US and Iran Exchange Strikes as Inflation Cools

Military tensions between the United States and Iran escalated throughout mid-July 2026, characterized by a cycle of airstrikes and naval blockades. Donald Trump reimposed a naval blockade on Iranian ports and ordered strikes on targets including Qeshm Island. The U.S. military also responded to Iranian ballistic missile attacks on the AI-Azraq Air Base in Jordan and strikes on UAE tankers in the Strait of Hormuz. President Trump initially proposed a 20% transit fee for the Strait of Hormuz but later scrapped the levy in favor of trade deals with Gulf allies, while threatening to target Iranian power plants and bridges. Iran warned of an "existential war" in response to reports that the U.S. might deploy ground forces.

Simultaneously, financial markets rallied following a June Consumer Price Index report showing annual inflation cooled to 3.5%, down from 4.2% in May. This data, alongside a decline in the producer price index, reduced expectations for an immediate Federal Reserve interest rate hike. Federal Reserve Chair Kevin Warsh cautioned during congressional testimony that the decline did not mean "mission accomplished" and reaffirmed a 2% inflation target.

Corporate activity was mixed; major U.S. banks reported strong quarterly profits, and ASML Holding raised its 2026 forecasts. However, IBM shares plunged over 25% after CEO Arvind Krishna admitted the company failed to adapt quickly to shifting AI spending. In the fintech sector, PayPal shares surged on reports of a $53 billion acquisition bid from Stripe and Advent International.