Highlights
Geopolitical tensions elbowed trade policy uncertainty out of the limelight in the week as Israel launched unilateral attacks on Iranian soil. Although fears of an Israeli strike on Iran—aimed at preventing the development of a nuclear bomb—have been growing for some time, the hope remained that diplomacy would prevail. It is still unclear why Israel has chosen to strike at this specific moment. The attack resulted in a spike in oil prices which created an extra negative shock for a global economy that was already weakening. In the short-term, higher oil prices translates to an uptick in inflationary pressures, further dampening the global economic growth prospects while adding another layer of uncertainty to an already complicated balancing act for the global Central Bankers. Without a doubt, the Iranian regime will seek to retaliate but the shape, form and scope of the retaliation remains to be seen. An escalation is seen to accelerate the rise in oil prices even further. Major indexes were broadly higher through Thursday, buoyed by some better-than-expected economic data releases as well as reports that trade talks between the U.S. and China had led to a preliminary agreement to ease recent trade tensions. However, the soured sentiment caused by the escalation in the Israel-Iran conflict saw the U.S and indeed the European indices give back the gains and close the week in the red. A higher-than-expected contraction in industrial output and a shrinking trade surplus in the Euro area steepened the losses in the equities markets while ECB officials hinted at a pause in policy rate cuts further dampening any bullish expectations in the European markets. In China, the consumer price index declined in May for the fourth straight month year on year, the country’s statistics bureau reported. Factory deflation continued for the 32nd straight month, with producer prices sinking the most in nearly two years, according to Bloomberg. Economists’ outlook for prices in China remains weak despite a more bullish view of the broader economy in the near term after Beijing and Washington agreed to a temporary tariff reprieve in May.
Data Highlights
In the U.S, the Consumer Price Index rose to 2.4% in April from 2.3% in the previous month, lower than market expectation of 2.5%. Produce Price Index in the U.S for May increased by 0.1%, falling short of analysts’ expectations of a 0.2% rise. U.K unemployment rate in April was reported at 4.6% which matched market expectations. The GDP in the U.K shrank by 0.3% in April, much higher than the -0.1% expectation by analysts.
Week Ahead
Bank of Japan Interest Rate Decision, U.S Retail Sales YoY – Tuesday | Core Inflation Rate YoY, Eurozone Consumer Price Index, U.S Fed Interest Rate Decision – Wednesday | Australia Unemployment Rate – Thursday | Japan Inflation Rate – Friday.
