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Summary:

Trump says the U.S. is prepared to launch a large-scale military operation if talks with Iran fail; oil prices fall 1% to a one-week low.

【Highlights】

1. The U.S. is prepared to launch a large-scale military operation if negotiations with Iran fail.

2. U.S. core capital goods orders post strong growth in June, with AI investment supporting second-quarter economic activity.

3. Japan's Prime Minister says the risk of slipping back into deflation has not yet been fully eliminated.

4. Oil prices fall 1% to a one-week low as investors assess the impact of the U.S. pause in military strikes against Iran.

5. ECB survey sends dovish signals as consumer inflation expectations ease and the 2026 growth forecast is nearly halved.

【Details】

U.S. Prepared to Launch a Large-Scale Military Operation if Talks with Iran Fail

On Monday, U.S. President Donald Trump told Axios that he had decided to suspend military strikes against Iran to give diplomacy one final opportunity. However, he warned that if negotiations fail, he will order the resumption of a large-scale military campaign.

The negotiations are being led primarily by Iran and Oman, with Qatar, Pakistan, Egypt, and Trump's special envoys Steve Witkoff and Jared Kushner playing key mediating roles.

When asked how much time he was willing to allow for diplomacy, Trump replied that the window would be short: either an agreement is reached quickly or the negotiations will be terminated.

Trump said he decided last Friday to pause the strikes after multiple mediating countries urged him to provide additional time for talks. "Every country involved in communicating with Iran told me not to use force," he said, adding that he believes Iran is willing to reach an agreement.

Explaining why he accepted the mediators' request, Trump said there was nothing to lose and no additional risk in doing so. He also noted that following the announcement of the pause in military action, international oil prices fell while equity markets rallied.

U.S. Core Capital Goods Orders Post Strong Growth in June, Supported by AI Investment

New orders for key U.S. capital goods rose strongly in June, while shipments recorded their largest increase in four and a half years, driven by increased corporate investment in artificial intelligence (AI), signaling that the U.S. economy maintained solid growth momentum during the second quarter.

Orders for non-defense capital goods excluding aircraft rose 0.9% month-on-month in June, exceeding economists' forecast of 0.8%. May's increase was revised upward to 1.9%.

Core capital goods shipments surged 1.9% in June following a 0.2% increase in May, marking the strongest monthly gain since December 2021.

Japan's Prime Minister: The Risk of Falling Back into Deflation Has Not Yet Been Fully Eliminated

Japanese Prime Minister Sanae Takaichi said that although Japan is currently experiencing inflation, the risk of slipping back into deflation has not yet been completely eliminated.

Takaichi stressed that Japan must move away from excessively restrictive fiscal policies, encourage domestic investment, and put the economy back on a sustainable growth path. She warned that delaying forward-looking investment would cause Japan to miss opportunities for long-term economic growth.

Oil Falls 1% to a One-Week Low as Investors Assess the U.S. Pause in Military Strikes Against Iran

International oil prices extended their decline on Tuesday. Brent crude futures fell as much as 1.2% to $87.40 per barrel, while U.S. WTI crude futures dropped 1.4% to $81.43 per barrel, with both benchmarks touching their lowest levels in more than a week.

Markets continued to assess the implications of the U.S. decision to suspend military strikes against Iran, which has increased expectations that diplomatic efforts could ease tensions and help restore Middle East energy supplies.

President Trump said on Monday that dialogue between the United States and Iran was progressing well and could lead to a resolution, while warning that airstrikes would resume if negotiations failed. Iran also issued similar retaliatory warnings.

Meanwhile, Yemen's Houthi movement is reportedly seeking to replicate Iran's control model over the Strait of Hormuz in the Bab el-Mandeb Strait. Although its ability to impose a full blockade remains uncertain, shipping traffic through both the Red Sea and the Strait of Hormuz has declined significantly.

Average net exports of crude oil and refined products through the Strait of Hormuz have fallen to 2.9 million barrels per day, down from 5.9 million barrels per day the previous week, indicating that traffic through the strategic waterway remains well below normal levels.

ECB Survey Signals Easing Inflation Expectations While 2026 Growth Forecast Is Nearly Halved

The European Central Bank's latest survey showed that consumer inflation expectations have eased and pricing pressures among businesses have moderated, suggesting that inflation persistence in the euro area is gradually weakening and creating more room for policy easing.

At the same time, the euro area's 2026 economic growth forecast has been sharply downgraded—nearly halved from the previous projection. Analysts believe this reflects the combined impact of the lagged effects of high interest rates, weak external demand, and ongoing geopolitical uncertainty.

The simultaneous decline in inflation and growth expectations presents the ECB with a policy dilemma. While improving inflation prospects strengthen the case for rate cuts, weakening economic growth suggests that relying solely on demand-side policy measures may not be sufficient.

Markets generally believe the survey reinforces expectations that the ECB could continue cutting interest rates later this year. If upcoming PMI and bank lending data weaken further, policymakers may come under increasing pressure to adopt a more accommodative stance.

Going forward, investors will closely monitor wage growth and inflation in the services sector. If both moderate simultaneously, the ECB's policy pivot could come sooner than current market pricing suggests.

【Today's Focus】

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