Rates Jump To 2026 Highs as Rising Oil Prices, AI Cash Needs, Stress Fixed-Income: July 23, 2026

Interest rates across the maturity structure are jumping to 2026 highs as rising oil prices and heavier AI spending prospects stress the fixed-income complex. Escalating geopolitical tensions spreading West of the Hormuz passage to Saudi Arabia, the Red Sea and the Bab-al Madeb Strait, are sparking fears that a wider-scale war could significantly block energy supplies as two critical waterways used to export crude are being choked off simultaneously. The adverse development is raising inflation expectations and dealing brutal losses to holders of Treasuries and stocks, as volatility levels surge in light of the significant uncertainty regarding accelerating cost forces and the heavy credit demand associated with funding monumental technological ambitions. Indeed, Google raised its capital expenditure plans while free cash flow dipped into the negative, as the race for monetization, computing power and relevancy intensifies at the same time that the profitability outlook remains murky at best. As a result, all Magnificent 7 names are getting pounded against the backdrop of the Nasdaq 100 leading the charge south amongst the benchmarks. The Russell 2000, Dow Jones Industrial and S&P 500 indices are slipping more modestly, however, as investors try to rotate within equities, with 5 of the 11 sectors advancing on the session. The lack of speculative enthusiasm is weighing on cryptocurrency and commodities, especially precious metals, as Fed watchers increasingly think that Chair Kevin Warsh may even hike next week, with that potential increase carrying odds of 37% while September is nearing a certainty of approximately 87%. Widening central bank differentials have the greenback strengthening to its firmest level since July 1, as currency analysts see the US as tighter on a relative basis globally. Additionally, the lowest number of initial unemployment claims in 57 years, signaling a stable employment picture, is also restricting financial conditions.

Unemployment Data Points to Strength

Initial unemployment claims fell to their lowest tally since September 1969 in the seven-day period culminating on July 18. The 187k headline figure was well below the median estimate of 212k and prior timespan’s 209k. The continuing applications total, which lags the first-time segment by seven days, wasn’t as shocking, arriving at 1.796 million, near projections and slightly under the previous week’s 1.798 million. Four-week moving averages declined on both fronts for the second consecutive interval, dropping to 207.5k and 1.805 million from 214.75k and 1.809 million.

US And Iran Are Staying in the Fight

Washington and Tehran appear committed to an ongoing battle, as neither side is backing down from the persistent hostilities. The broader conflict now presents an even more dire risk than earlier in the calendar, as violence is extending West and vessels are being attacked along two distinct straits that are pivotal to global energy flows. With oil reserves being depleted significantly to absorb the supply pressures stemming from the war in the first half of 2026, especially by the US, EU and China, the ability to offset the potential incoming scarcities is likely limited. Meanwhile, Wall Street has believed that inflation peaked in May at 4.2%, but the broken US-Iran truce threatens to raise cost forces above that level in future months. And it’s not just surging crude that is lifting interest rates and strengthening the greenback, it’s also an expansion in defense spending projections, wider budget deficit expectations and a corporate sector that’s eagerly competing with the Treasury for cash to fund massive AI ambitions. If there’s a time to expect a short-term TACO turnaround from President Trump, it would be right here, right now. And with the 10-year making it to 4.71% this morning, buying bonds makes sense here even if you need to wait to see robust capital gains arriving from geopolitical alleviation, a consumer that slows in light of heavy credit charges, a labor market that decelerates due to a lack of qualified workers, worsening volatility in equities that drives safe-haven demand for fixed-income assets or an overly hawkish Fed Chair Warsh who inverts the curve as economists increasingly consider a modest chance of recession.

International Roundup

ECB Cites Higher Energy Prices but Holds Key Rate

The European Central Bank decided this morning to hold its key interest rate steady at 2.25% after it assessed if higher energy prices triggered by the Middle East crisis justified a hike. In announcing the decision, the organization also said it is maintaining the option to hike in the future if needed to arrest inflation that may stem from the war, which has pushed up oil prices and disrupted supply chains. ECB President Christine Lagarde maintains that the pause will give voting members time to assess how the breakdown of the ceasefire will impact price pressures.

After hitting a 3.2% annual rate in May, Europe’s Consumer Price Index (CPI) eased to 2.8% last month as oil and natural gas prices fell in response to a short-lived US-Iran ceasefire. This week, however, Brent oil has climbed to above $100. Despite some governors asking if the organization should hike, policymakers were unanimous in supporting the decision to hold. ECB President Christine Lagarde maintains that the pause will give voting members time to assess how the breakdown of the ceasefire will impact price pressures.

While Consumer Confidence Stays Negative

Consumer sentiment this month improved for the third consecutive month, climbing 1.8 percentage points from June to July’s -15.9 but it remained substantially below the long-term average indicated by a score of zero, according to a flash print from the European Commission’s Directorate-General Economic and Financial Affairs (DG ECFIN).

Singapore’s June Consumer Prices Unchanged from May

Singapore’s consumer prices were unchanged in June when compared to May but inflation on a year-over-year (y/y) basis accelerated. The country’s CPI was flat month over month (m/m), a notable change from the 0.7% climb in May. The gauge was still up 1.9% y/y, a 0.1 percentage point ascent from May’s result. Nevertheless, it fell below the economist consensus estimate of 2%. For the y/y print, the transport category was the primary culprit with a 7.5% jump due to higher gasoline and diesel prices.

When excluding items such as gasoline and food that have volatile pricing, the resulting core CPI posted y/y and m/m gains of 1.6% and 0.1%.

Within the headline CPI, the following items and the extent of the price changes became more expensive m/m:

• Recreation, sport and culture, 0.7%
• Food excluding food and beverage serving services, 0.3%
• Food and beverage serving services, 0.2%
• Housing and utilities, 0.1%

Information and communication, which includes software ex video games, equipment and services, fell 0.9% and the miscellaneous goods and services group was down 0.5%. Other groups with declines included clothing and footwear, which descended by 0.4%, and transport, which sank 0.1%.

Canada Retail Sales Weaken

Retail sales in Canada climbed only 0.4% m/m in June, a deceleration from 1% in May, according to preliminary data from Statistics Canada.