SpaceX may own the headlines, but the ECB’s rate hike, oil shock, and unresolved Iran conflict matter far more for markets.
KEY TAKEAWAYS
SpaceX has dominated the market narrative, but the IPO buzz is distracting investors from more important macro developments. The bigger story is inflation, oil, central bank policy, and unresolved geopolitical risk.
The ECB raised rates into weak growth because energy inflation tied to the US-Iran war is pressuring Europe. The move signals desperation, not economic strength.
Rate hikes are the wrong tool for a supply-driven energy shock. They can slow lending and investment, but they cannot produce oil or reopen the Strait of Hormuz.
The 60-day ceasefire extension is not a real peace deal. The unresolved issue of Iran’s enriched uranium stockpile remains central to the conflict.
The Fed is now more constrained because global inflation pressure has been reinforced by the ECB’s move. Kevin Warsh may be forced into a more hawkish posture than markets expected.
MY HOT TAKES
The market is confusing narrative relief with structural resolution. A ceasefire headline can move oil and stocks for a day, but it does not fix the underlying problem.
The ECB may be making a classic policy mistake by treating supply inflation like demand inflation. That risks weakening an already fragile European economy without solving the cause of inflation.
The SpaceX IPO may be historic, but it is not the most important event for investors’ future wealth. Macro risk is bigger than even the loudest single-company story.
Dollar weakness during high-inflation stress deserves more attention. It may not create a crisis overnight, but it adds to the long-term de-dollarization conversation.
Patience is not passivity here. It is a deliberate decision not to chase headlines while the most important risks remain unresolved.
You can quote me: “Wall Street is staring at the rocket while the macro basement is flooding.”
This is ground control to…the Millers. Commencing countdown, engines on. What do your newsfeeds look like this morning? Same as yesterday, chock full of Elon Musk. First, I have to say congratulations, Elon, you have successfully gotten even some of the most respected journalists, economists, and financial wizards to declare today's IPO one for the ages. Based on size and buzz, it certainly is. But I can assure you that it is not even close to being the most important event for your current and future wealth. I find it quite disturbing, actually, that SpaceX has completely overtaken the Wall Street narrative and eclipsed some of the most critical macro events of the moment.
My friends, markets are completely distracted right now, and there's a funny thing that happens when markets get distracted–real news gets buried under the noise. Thursday, while Wall Street was busy pricing in SpaceX's IPO and trading on Trump's latest ceasefire announcement, the European Central Bank quietly did something it hasn't done in nearly three years: it raised interest rates. Not because the European economy is running hot–it's growing at a meager 0.8%–but because a war in the Middle East is making everything more expensive, and Frankfurt decided to fight that fire with a bucket of cold water. You missed that in yesterday's crazy news cycle didn't you? Do you think today's IPO is going to be more impactful on the US Economy than the ECB hike? Guess again.
Yesterday, the ECB moved its deposit rate from 2% to 2.25%, the first hike since 2023, and did not mince words about why. The Governing Council's own statement said the decision was made to ward off "inflationary pressures generated by the US-Iran war." Full stop. They didn't dress it up in central bank doublespeak. They blamed the war. They simultaneously raised their inflation forecast to 3% for 2026 and cut their growth outlook to that 0.8% figure I mentioned. Hiking rates while your own economists are forecasting near-recessionary growth is a very specific kind of desperation, and the hawks in Frankfurt aren't done. Overnight Index swaps show a 65% probability of another hike in September. ECB governors were quite vocal early this morning making clear that more tightening is coming if oil stays elevated and peace doesn't materialize in the Middle East.
Here's what I want you to understand, and I say this with all due respect to Christine Lagarde and the very serious people in that room: they are wrong. Not about the diagnosis–energy inflation is absolutely real and the Iran war is absolutely driving it. They're wrong about the cure. My regular followers have heard me say this time and again over the past several weeks: rate hikes do not produce oil. They do not reopen the Strait of Hormuz. They do not rebuild Gulf energy infrastructure. What they do is slow lending, crush business investment, pressure an already-drowning consumer, and squeeze an economy that is already barely growing. The ECB is treating a supply shock as if it were a demand problem, and those are two entirely different animals. You fight demand-pull inflation with rate hikes. You fight a geopolitically-induced supply shock with diplomacy, strategic reserve releases, and time–not rate hikes. Frankfurt is essentially applying a tourniquet to a patient who needs surgery. Or an even more stark analogy, the ECB is applying a tourniquet to the wrong leg. The pain is real, the intentions are good, and the intervention is going to make things worse before it makes them better.
Now, let's talk about the ceasefire everybody is so excited about. President Trump announced a 60-day extension Thursday–that is far from his first announcement of imminent peace in this conflict. Oil fell on the headline. The S&P rallied. My mother-in-law called to ask if the war was over. It is not. Iranian officials immediately walked back any suggestion of finality, and here is the detail that should stop every investor cold: the central issue of this entire conflict–what happens to Iran's stockpile of roughly 440 kilograms of uranium enriched to 60% purity–has not been addressed. For you non-nuclear scientists 🤓 out there, 60% enrichment is one short technical step from weapons-grade. The talks have produced a “framework” to begin talking…about talking. The underlying cause of the war, Iran's nuclear program and its fissile material, is entirely unresolved. Calling this a peace deal is like calling a reservation a meal. Right now, because of all the hype whipping around, the market has wrapped a very messy situation with a bow and called it a gift.
Now, the ECB hiking before the Fed isn't just unusual–it's historically almost unheard of. Frankfurt normally follows Washington, not the other way around. The fact that they moved first, and are signaling more, tells you something important about how serious the inflation pressure is in Europe, and how trapped the Fed actually is. So what does all of this mean for the United States? More than most people realize. When a major trading partner raises rates, capital flows shift. Euro-denominated assets become more attractive on a relative basis, which puts downward pressure on the dollar. That dynamic is already playing out–the dollar wobbled Thursday even as equity markets cheered the ceasefire headlines. Now layer on something I have written about and been watching quietly for a while: the de-dollarization conversation does not disappear just because the stock market is up. Every episode of dollar weakness during a high-inflation period adds another brick to the wall that the US’s trading partners are slowly, methodically building around dollar dependency. It doesn't happen overnight. It doesn't happen in a quarter. But each episode matters, and this one matters.
Then there's Kevin Warsh, who chairs his very first FOMC meeting next week. He walked into that chair expecting to cut rates. The world handed him the exact opposite situation. US headline CPI is sitting at 4.2%. Another completely missed data point in yesterday’s red-hot 6.5% PPI. The ECB just confirmed that energy-driven inflation is global, sticky, and not amenable to central bank tools when the underlying cause is a war. The market now prices a 33% probability of a Fed hike at the December meeting–up from essentially nothing in the beginning of last month. Warsh is probably going to hold on Tuesday. But the press conference will matter enormously. The ECB's move has just made it significantly harder for Warsh to say anything that sounds even remotely dovish with a straight face.
This is where I want to leave you this morning: patience is a position. 🧘:rest I know that's hard to hear when your newsfeed is screaming about SpaceX and peace deals and record highs. But the structural picture has not changed. Oil is still elevated. The Strait of Hormuz is not formally reopened under any binding agreement. The ECB just raised rates into a slowing economy and telegraphed more to come. The Fed is boxed. And the "peace deal" everyone is celebrating is a 60-day ceasefire extension that doesn't touch the one thing that started this whole mess.
Markets have a long and painful history of trading the bow rather than what's underneath it. The Millers–my favorite retired couple in suburban Ohio–don't need to be right on every headline. They need to not be wrong on the one that matters. Right now, the one that matters hasn't been resolved. Wait for it. 😌
YESTERDAY’S MARKETS
Yesterday's session ended sharply higher after President Trump cancelled planned strikes on Iran and signaled a deal was close, with the S&P 500 gaining 1.75%, the Nasdaq rising 2.54%, and the Dow surging more than 900 points to close at 50,841. The 10-year Treasury yield settled at 4.46%, largely unchanged on the day despite the ECB rate hike and a PPI print that came in well above expectations. WTI crude fell more than 3% to close near $85 a barrel on the ceasefire optimism, its lowest level since April. The ECB raised its deposit rate 25 basis points to 2.25%, its first hike since 2023.
NEXT UP
University of Michigan Sentiment (June) may have risen to 46.0 from 44.8.
Next week: housing numbers, Retail Sales, FOMC Meeting, and Leading Economic Index. Check back in on Monday and get situated for a busy week–this is no time to fall asleep.