Daily Market Outlook, July 21, 2026

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute — Chips Bounce, Gilts Brace

Risk has found a little oxygen from two familiar sources: cheaper oil and a semiconductor rebound. Asian equities snapped back after last week’s AI wobble as investors returned to the chip complex, while Brent’s retreat below $89/bbl helped cool the immediate inflation scare. But the UK is adding a domestic twist to the macro tape: the new Burnham government is already testing the gilt market’s tolerance for fiscal ambition, even as today’s borrowing and labour-market data give the Bank of England a somewhat softer inflation backdrop.

Asian equities staged a forceful rebound after three days of losses. The MSCI Asia Pacific Index rose 2.2%, with South Korea’s Kospi and Taiwan’s Taiex both up around 4%. Japan’s Nikkei 225 gained 2.7% after entering correction territory last Friday, while mainland China’s tech sector surged nearly 7%, helped by buying from state-backed institutions aimed at steadying confidence.The message is not that the AI selloff is over. It is that investors are still willing to re-enter the trade when valuations reset and macro pressure eases. Nasdaq 100 futures rose 1%, supported by renewed demand for US semiconductor names, suggesting the market still wants exposure to AI leaders ahead of major tech earnings later this week. The real test now is guidance: chip orders, AI capex and margin commentary need to justify the rebound.Europe looks less enthusiastic, with stocks set for a slightly softer open as traders face a heavy corporate earnings week. That divergence makes sense. Asia and US futures are reacting to the semiconductor bounce; Europe is more exposed to the slower-moving questions of margins, energy and policy. Oil is helping the risk tone. Brent fell 0.7% to $88.58/bbl after two days of gains, as Iran said mediators were working on proposals to ease hostilities and reports pointed to a possible 10-day pause in strikes. That was enough to pull crude back from the highs and reduce the sense that Brent was on a straight-line path toward $100/bbl.

Still, this is not an all-clear. Brent remains far above its July lows, and the Strait of Hormuz risk premium has not disappeared. A pause in strikes would lower the temperature, but it would not erase the inflation impulse already running through fuel, freight and expectations. Treasuries held Monday’s losses, while gold rose 1% to around $4,050/oz, showing that haven demand has not vanished even as equities rebound. The Canadian Dollar was broadly stable after the Trump administration unveiled plans for a new 50% tariff on selected Canadian imports. The muted FX reaction suggests investors are not yet treating the announcement as a systemic trade shock, but it adds another layer to the inflation and supply-chain debate. In a market already sensitive to energy costs, fresh tariff headlines are not exactly the soothing herbal tea of macro policy.

In the UK, the new Prime Minister appears ready to test how far fiscal ambition can stretch before the bond market pushes back. Four early signals point toward a more expansive strategy: John Healey’s appointment as Chancellor, immediate cost-of-living support, an intention to use available fiscal-rule flexibility, and broader ambitions around tax allowances, social care and a 10-year plan. Healey’s appointment matters because of defence. His resignation letter as Defence Secretary last month argued that defence spending should reach 3% of GDP by 2030. The later Defence Investment Plan set the target at 2.7% of GDP. Based on the OBR’s existing GDP forecasts, moving to 3% implies roughly an extra £10bn per year by 2030, on top of an already only partially funded plan. For gilts, that is the sort of medium-term commitment that matters more than today’s press conference choreography. The government has also announced the scrapping of the 5% VAT rate on household electricity bills from October. The measure is expected to cost around £850mn in 2026-27 and shave roughly 0.1ppt off CPI inflation. The government says it will be funded by cancelling the Digital ID Programme, though that programme itself relied on unidentified departmental savings elsewhere. In practical market terms, the measure is small enough to soothe immediate gilt nerves, but not clean enough to remove questions about fiscal discipline.

Burnham’s pledge to use “any flexibility” within existing fiscal rules is more important. The first rule allows borrowing to invest. The second uses a debt definition that can create what the OBR calls “potential fiscal illusions” — spending that does not immediately add to the PSNFL debt measure but still has implications for gilt issuance. That distinction is likely to become a live market issue if the government leans into public-control projects or infrastructure ambitions. There are also unfunded aspirations around raising the personal tax allowance, social care reform and a 10-year plan. Without financing detail, markets will treat those as medium-term gilt-supply risks or future tax-rise risks. The political message is expansive; the funding message is still incomplete.

Today’s public finances report gives Burnham a better starting point than feared. Public sector borrowing was £16.0bn in June, below market expectations and slightly below the £16.3bn projected by the OBR in its pre-Middle East-conflict forecast. That is notable given upward pressure on inflation-linked debt-servicing costs from the energy spike.Revisions to prior months mean cumulative borrowing in the first three months of 2026-27 is now £2.7bn above the OBR profile. Last month it was £7.7bn above target, so this is a meaningful improvement. The OBR path will need revision given higher yields, inflation-linked debt costs and new government priorities, but the opening fiscal position is not as damaged as many feared.

The labour-market report sends a mixed but broadly BoE-friendly signal. The wage data point to gradually moderating domestic inflation pressure. Private-sector regular pay rose 2.9% 3m/y in May, putting it on track to come in at or slightly below the BoE’s 3.0%–3.1% Q2 projection from the April MPR. Shorter-term momentum is now back below the pre-pandemic average, while HMRC median pay growth eased 0.3ppts to 4.3% y/y in June.That matters for Governor Bailey’s framework. The BoE can tolerate some external energy-driven inflation pressure more easily if domestic wage inflation is cooling. Softer earnings growth is the offset that allows the MPC to avoid mechanically tightening into an oil shock.

The employment data are less clean. The Labour Force Survey showed employment up 148k 3m/3m in May, but the LFS still carries known quality issues. The HMRC payroll series, which showed a 4k decline in June, looks more consistent with survey evidence. The unemployment rate held at 4.9%, though the single-month readings suggest it may fall next time and come in below the BoE’s 5.1% marker. Hours worked also picked up, with the earlier dip in average hours reversing. That suggests some of the labour-market weakness seen earlier in the year has faded. For the MPC, the overall picture is probably close to neutral: activity is not deteriorating sharply, but wage pressures are easing enough to contain domestic inflation concerns. That leaves the BoE in wait-and-see mode ahead of Wednesday’s CPI report. Headline and core inflation are expected to ease from May’s 2.8% and 2.6% y/y readings, helped by lower energy prices in June. A small upside surprise would probably be tolerated given the recent run of softer inflation prints, but a renewed services or wage signal would be harder to ignore.

The broader global calendar keeps policy risk active. The ECB is expected to leave rates unchanged on Thursday, but higher oil keeps September hike expectations alive. Lagarde is likely to preserve optionality rather than fight the market’s view of a possible September move. Flash PMIs on Friday across the euro area, UK and US will help show whether the energy shock is hitting demand or mainly lifting price expectations.

Tuesday’s market message is the equity market has rediscovered its AI appetite, helped by a pullback in oil and state-supported buying in China tech. But the rebound is still conditional. Semiconductor earnings need to validate the capex story, Brent needs to stay below panic levels, and the UK’s new fiscal direction needs to avoid spooking gilts. Today’s tape is better than Friday’s, but it is not yet a clean bill of health.

Overnight Headlines

  • Trump: Iran To Pay 'Many Times Over' For Killing US Soldiers

  • Iran Mediators Push New Ceasefire As Trump Eyes All-Out War

  • US Sets 50% Tariff on Some Canadian Goods Over Retaliation Claim

  • Trump Signs Order To Map Supply Chains For National Security

  • Trump To Meet Lebanon’s Pres As US Pushes Ahead With Peace Deal

  • EU Expects To Hit $1.35 Tln Spending Goal Agreed With Trump

  • Andy Burnham Opens Door To Using ‘Flexibility’ Within Fiscal Rules

  • Burnham Picks Healey As Chancellor On First Day As UK PM

  • UK’s MP Wes Streeting Named To Top UK Defense Role

  • Japan Releases Economic Plan Without Answer on Sales Tax Issue

  • US Offers To Halve Aluminium Duties For Firms Building In US

  • Paramount-Warner Bros. Deal Temporarily Paused By Federal Judge

  • Google Plans New ‘Frozen’ Chip To Run Its AI Models Much More Efficiently

  • BlackRock Eyes More Than $12 Billion Debt For Meta Data Center

  • Stellantis Names New Heads Of Jeep And Ram To Bolster US Sales

  • China Weighs Tighter Export Controls On AI Models And Chips

FX Options Expiries For 10am New York Cut

(1BLN+ represents larger expiries and is more magnetic when trading within the daily ATR.)

  • EUR/USD: 1.1400 (EU2.23b), 1.1500 (EU1.63b), 1.1485 (EU1.24b)

  • USD/JPY: 163.45 ($3.18b), 160.00 ($934.1m), 162.00 ($679.3m)

  • AUD/USD: 0.6925 (AUD1.5b), 0.7170 (AUD690.8m), 0.7000 (AUD331.1m)

  • USD/CAD: 1.4125 ($611m), 1.4100 ($402.7m), 1.4135 ($379m)

  • USD/BRL: 5.1000 ($358m)

  • USD/CNY: 6.8200 ($547m), 6.8000 ($395.2m)

CFTC Positions as of 17/7/26

  • Equity fund speculators have ramped up their net short positions on the S&P 500 CME, adding 6,873 contracts to reach a total of 359,456. Meanwhile, equity fund managers have reduced their net long positions in the S&P 500 CME by 30,209 contracts, bringing their total down to 941,123.

  • Treasury futures market, speculators have made some notable adjustments. They've trimmed their net short position in CBOT US 5-year Treasury futures by 64,833 contracts, leaving them with a total of 1,294,283. Conversely, they have increased their net short position in CBOT US 10-year Treasury futures by 17,413 contracts, now totaling 831,675. In the CBOT US 2-year Treasury futures market, there's been a significant reduction in net short positions by 103,531 contracts, bringing the total to 1,157,477.Additionally, speculators have upped their net short position in CBOT US UltraBond Treasury futures by 16,588 contracts to a total of 324,407 and have increased their net short position in CBOT US Treasury bonds futures by 35,465 contracts, reaching 179,056.

  • Bitcoin's net long position stands at 3,091 contracts. In the foreign exchange arena, the Swiss franc is showing a net short position of -36,956 contracts, while the British pound sits at -71,253 contracts. The euro has a net short position of -12,605 contracts and the Japanese yen is notably more bearish with a net short position of -122,663 contracts.


Technical & Trade Views

Quiet but important setup day. The S&P slipped to 7,443, leaving it just above the key 7,427 CTA pivot, while the market enters a heavy micro week with 18% of S&P market cap reporting and hyperscaler capex in focus. Semis stabilized only superficially, with SMH up small but little evidence of real demand. At the same time, GS Prime data show the recent Info Tech selling is the largest in more than a decade, suggesting the AI/TMT unwind is increasingly in capitulation territory. The tactical setup is therefore highly asymmetric. Positioning is clean enough for a sharp upside reversal if GOOG/GOOGL, AMD, and hyperscaler commentary re-underwrite the AI capex story. But the index is also close enough to the CTA pivot that a disappointment could create a more mechanical downside flow problem. With the rest-of-week implied SPX range at 7,343–7,543, the market is pricing a move that can easily test systematic levels. Into this backdrop, the best expression is constructive but optional: use end-of-week QQQ calls for a washed-out AI/TMT upside shot, keep hedges around the 7,427 line, and avoid assuming semis have bottomed until real demand appears.

SP500 - 7390 weekly bull/bear level

  • Daily VWAP Bearish

  • Weekly VWAP Bearish>Bullish

  • Above 7390 Target 7560

  • Below 7380 Target 7280

DXY - 99.75 weekly bull/bear level

  • Daily VWAP Bullish

  • Weekly VWAP Bearish

  • Above 99.75 Target 102.50

  • Below 99.40 Target 98.40

EURUSD - 1.1525 weekly bull/bear level

  • Daily VWAP Bullish

  • Weekly VWAP Bullish

  • Above 1.1550 Target 1.1780

  • Below 1.1525 Target 1.1370

GBPUSD - 1.3450 weekly  bull/bear level

  • Daily VWAP Bearish

  • Weekly VWAP Bullish

  • Above 1.3450 Target 1.3640

  • Below 1.33 Target 1.3050

USDJPY - 161.50 weekly bull bear level 

  • Daily VWAP Bullish

  • Weekly VWAP Bullish

  • Above 162 Target 163.75

  • Below 161 Target 160.50

XAUUSD - 4100 weekly bull bear level

  • Daily VWAP Bearish

  • Weekly VWAP Bearish

  • Above 4200 Target 4500

  • Below 4100 Target 3569

BTCUSD - 61k weekly bull bear level

  • Daily VWAP Bullish

  • Weekly VWAP Bullish

  • Above 62.5k Target 68.1k

  • Below 61k Target 52.2k