SPEAKER_00 0:00

Yesterday, uh Alphabet and Tesla beat revenue expectations, but then their stocks just fell.

SPEAKER_01 0:05

Right, which is wild.

SPEAKER_00 0:06

Yeah. I mean, why? Because right now, standard corporate profits just well, they don't really matter. The whole global market is being hijacked by this massive, like invisible supply shock.

SPEAKER_01 0:18

Aaron Powell Yeah. We are basically looking at a geopolitical storm that is completely rewriting market mechanics. It's just overriding individual company fundamentals entirely.

SPEAKER_00 0:28

Aaron Powell Exactly. So our mission for today's deep dive is to really unpack how this geopolitical squeeze is, you know, rippling through everything. We're using the July 23, 2026 pre-market briefing from Eli Levy at Canon Trading Company.

SPEAKER_01 0:41

Aaron Powell And uh you can actually reach him at Eli at Canon Trading.com if you want to follow his insights directly.

SPEAKER_00 0:46

Aaron Powell Right. But uh before we get into the mechanics of all this chaos, here's a mandatory disclaimer for you. Disclaimer. Trading futures, options on futures, and retail off-exchange foreign currency transactions and other financial instruments involve substantial risk of loss and are not suitable for all investors. Past performance is not indicative of future results. Carefully consider if trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

SPEAKER_01 1:20

All right, so um let's start with the literal fuel for this fire, which is energy.

SPEAKER_00 1:24

Yeah, WTI crew just hit a six-week high near what, eighty six dollars and fifty cents?

SPEAKER_01 1:29

Yep, right around there. And we've got the U.S. on its twelfth night of strikes on Iranian targets.

SPEAKER_00 1:33

Wow, twelfth night.

SPEAKER_01 1:34

Right. Plus you have Houthi threats to the Bab Almandeb Strait, which is totally imperiling Saudi Arabia's petroleum workaround.

SPEAKER_00 1:41

Aaron Powell Okay, let's unpack this. RBC's Halima Croft warned that losing that route puts us in a quote, no way out situation.

SPEAKER_01 1:48

Aaron Powell Yeah. And it is crucial to understand the mechanism here. I mean, it's not just the raw price of crude spiking.

SPEAKER_00 1:54

No, it's not.

SPEAKER_01 1:55

No, because global refining margins are nearing record highs. The actual physical infrastructure is breaking down, you know, with ceasefires failing and Ukrainian strikes on Russian refineries.

SPEAKER_00 2:06

Aaron Powell So it's less like a blocked major artery and more like a cascading failure in the assembly line.

SPEAKER_01 2:13

Exactly.

SPEAKER_00 2:14

Like if the raw material gets bottlenecked at the refinery level, the cost of literally everything downstream just has to reprice.

SPEAKER_01 2:21

Which brings us right to the inflation domino effect. Since energy is the baseline input cost for the whole global economy, this supply shock bleeds directly into the bond market.

SPEAKER_00 2:31

Right. The 10-year treasury yield is pushing 4.63%.

SPEAKER_01 2:35

Yeah, and crucially, Fed funds futures are now pricing in a 61% probability of a rate hike in September.

SPEAKER_00 2:41

Wait, really? A hike? I have to challenge our logic. Weren't we just pricing in two rate cuts a few weeks ago?

SPEAKER_01 2:46

We absolutely were, but the sentiment flipped violently.

SPEAKER_00 2:49

Aaron Powell So like if global supply chains are fracturing, hiking interest rates won't magically produce more oil or reopen the Red Sea, right?

SPEAKER_01 2:56

Yeah.

SPEAKER_00 2:57

Why would the Fed hike into a supply-side shock?

SPEAKER_01 3:01

Aaron Ross Powell Well, if we connect this to the bigger picture, it's because of a mechanism called breakeven inflation.

SPEAKER_00 3:07

Aaron Powell Okay, what's that exactly?

SPEAKER_01 3:08

Aaron Powell It's basically the rate of inflation the bond market expects over the next few years. When energy costs spike, the market expects those costs to be passed down to you, the consumer.

SPEAKER_00 3:19

Ah, which drives up services inflation.

SPEAKER_01 3:21

Exactly. The Fed can't print oil, but they are forced to crush consumer demand to prevent an inflation spiral. That is why their upcoming language on services inflation is going to be so critical.

SPEAKER_00 3:33

Aaron Powell Oh, wow. So if the Fed is backed into a corner and forced to keep rates high, that just fractures the currency markets too.

SPEAKER_01 3:40

It really does. I mean, look at the Japanese yen.

SPEAKER_00 3:42

Right. It just collapsed to 163 to the dollar. That's its weakest level since 1986.

SPEAKER_01 3:46

Yeah, while safe havens like the Swiss franc and gold are just catching bids and surging.

SPEAKER_00 3:50

So what are the mechanics driving that massive split?

SPEAKER_01 3:53

Well, think about yield differentials. Investors are dumping vulnerable currencies like the yen because Japan's interest rates are just too low to compete with a hawkish US Fed.

SPEAKER_00 4:03

Makes total sense.

SPEAKER_01 4:04

And at the same time, you have the Swiss franc front-running gold. That capital reallocation isn't random, it is a textbook flight to safety.

SPEAKER_00 4:12

Right. It's like water rushing to one side of a sinking ship. Right. They aren't just selling stocks, they're violently reallocating to the sturdiest assets they can find.

SPEAKER_01 4:22

Exactly, to escape that Middle East risk premium. And it's not just finance, physical commodities are fracturing too.

SPEAKER_00 4:28

Yeah, Chicago wheat is up 16% this month simply because Russia restricted access to key Black Sea ports.

SPEAKER_01 4:35

So if you're looking at your portfolio, wondering why a solid earnings report didn't move the needle, well, this is the answer.

SPEAKER_00 4:41

Because Middle East supply risk is simultaneously repricing energy, metals, wheat, and foreign exchange. It's basically a massive headache for the Fed.

SPEAKER_01 4:50

Yeah, it's a true macro override.

SPEAKER_00 4:52

So as you process all of this, here is a provocative thought to chew on. If inflation shocks and geopolitical risks are accelerating at the exact same time, are traditional safe havens enough to protect your capital?

SPEAKER_01 5:03

Right, or do we need an entirely new definition of what risk-off actually means?

SPEAKER_00 5:08

Exactly. Something to keep in mind. Here is our closing disclaimer. Disclaimer. Trading futures, options on futures, and retail off exchange foreign currency transactions and other financial instruments involve substantial risk of loss and are not suitable for all investors. Past performance is not indicative of future results. Carefully consider if trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.