Markets entered the week focused on geopolitical risk before inflation data shifted attention back towards monetary policy.

Renewed tensions in the Strait of Hormuz initially pushed oil prices higher and revived concerns that rising energy costs could force the Federal Reserve into further tightening. By mid-week, however, softer inflation data changed the narrative.

The week's biggest surprise came from inflation.

Both consumer and producer price data came in softer than expected, suggesting the recent conflict in the Persian Gulf has yet to translate into broader price pressures across the economy.

• Treasury yields moved lower
• The US dollar weakened
• Expectations for a July rate hike faded
• Markets now fully price one rate hike in December instead

The data reinforced the view that the Fed has room to remain patient while monitoring developments in energy markets.

Technology remained an important driver of market performance, although leadership continued to narrow.

Semiconductor stocks rebounded strongly following the CPI release before giving back some gains on Wednesday. Investors continue to support businesses positioned to benefit from long-term AI investment, but expectations remain high as earnings season begins.

The AI theme remains intact.

The market is becoming more selective about which companies will justify current valuations.

While inflation surprised to the downside, geopolitical risks remain elevated.

Fresh US airstrikes on Iran and continued disruption around the Strait of Hormuz kept energy markets on edge throughout the week. Although oil retreated below $80 per barrel after Tuesday's inflation report, the region remains a significant source of uncertainty for global inflation expectations.

For now, markets are taking reassurance from the data rather than the headlines.

• Geopolitics feeds into oil
• Oil feeds into inflation
• Inflation shapes Federal Reserve policy
• Fed policy shapes equity leadership

• Inflation is moderating despite geopolitical tensions
• Rate hike expectations have shifted further out
• Oil remains sensitive to developments in the Persian Gulf
• AI continues to lead, but investors are becoming more selective
• Markets remain driven by incoming data rather than headlines alone

For now, inflation is proving more influential than geopolitics.

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