The Averaging Error.

Executive Summary

The 15 and 16 July data cluster delivered, on the surface, three cool prints. June producer prices fell 0.3 per cent on the month and stood 5.5 per cent higher on the year, extending the June consumer-price decline. June retail sales rose 0.2 per cent, weighed down by a 5.3 per cent fall in gasoline station receipts. The market rewarded the trio. The S&P 500 closed at 7,533.77 on Thursday, roughly 10 per cent year to date. The VIX sat at 16.73. Spot gold traded near $4,010 per ounce, an eight-month low. CME FedWatch cut the probability of a 25 basis point Fed hike by September to 44 per cent, from 51 per cent one week ago. The same window produced three reheating signals with materially longer half-lives. Weekly initial jobless claims fell to 208,000, the lowest in ten weeks. The Empire State manufacturing survey jumped ten points to 15.6, with new orders at 22.2 and input and selling prices still elevated. Chair Warsh, in his first Senate Humphrey-Hawkins testimony on 15 July, told the Committee his colleagues had "no tolerance for persistently elevated inflation" and declined forward guidance. And between the 14 and 16 July closes, Iranian cruise missiles struck two very large crude carriers in the southern approach to Hormuz, US Navy Hellfire missiles disabled a Curacao-flagged tanker near Kharg Island, the US reinstated its naval blockade of Iran, and President Trump publicly weighed seizing the terminal that handles roughly 90 per cent of Iran's crude exports. The market averaged those six prints and landed on soft landing. In our view the reheating three carry forward and the cooling three do not. We expect the June energy-line disinflation to reverse over the medium term, as the physical premium works through delivered barrels and back into CPI and PPI energy over the coming print series rather than in any single release; we expect the Fed to follow its own June projection with a 25 basis point hike no later than the October meeting; and we retain and marginally reinforce our overweight to gold and to selective non-US equity, funded from crowded US exposure.

Since last month

Our June note argued that the ceasefire would not hold, that the Fed would tighten before it eased, and that the pass-through of producer prices to consumer prices was pending. The first two calls have played out. The truce broke on 8 July, Kevin Warsh doubled down on the inflation objective in back-to-back testimony to the House on 14 July and the Senate on 15 July, and the front end has begun re-pricing (the two-year yield at 4.16 per cent on 16 July close, from 4.28 per cent on 14 July). The third call was wrong on the June data itself and remains right on mechanism. June headline CPI fell to 3.5 per cent from 4.2 per cent and June headline PPI fell to 5.5 per cent from 6.5 per cent, but the drops on both sides were dominated by energy: consumer energy prices fell 5.7 per cent on the month and producer energy prices fell 6.4 per cent on the month, with final-demand gasoline PPI down 12.0 per cent. Strip out the energy line and neither series moved. Core CPI was flat on the month at 2.6 per cent on the year; core PPI ex food, energy and trade services rose 0.1 per cent on the month for a 5.1 per cent annual pace, unchanged from May. Our gold call remains under water in the short run, with spot at approximately $4,010 per ounce on 16 July from roughly $4,275 at the time of the June note; we are using the drawdown to marginally add. Central banks bought June aggressively, and Section 3 documents what they did. Our volatility call has not been earned, and we do not raise it further.

1. Three prints the market weighted, three it should have.

The consensus this week has treated three data points as evidence that the June disinflation is durable. Each is real. None of them clears the bar.

June PPI fell 0.3 per cent on the month, taking the annual rate to 5.5 per cent from 6.5 per cent. Final-demand energy PPI fell 6.4 per cent on the month; final-demand gasoline PPI fell 12.0 per cent; foods fell 0.6 per cent. Core final demand ex food, energy and trade services rose 0.1 per cent on the month, versus 0.8 per cent in May, and 5.1 per cent on the year, unchanged.

The headline decline is essentially the June ceasefire window travelling through the wholesale channel. The core is where the wedge lives and the wedge did not close.

June retail sales rose 0.2 per cent on the month (per the US Census Bureau advance release of 16 July). The number was dragged lower by a 5.3 per cent fall in gasoline station receipts, itself a price effect from the ceasefire-window slide in retail gasoline. Gasoline stations account for roughly 8 per cent of total retail sales. By our arithmetic, retail sales excluding gasoline stations rose approximately 0.6 to 0.7 per cent on the month. That is a consumer holding up, not softening, once the pump-price effect is neutralised.

Weekly initial jobless claims fell to 208,000 for the week ended 11 July, the lowest reading in ten weeks and 9,000 below the Bloomberg survey median of 217,000. The four-week average dropped to 214,250. Continuing claims fell 16,000 to 1.805 million. The labour-market side of the Fed's mandate is not softening; it is tightening at the margin.

Against this three-print backdrop, CME FedWatch cut the probability of a 25 basis point hike by the September FOMC to 44 per cent from roughly 51 per cent one week ago, with a further 4.7 per cent probability of a 50 basis point move. The two-year Treasury yield has slipped to 4.16 per cent from 4.28 per cent on 14 July close, and the VIX has fallen to 16.73 from 17.16. This is a market pricing full disinflation.

It is doing so at the exact moment three underlying reheating signals arrived in the same 48 hours.

Empire State manufacturing, released 15 July by the Federal Reserve Bank of New York, jumped ten points to 15.6, well above the 8.8 consensus. New orders rose to 22.2 from 3.5, shipments to 24.4 from 8.6, employment continued to grow for a sixth consecutive month, and the survey noted that the pace of input and selling price increases "remained elevated but slowed slightly". Elevated slowed slightly is not disinflation; it is continued cost pass-through with narrowing margins.

Chair Warsh's Senate testimony, 15 July, made the direction of policy explicit while withholding forward guidance. He told the Committee his colleagues "have no tolerance for persistently elevated inflation", that the FOMC shares "a resolute commitment to restoring price stability", and that the June improvement was "not mission accomplished". He confirmed the federal funds range at 3.50 to 3.75 per cent and closed with "if we get policy right, and we will, the inflation surge of the last five years will be a thing of the past". This is not the language of a Chair preparing the ground to ease; it is the language of a Chair marking time until the data breaks in the direction of his own June projection, which is a hike.

The physical energy premium, discussed in Section 2, reset while the CPI and PPI were being printed.

The three disinflation prints all ran on the same ceasefire-window energy episode. The three reheating signals all point forward. A market that averages the six and lands on soft landing is a market that has taken a photograph of one four-week period and mistaken it for a trend.

2. The delivered barrel the futures screen still cannot see.

Between the 14 and 16 July closes, four discrete events reset the physical oil market. On 14 July, Iranian cruise missiles struck two Liberia-flagged very large crude carriers, the Mombasa B and the Al Bahyah, in the southern shipping lane of the Strait of Hormuz in Omani waters. One Indian crew member was killed on the Mombasa B; eight others were injured, four critically. That evening CENTCOM announced the reinstatement of the naval blockade that had been suspended during the June ceasefire. On 15 July, US Navy Hellfire missiles disabled the Curacao-flagged empty tanker M/T Belma near Kharg Island in the first enforcement strike under the reinstated blockade. Also on 15 July, President Trump reversed his previously announced 20 per cent Hormuz-transit cargo fee and, per multiple wire reports, publicly weighed seizure of Kharg Island, the terminal that handles roughly 90 per cent of Iran's crude exports.

Front-month Brent finished 16 July at $84.63 per barrel, down 0.37 per cent on the day, roughly one dollar below the 14 July high of $86.35. The screen is under-pricing the delivered barrel, and it is doing so in the same way it did in March. The insurance market, the tanker market and the physical differential market do not average the ceasefire with the post-ceasefire; they re-price on incident.

The Hormuz delivered-cost stack, mid-July 2026

Sources: Lloyd's List and Seatrade Maritime News for VLCC rates; Willis Towers Watson and Lloyd's List for war-risk premia; MarineTraffic data for transit counts. Data as of mid-July 2026.

The arithmetic is unhurried and public. A very large crude carrier moving two million barrels of Gulf crude to an Asian refinery now carries incremental war-risk insurance on the order of $1.5 million to $4.5 million per voyage, or roughly $0.75 to $2.25 per barrel. Over a 20-day round-trip at daily earnings of $470,000, versus a 2025 average near $45,000, incremental freight is roughly $8.5 million, or about $4.25 per barrel. The delivered-cost premium versus a Brent front-month of $84.63 sits on the order of $5 to $6.50 per barrel, before any physical-quality premium. Middle East sour differentials to Dubai/Oman re-tightened after the July escalation, having briefly softened during the ceasefire when Saudi Aramco cut its Arab Light official selling price by six dollars for July loadings. In plain terms, the barrel arriving in Chinese and Korean refineries in late July and August is being paid for at approximately $90 to $92 per delivered barrel, not $84.63. Every refined-product price references delivered cost. The US CPI and PPI energy lines capture this on a lag, and, in our view, the June disinflation reverses over the coming print series in the medium term rather than in any single release. We do not stake the thesis on the 12 August CPI number alone; we stake it on the direction of the next several.

The Kharg escalation is the largest single upside risk to that view. Kharg terminates roughly 90 per cent of Iran's crude exports. A seizure would remove approximately 1.5 million barrels per day from the global supply pool. It is not our base case. It is the reason we are not scaling back the underlying position on a two-dollar Brent pullback.

3. Central banks bought the drawdown. The June print made it explicit.

The World Gold Council's Central Bank Gold Statistics release for June, published 8 July 2026, is a source almost no client-facing note reads directly. The data is emphatic.

The People's Bank of China purchased 15 tonnes of gold in June 2026, its largest single-month acquisition since October 2023. The purchase was made while spot gold traded near an eight-month low around $4,000 per ounce. The Monetary Authority of Singapore added 4 tonnes, its first monthly net purchase since September 2025, taking Singapore's official holdings to 197 tonnes. The Czech National Bank added 2 tonnes and the Central Bank of Jordan added 1 tonne. On the sell side, the Central Bank of Russia sold 6 tonnes and the Central Bank of the Republic of Turkey sold 3 tonnes, taking the reported net for June to roughly 13 tonnes. That understates the buying. China's monthly purchases have compounded to 2,346 tonnes across more than twenty consecutive months. And the Council's most recent Central Bank Gold Reserves Survey, published June 2026, found a record 89 per cent of respondents expecting global gold reserves to rise over the next twelve months and a record 45 per cent expecting their own institution to add.

The market read is that gold has failed on a three-month view: the metal has round-tripped from a January record near $5,600 per ounce to approximately $4,010 on 16 July, close to unchanged for the year. The strategic read is that the reserve bid does not price at spot. In the drawdown from $5,600, the largest strategic buyer accelerated its monthly purchase to the highest in nearly three years and a new sovereign buyer opened a position. This is the bid that funds itself on setbacks. It does not disappear at $4,000; it appears at $4,000.

4. Portfolio positioning.

Our positioning is unchanged in direction from the June note. On this note we marginally reinforce two of the three overweights (gold and selective non-US equity), funded from continued underweighting of the crowded US market. The volatility position is retained but not increased.

Gold remains our largest single allocation and we are adding on this drawdown. The June WGC print above is the reason: the strategic buyer we are following is not price-sensitive to the last two hundred dollars, is buying at the drawdown low, and answers to a political mandate on reserve composition rather than a mark-to-market clock. Our marginal add sits in the $3,950 to $4,050 zone that the PBoC bought in June.

Equities. We remain underweight the crowded US market and are marginally adding to two of our non-US overweights, funded from that US exposure. The S&P 500 closed at 7,533.77 on 16 July, roughly 10 per cent year to date. The Swiss Market Index continues to run near 19 per cent year to date, well ahead of the US, and we are lifting the SMI weight modestly on this note. Brazil remains our decoupling trade and we are lifting the Ibovespa weight modestly as well: the Selic sits at 14.25 per cent following the Copom decision of 16 to 17 June (the third consecutive 25 basis point cut since the easing cycle began in March), and June IPCA at 0.16 per cent on the month came in well below consensus. Brazil is easing into disinflation while the Fed, the European Central Bank and the Bank of Japan tighten into a supply shock. China exposure remains structurally underweight against consensus, and we do not add here: per Goldman Sachs 2026 research the country accounts for roughly $4 trillion of an estimated $34 trillion global AI market capitalisation (roughly 10 per cent) and contributes about 16 per cent of sector revenue, against a global-fund technology allocation of about 1.2 per cent as of January 2026. The mismatch is the trade.

Fixed income. We continue to avoid US duration. The two-year at 4.16 per cent and the ten-year at 4.57 per cent do not compensate for a Fed carrying a projected hike in its own June dot plot and a physical energy premium re-loading through delivered barrels. If anything, the front-end move from 4.28 per cent to 4.16 per cent this week is the wrong direction and, in our view, will not be sustained as the energy pass-through works through the medium-term print series. We take the funding for our gold and non-US equity adds from continued US-duration underweight and from the crowded US equity book.

Volatility. We continue to expect higher realised volatility than the market prices. The VIX at 16.73 discounts a live Iranian conflict, a hawkish Fed Chair, a producer-price series still running at 5.5 per cent on the year, and an inflation setup with more upside than downside surprise capacity across the next two prints. The call has not been earned this cycle; we do not raise the position and we do not cut it.

5. Conclusion.

The controlling contradiction of this note is a market averaging three cool prints against three hot signals arriving inside the same 48 hours and landing on soft landing. The disinflation cluster ran on a ceasefire-window energy episode that inverted on 14 July with cruise-missile strikes on VLCCs in Hormuz. The reheating cluster runs forward.

The bull case requires three specific outcomes to hold together. The Kharg escalation must de-escalate in weeks, not quarters, so that freight, insurance and physical premia collapse before they reach refined-product prices. The CPI and PPI energy lines must fail to reheat over the coming print series. The Fed must ignore its own June projection of a hike and read the current setup as behind rather than ahead. Each individually is plausible. In our view the joint probability, on a medium-term horizon, is meaningfully lower than the market is pricing today at a VIX of 16.73, a two-year yield of 4.16 per cent, and a September FedWatch hike probability of 44 per cent. We are positioned for the more likely path, and we have used this month's data to marginally reinforce our overweight to gold and to selective non-US equity, funded from crowded US exposure.

Important Information

This document is a research note prepared by Ryan Lemand, Founder and CEO of the Neovision Group, for institutional and professional clients. It is not investment advice, an offer, or a solicitation to buy or sell any security or financial instrument. All figures cited are sourced from public information. The Neovision Group comprises Neovision Wealth Management Limited (regulated by the Financial Services Regulatory Authority in the Abu Dhabi Global Market), Neovision Investment Fund Management (NIFM, regulated by the Capital Markets Authority in the onshore UAE), and Héritage Riviera SA (regulated by FINMA in Switzerland).

Sources referenced in this month's note include: US Bureau of Labor Statistics (June 2026 CPI release of 14 July and June 2026 PPI release of 15 July); US Census Bureau (Advance Monthly Retail Trade Report for June 2026, released 16 July); US Department of Labor (Unemployment Insurance Weekly Claims release of 16 July); Federal Reserve Bank of New York (Empire State Manufacturing Survey, July 2026); Federal Reserve Board (Chair Warsh testimony to the House Financial Services Committee on 14 July 2026 and to the Senate Banking Committee on 15 July 2026); CME Group FedWatch Tool; World Gold Council (Central Bank Gold Statistics release of 8 July 2026 and Central Bank Gold Reserves Survey 2026); Bloomberg; CNBC; Reuters; NPR; CBS News; CNN; Lloyd's List; Seatrade Maritime News; MarineTraffic; Willis Towers Watson; TradingEconomics; S&P Dow Jones Indices; Yahoo Finance; SIX Swiss Exchange; Banco Central do Brasil; Goldman Sachs Global Investment Research. Market data as of close, 16 July 2026, unless otherwise stated. Forecasts and views expressed represent the opinion of the author at the date of publication and are not guarantees of future outcomes. Past performance is not indicative of future results.