump calls the ceasefire among the two nations over. The commander-in-chief threatened to launch attacks tonight against Iran and to reinstate the Hormuz blockade, which would constrain oil supplies and raise geopolitical uncertainty. The hostile rhetoric occurs as the US leader, speaking at the NATO Summit in Ankara, has expressed dissatisfaction with European allies for failing to offer unwavering support for the American expedition in the Middle East. The international friction is pushing the price of crude to a two-week high as a resurgence of insecurity in the region has gasoline shortage fears resurfacing. Rates are climbing too on the back of a Fed that is increasingly poised to hike sooner rather than later in response to elevated costs and heavier inflation expectations, with the factors raising the short- and long-ends of the Treasury curve in similar proportions while additionally strengthening the greenback. Equities are experiencing a broad selloff as all major benchmarks, sectors and subcategories excluding the energy-related segments sink. Cyclical names are especially being battered as they’re incredibly sensitive to ascending yields and rising fuel expenses, while commodities, precious metals and cryptocurrencies are also getting hurt by tighter financial conditions, an appreciating dollar and a lack of speculative enthusiasms. Greater hedging demand is lifting the premiums on volatility protection instruments as investors attempt to play some defense and grab index put options. Similarly, prediction markets are catching bids as participants gravitate to non-correlated investment opportunities.

Energy Lift Threatens Fed Hikes, GOP Midterm Losses

Rebounding energy costs are threatening to push the Fed towards multiple rate hikes by year-end, with the Treasury complex pricing in a pair of quarter-point 2026 increases as the most likely scenario. The resulting lift in central bank tightening expectations could certainly drive an economic deceleration via slower consumer spending, muted hiring and sluggish business investment while stocks could get hurt by a lighter risk premium that constrains equity valuations. Meanwhile, the softer momentum could also serve as a drag on the pace of corporate earnings growth, as margins get pressured by plateauing revenues amidst heavier expenses. Furthermore, pain at the pump could very well result in losses at the ballots for the GOP during this midterm election season, as higher gasoline charges are incredibly unpopular amongst the constituency since it’s a price that households see and feel consistently while they’re filling up their automobiles. Still, prediction markets are pointing to the Republicans keeping the Senate with a 62% likelihood while the Democrats are projected to flip the House with an 80% probability; however, a blue wave could add regulatory headwinds to the artificial intelligence theme that has carried this bull market, and that, alongside rising yields, is a reason to worry on Wall Street. Conversely, though, the Trump-TACO put could arrive just in time to save the day and send crude back into the 60s.

International Roundup

New Data Points to BOJ Rate Hike Flexibility

Stronger sentiment among businesses that work closely with consumers and an acceleration of bank lending are providing additional evidence that the Japanese economy is strong enough to weather additional rate hikes from the country’s central bank.

The Economy Watchers Indices for both current and future conditions climbed in May with support from household and corporate activity. The indices are produced by interviewing client-facing businesses, such as livery companies, restaurants, hotels and retailers. The diffusion index for current conditions climbed from 43.6 to 46.4 and the gauge for future economic conditions moved from 40.7 to 42. Regarding current conditions, household activity increased among food and beverage related companies. Additionally, the launch of energy efficient appliances and the early arrival of hot weather caused strong air conditioner sales. That appeared to be an isolated trend, however, as many retailers said that elevated petroleum prices caused consumers to tighten their purse strings. Meanwhile, an uptick in manufacturing led to the corporate activity gauge providing additional support to the current conditions headline. A labor shortage, however, grew slightly worse.

In a similar manner, household and corporate activity contributed to the higher future economic conditions print.  Businesses noted that travel reservations and inquiries for June and July were increasing, but the Middle East crisis is likely to cause the economy to deteriorate further while higher interest rates, material shortages triggered by the war and soaring construction costs have caused the real estate development environment to worsen. A staffing company, furthermore, noted that price hikes triggered by the US-Iran conflict are likely to make future staffing plans uncertain.

In another positive development, loans rose 6.3% year over year (y/y) last month with demand stoked by mergers and acquisitions, according to the Bank of Japan (BoJ). The real estate market and economic recovery also supported loan issuance last month, which hits its highest level since late 2020.

The stronger Economy Watchers Index print and accelerating loan growth follows yesterday’s household spending release, which showed a 3.7% month-over-month May increase. It was a stronger pace than 1.6% in April and it exceeded the 1.4% economist consensus estimate. Also yesterday, the country’s Leading Indicator climbed to a five-year high.

The BoJ last month raised its key interest rate 25 basis points to 1%, its highest level in 31 years. Its last hike before June was in December. More recently, the country’s Consumer Price Index hit 1.5%, while the Core CPI hit 1.4%, considerably below the organization’s 2% target. Yet the country’s Producer Price Index, which can point to future CPI results, rose to 6.3%, increasing expectations that the BoJ may further tighten its monetary policy. The BoJ, for its part, warned last month that the outlook for future rate decisions is highly uncertain due to the unpredictable nature of the US-Iran war.