Markets welcomed cooler inflation and blockbuster bank earnings. IBM paid the price for AI capex shifts. Trump dropped the toll. DeepSeek accelerated.
MARKET PULSE
Inflation Cooled. Banks Crushed It. IBM Had Its Worst Day Ever.
June CPI came in well below expectations. July rate hike odds collapsed from 42 percent to 16 percent in a single morning. The Nasdaq closed up 1 percent. Goldman Sachs (GS) rose over 9 percent on record equity trading revenue.
Then IBM fell over 25 percent. Worst intraday decline in company history. Customers shifted spending away from IBM software toward AI hardware and memory chips. One spectacular earnings day and one historic warning, both caused by the exact same AI buildout.
Investor Signal
The soft CPI print and record bank earnings tell a clean story. The economy is holding. Inflation is cooling faster than feared. The AI capital cycle is generating real revenue for banks and real disruption for legacy software. Whether IBM's warning is company-specific or the start of a broader software reckoning is the question every enterprise software investor woke up asking.
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MACRO WATCH
CPI Cooled Sharply. Warsh Pledged "Regime Change." July Hike Odds Collapsed.
June CPI fell to 3.5 percent annual, well below the 3.8 percent consensus. Core inflation came in flat for the month. The print gave Warsh room he didn't expect when he sat down before Congress.
Warsh pledged "regime change" in Fed policy. He called the AI buildout "the most striking feature" of the current economy. He kept his disinflationary AI framing and gave nothing away on July.
One detail worth understanding though. Computer software and accessories prices rose over 17 percent year-over-year in June. Largest gain on record. The AI buildout is showing up in CPI while Warsh argues AI will ultimately reduce inflation.
The CPI Tension
Annual CPI at 3.5 percent versus 3.8 percent expected
Core CPI flat for the month versus 0.2 percent expected
Computer software prices up 17 percent year-over-year, largest on record
July hike odds fell from 42 percent to 16 percent after the print
The Senate Testimony Signal
Warsh testifies to the Senate Banking Committee tomorrow. Any softening of his disinflationary AI framing names the FOMC consensus as shifting. Doubling down confirms the framework holds into July 28-29.
BANKING WATCH
JPMorgan Posted a Record Quarter. Goldman Set an Equity Trading Record.
JPMorgan (JPM) reported $21.2 billion in quarterly profit. Record. Equity trading surged 86 percent. Investment banking fees up 30 percent. Goldman Sachs posted equity trading revenue of $7.42 billion, up 72 percent year-over-year. Investment banking fees up 55 percent. Goldman advised on over $1 trillion of M&A in the first half alone.
Both banks were lead underwriters on the SpaceX IPO. Iran-driven volatility in oil, rates, and currencies added a second trading windfall on top. Dimon said results are "getting close to as good as it gets." He also said the bank has cut jobs 30 to 40 percent in some areas while retraining staff. The AI economy is delivering record profits and eliminating roles in the same quarter.
The Commercial Lending Signal
Regional bank prints over the next two weeks will show whether AI capex is spreading into the broader industrial economy or staying concentrated in Wall Street fee lines.
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TECH WATCH
IBM Had A Bad Tuesday. Customers Chose Memory Over Software.
IBM (IBM) fell roughly 24 percent. CEO Arvind Krishna said customers shifted quarterly capital spending away from IBM software toward servers, storage, and memory chips in late June to lock in supply before anticipated price increases. "We did not anticipate the magnitude of the capex reprioritization."
This is the same dynamic Apple named when it said iPhone price increases were unavoidable due to memory costs. And the same behavior Salesforce's customers started showing when enterprises stopped buying software seats and started buying AI infrastructure instead. IBM just put it in a profit warning.
The Software Reckoning Signal
IBM mainframe revenue expected to fall 7 percent versus a low-single-digit decline
Salesforce KeyBanc downgrade last week named the same capex shift
Oracle, ServiceNow, and Workday report in the coming weeks
Enterprise customers chose hardware in June. Whether software spending returns in Q3 is the question.
If Oracle or ServiceNow names similar capex reprioritization, IBM is the first in a sector-wide pattern. If both report normally, IBM is a company-specific failure. That distinction separates a correction from a reckoning.
The Category Risk
IBM's miss was not about losing customers. It was about timing. CIOs chose to spend on hardware in June instead of software. Whether that spending comes back is what every enterprise software investor is now modelling.
ENERGY WATCH
Trump Walked Back the Hormuz Toll. The Shipping Industry Had Already Rejected It.
Trump reversed the 20 percent Hormuz cargo toll after the global shipping industry publicly called it "fundamentally wrong." WTI pulled back from its peak but stayed elevated over $79. Only 14 ships crossed Hormuz on Sunday versus 37 the week before.
The toll lasted roughly 24 hours before being rejected by Iran, the shipping industry, and international maritime law simultaneously. BIMCO estimated the fee would cost roughly $27 million per large crude tanker. Iran's foreign minister mocked it publicly. Then Trump pulled it back.
The underlying conflict has not changed. Hormuz traffic is still collapsing. Gasoline and diesel futures are up roughly 75 percent year-to-date from both Hormuz and Russian refinery drone strikes. A toll reversal does not fix any of that.
The Route Diversion Signal
Major shipping companies announcing permanent Hormuz route diversions within 30 days confirms the strait as institutionally impaired for the rest of the year. Continued normal routing names the low traffic as fear-driven rather than structural. The difference is roughly $10 per barrel of WTI over the next quarter.
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AI WATCH
DeepSeek Is Preparing an IPO. Chinese Open Models Now Lead Global Downloads.
DeepSeek is preparing an IPO filing as soon as this year, targeting a valuation of at least $71 billion. Chinese open-weight models now account for 41 percent of downloads on Hugging Face, surpassing U.S. models. On OpenRouter, the top six most popular models are all Chinese open-source. Anthropic's Claude sits in seventh.
Open-weight models are free to download, run, and modify. They cost a fraction of closed models like Claude or GPT. DeepSeek's IPO preparation at $71 billion names the institutional bet that open-source AI wins the enterprise market.
The Open Source Shift
41 percent of Hugging Face downloads now from Chinese open models
Top six OpenRouter models all Chinese open-source
Half of Fortune 500 companies already use Hugging Face to deploy AI
DeepSeek targeting $71 billion valuation ahead of a 2027 IPO
The IPO Valuation Signal
DeepSeek's next private round pricing above $71 billion confirms institutional appetite for the open-source thesis. A discount names sanctions risk as material. Either outcome lands directly in the valuation debate for Anthropic and OpenAI's fall IPO filings.
CLOSING LENS
Inflation cooled and July hike odds collapsed. Banks posted record quarters powered by SpaceX and Iran war trading. IBM had its worst day ever because customers chose memory chips over software. Trump walked back the Hormuz toll after the shipping industry rejected it in real time. And DeepSeek is preparing an IPO into a market where Chinese open models already lead on developer downloads.
The AI capital cycle generated record profits and IBM's worst session in history on the same day.
