Greetings,

Big banks' Q2 earnings aren't just stealing the headlines for trading-heavy outperformance -- they're providing key insights in what's to come on inflation. More on that below.

Also in this edition:

• KPMG Australia to cut jobs, partner pay after information scandal
• Business fight back on Pentagon contractor dividend restriction
• Tariff refunds force a $120B budget deficit in June
• AI in finance: Who is responsible for errors?

JPMorgan Chase, Bank of America, Wells Fargo and Goldman Sachs are set to report earnings, providing insight into how banks are navigating renewed conflict in Iran, rising energy prices and persistent inflation. Investors are expected to pay close attention to executives' comments on the broader economic environment.

The US Chamber of Commerce and 40 other business groups are lobbying to remove a provision from the National Defense Authorization Act that would restrict Pentagon contractors from stock buybacks and paying dividends without Defense Department approval. The provision, Section 815, aims to curb underperforming contractors and follows an executive order from President Donald Trump.

KPMG reportedly plans to lay off hundreds of employees and cut partner pay by as much as 20% in Australia in response to allegations that the company used confidential client details to win business, according to the Australian Financial Review. The layoffs could reach 1,000, but KPMG is not expected to announce them until the appointment of a permanent CEO.

The consumer price index declined 0.4% from the prior month in June, marking the sharpest monthly drop since April 2020. The CPI rose 3.5% from the prior year, and a core measure climbed 2.6%.

Higher-for-longer interest rates are emerging as a key pressure point for private credit as floating-rate borrowers remain stuck with near-peak debt-servicing costs. Market participants said stress is showing through payment-in-kind interest, maturity extensions and covenant relief, creating sharper dispersion between lenders and exposing weaker companies with thin margins and limited pricing power.

Tariff refunds deemed illegal under International Emergency Economic Powers Act have resulted in a federal budget deficit of $120 billion for June, a sharp contrast to a $27 billion surplus a year earlier. The refunds began in May after a Supreme Court ruling, with June refunds totaling $49.2 billion, more than double the previous month.

The Financial Modeling Global Leaders Council, formed by the Financial Modeling Institute, is divided on who should be responsible when AI-assisted financial models cause errors. While 25% of council members believe the human modeler should bear primary responsibility, others advocate for shared accountability (22%), the organization itself (21%), or the model owner/sponsor (19%).