In 30 seconds: The S&P 500 and Dow hit new milestones following a strong Q2, with historical data suggesting continued gains ahead and markets repricing the Fed's 2026 rate path as less hawkish. China's expanding trade surplus, driven by subsidized industrial machinery and depressed domestic refinery utilization, is intensifying competitive pressure on European manufacturers including Germany's Mittelstand. Brad Setser and Adam Tooze debate the structural shift in global dollar flows toward return-seeking private capital rather than official reserves, raising questions about long-term US current account sustainability. Saudi Arabia cut the official selling price of Arab Light crude to Asia to minus $1.5 per barrel versus the Dubai benchmark, the steepest discount since the 2020 COVID-era price war.
The S&P 500 closed at 7537.4302 on 2026-07-06, up 0.7242% on the day, and the Dow crossed above 53,000 for the first time, marking its fifth 1,000-point milestone of the year. If you are the sort of person who finds round numbers meaningful, this is your moment. The more interesting question is what happens next. The P/E is lower today than Jan 1, which suggests earnings growth is doing the heavy lifting rather than multiple expansion. Mega-caps (excluding semis) bounced, with Apple and Microsoft each rallying more than 10% over the last five trading days. Markets continue to reprice the Federal Reserve's 2026 policy path as less hawkish. Gold settled at $4,173.50, up 1.48% on the session.
Chinese technical achievements are real, but they emerged from a political context that provided a favorable domestic environment and access to cheap capital. Whenever a Chinese sector succeeds globally, it isn't hard to find evidence of the hidden hand of the Chinese state. The pressure is not confined to tunnel boring. The debate over how to respond to the China shock isn't going to go away, because the shock is broadening — and in the auto sector, it is expanding in scale with fading internal demand. The weekend Wall Street Journal ran a powerful article highlighting the stress China's current export boom is placing on Germany's Mittelstand. Europe (or a European think tank) should take a serious look at what the loss of specialized skills at making industrial machinery in the Mittelstand would mean for Europe's defense industrial base. Chinese state-owned refinery utilization rates slid from ~83% in early March to 66% in May, recovering only slightly to ~68% by the end of June. Chinese state-owned refinery run rates have seemingly bottomed but remain acutely depressed vs normal levels. Europe is trying to respond. EU Trade Commissioner Maroš Šefčovič met with his Chinese counterpart Wang Wentao to address the bloc's trade deficit with China. But the options are constrained: China will retaliate if pushed too far by Europe. So you get a trade negotiation where one side needs to act and the other side has promised consequences if it does. That is not a great setup for a deal.
The same structural forces driving China Export Surge Pressures European Industry are also a factor in Dollar System Stability and Global Capital Flows.
The global financial system, in other words, is now built around the hope that US will deliver exceptional returns, not safety or necessarily liquidity. The profit-driven support for the dollar is characterized as new — not merely another bubble. State asset accumulation has not disappeared. But the composition has changed: most of that flow now targets institutions seeking return, not just safety and liquidity. Nominal yield on corporate bonds: 5%. Bretton Woods II didn't prove to be financially stable. It required intermediation between US mortgage risk and the 'safe' assets reserve managers wanted. The resulting inflow into Agencies and offshore dollar deposits (which indirectly supported European banks buying private label MBS) didn't prove to be stable. The pre-crisis risk was insufficient safe assets relative to inflated reserve demand.
Saudi Arabia has now priced Arab Light at minus $1.5 a barrel to the Dubai benchmark for Asia delivery — a discount this deep has only appeared twice in the last 25 years. Saudi Arabia has offered Arab Light to the Far East at minus $1.5 a barrel or cheaper only twice in the last 25 years — once during the 2015 price war against US shale, and again in 2020 during the price war against Russia. The last two times Saudi Arabia priced Arab Light at minus $1.5 a barrel or cheaper for Far East delivery, it was fighting a price war — once against US shale in 2015, and once against Russia in 2020. Saudi Arabia has now slashed the official selling price for Arab Light to Asia, pricing those barrels at minus $1.5 a barrel to the Dubai benchmark — the largest discount since mid-2020.
Here is what your weekly spend looks like right now.
Gas (per gallon): $3.83, down 2.12% on the week
Groceries (CPI food at home): 345.71, up 0.15% on the month
Eating out (CPI food away from home): 348.89, up 0.16% on the month
Average hourly earnings: $37.64, up 0.35% on the month