Take Five: Time to cool down?
LONDON, June 20 (Reuters) - Rising oil prices, Middle East tensions, a NATO meeting and a testimony by the U.S. Federal Reserve chief all vie for market attention in the days ahead.
Here's your heads up on the week in world markets from Alden Bentley in New York, Kevin Buckland in Tokyo, Amanda Cooper and Lucy Raitano in London and Andrew Gray in Brussels.
The Israel/Iran war has lit the fuse for a possible oil supply shock for investors. Brent crude has topped $75 for the first time since January .
For now, there are no signs of disruption to output. Iran produces around 3.3 million barrels a day and exports around half that, according to Reuters and LSEG calculations, a fraction of the world's roughly-100 million barrels in daily consumption.
A shortfall in Iranian barrels, while jarring to markets, could be offset by other OPEC countries tapping spare capacity to fill that void. What markets are more worried about is Iran blocking the Strait of Hormuz, through which some 20% of total daily crude supply passes. Analysts say it's unlikely.
But a lot of things that were considered unlikely six months ago and are now a reality. Market volatility has room to pick up.
European foreign ministers were set to meet their Iranian counterpart on Friday aiming to create a pathway back to diplomacy over its contested nuclear programme despite the U.S. considering joining Israeli strikes against Iran.
NATO aims to keep Donald Trump happy, hold the alliance together and agree a big new spending target in The Hague.
It's also hoping the Israel-Iran conflict won't overshadow Wednesday's summit.
Trump lambasted NATO members in his first term and threatened to quit the military alliance if they did not raise defence spending.
Now, NATO boss Mark Rutte wants all allies to commit to Trump's proposed target of 5% of GDP.
To do that, NATO will interpret defence more broadly.
It would hike its current target of spending 2% of GDP on traditional defence – weapons, troops etc – to 3.5%.
And members would spend at least 1.5% of GDP on broader measures such as adapting roads, bridges and ports to handle military vehicles and protecting against cyber-attacks.
Only Spain is publicly opposing the new target.
Due to the focus on pleasing Trump, Ukrainian President Volodymyr Zelenskiy may have to settle for a seat at the pre-summit dinner rather than the meeting itself.
Markets will look to Fed boss Jerome Powell to elaborate on what his expectation for "meaningful" inflation means for the rate outlook when he testifies before Senate and House committees on Tuesday and Wednesday.
Powell told reporters after the Fed's June meeting that goods price inflation is coming as tariffs work their way to consumers.
Having stressed that a solid expansion continues, Powell could also be asked how a further Middle East escalation impacts inflation.
Thursday's final read on first quarter GDP meanwhile should confirm that the economy shrank. The Fed's favorite inflation indicator, the Personal Consumption Expenditures Price Index for May on Friday, will be read through the lens of the Fed's decision to leave rates alone, while predicting two cuts this year.
A month ago, Japanese government bond yields surged to record peaks as investors baulked at auctions and the prime minister ill-advisedly compared Japan's fiscal predicament to Greece's.
Now, things couldn't look more different thanks to some deft team play between the Bank of Japan and Ministry of Finance.
Just days after the BOJ tweaked its bond taper plans to keep buying more of the super-long debt at the heart of the yield spike, the finance ministry presents a plan to cut issuance of the longest-dated securities.
The BOJ's dovish tone on future rate hikes has also helped keep yields in check this week, although Governor Kazuo Ueda left the door open to policy tightening this year by highlighting the risks from broadening price pressures.
Tokyo CPI for this month and published on June 27 will give fresh hints on how soon the central bank may need to act.
U.S. President Donald Trump's reciprocal tariffs initially led to order front-loading, supporting global business activity, but that is fading fast with global recession creeping back up.
With little forward guidance from companies, economic indicators are more vital than ever for markets, and a raft of them hit screens in days to come.
Monday brings the first release of June business activity for a host of economies including the euro area, Britain and the United States.
Hopes are for better news from the euro zone after May's PMI slipped to 50.2 from 50.4 in April, moving closer to the 50 mark that separates a contraction from an expansion.
Particularly concerning was the bloc's dominant services sector contracting for the first time since November. Meanwhile in the UK, the May PMI showed the services sector returning to tepid growth.
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Reuters
25 minutes ago
- Reuters
Morning Bid: Relief at two-week Middle East window
LONDON, June 20 (Reuters) - What matters in U.S. and global markets today I'm excited to announce that I'm now part of Reuters Open Interest (ROI), opens new tab, an essential new source for data-driven, expert commentary on market and economic trends. You can find ROI on the Reuters website, opens new tab, and you can follow us on LinkedIn, opens new tab and X., opens new tab Last month's China-U.S. trade showdown turned world markets' focus to Geneva, and that's where attention is yet again, only this time for European talks with Iran, as President Donald Trump has delayed a decision on direct U.S. involvement in the Israel-Iran war to allow a two-week window for negotiations. It's Friday, so I'll provide a quick overview of what's happening in global markets and then offer you some weekend reading suggestions away from the headlines. Today's Market Minute * Iran said on Friday it would not discuss the future of its nuclear programme while under attack by Israel, as Europe sought to draw Tehran back into negotiations and the United States considers whether to get involved in the conflict. * Investor unease about an increasingly uncertain environment is rising, as Norway's shock rate cut on Thursday highlights how U.S. tariffs, Middle East conflict and a shaky dollar make global monetary policy and inflation even harder to predict. * The Federal Reserve took a slightly hawkish turn on Wednesday, indicating it is worried more about rising inflation than slowing growth. But Chair Jerome Powell suggested this outlook should be taken with a large grain of salt, writes ROI markets columnist Jamie McGeever. * The Israel-Iran conflict has boosted global diesel prices, with gains outstripping the jump in crude prices, highlighting the vulnerability of diesel-heavy European consumers even as the region's refiners get a windfall. Read the latest from ROI energy columnist Ron Bousso. * UK finance minister Rachel Reeves insists higher economic growth is her top priority, but the government's current plan to address the country's chronically low investment is unlikely to be ambitious enough. What may be needed is a structural rethink of the finance ministry itself, argues Mike Peacock, the former head of communications at the Bank of England. Relief at two-week Middle East window Even though U.S. markets were closed for the Juneteenth holiday on Thursday, Wall St futures fell sharply during the day as tensions over the Israel-Iran war boiled. But those losses were mostly reversed before the market re-opened on Friday after Trump gave Tehran a fortnight to come up with a compromise before he decides whether to add U.S. firepower to Israel's air attacks on Iranian nuclear installations. Drone and missile attacks between the two warring sides continue, however. As is always the case with Middle East conflicts, the price of oil is the lodestar. Iran is OPEC's third-largest producer. U.S. crude came within a whisker of five-month highs on Thursday before falling back today to just over $75 per barrel. While a major concern, the rise in energy prices is still shy of a "shock", with crude prices down 7% year-on-year despite the tense situation. Foreign ministers from Britain, France and Germany along with the European Union's foreign policy chief were due to meet their Iranian counterpart Abbas Araqchi in Geneva on Friday to try to de-escalate the conflict. If Trump goes to the wire with his decision about direct U.S. involvement in the war, this will coincide with the expiration of his 90-day pause on "reciprocal" tariff hikes across the world, further fogging up the windscreen for world markets. Treasury yields were steady going into Friday's open, as investors juggled the energy picture and this week's relatively hawkish Federal Reserve meeting. The dollar fell back (.DXY), opens new tab from Thursday's highs. While the median forecast from Fed policymakers is still two interest rate cuts over the rest of the year, inflation forecasts were nudged higher and 7 of the 19 central bankers now expect no further easing in 2025. But confident forecasting is next to impossible now for the major central banks as they try to balance edgy oil prices, uncertain tariff hikes and multiple geopolitical risks. The Bank of England and Bank of Japan also left their key policy rates unchanged this week, largely for those reasons. Two rate cuts did emerge this week, however. Swiss interest rates returned to zero as expected as the Swiss National Bank battles the deflationary effects of currency strength , largely due to the franc's "safe haven" appeal. Norway surprised with a quarter point cut as well, taking the heat out of an oil-driven crown that had hit two-year highs this week. Stock markets (.STOXX), opens new tab, (.HSI), opens new tab around the world rallied on Friday as the oil price fell back, with Japan's Nikkei (.N225), opens new tab bucking that trend and ending slightly in the red again. A relatively thin trading session is expected on Wall Street later following the holiday on Thursday, though unfolding events in the Middle East will continue to create considerable trepidation before the close. The Philadelphia Fed's June business survey tops the data diary. Next week's events are led by Fed boss Jerome Powell's semi-annual congressional testimony on Tuesday and Wednesday and the release of the Fed's favored inflation gauge - the personal consumption expenditures measure - on Friday. A NATO summit in The Hague on Wednesday adds to the geopolitical focus. Elsewhere, sterling was firmer in the wake of the BOE decision, even with a surprisingly poor UK retail sales readout for May. There was some marginally better news from UK public borrowing numbers. While slightly above forecasts for May, the government has borrowed 37.7 billion pounds over the first two months of the 2025/26 fiscal year, less than the 40.7 billion pounds the Office for Budget Responsibility had predicted. In China, foreign direct investment from January to May fell 13.2% from the same period last year, more than had been forecast. And the European Union said it will bar Chinese companies from participating in EU public tenders for medical devices worth 60 billion euros or more ($68.9 billion) per year after concluding that EU companies are not given fair access in China. Weekend reading suggestions * MONETIZING DEBT: With no end in sight for outsize U.S. deficits and debt accumulation, the Fed "will almost certainly" be forced to monetize enough federal debt to prevent a default at some point, opens new tab, according to former Bank of England policymaker Willem Buiter and Professor Anne Sibert. Higher inflation and interest rates "are all but assured", they wrote in a column on Project Syndicate. "The Fed will have no choice but to engage in sovereign debt purchases that it knows to be incompatible with its monetary-policy objectives," they concluded. "The inflation surge could be no more than three years away." * EMOTIONAL FED?: Central bank communication is one of the most closely watched signals by markets, but it is not just what is said, but how it is said,, opens new tab argue economists Dimitris Anastasiou, Apostolos Katsafados, Christos Tzomakas and Steven Ongena in a paper on CEPR's VoxEU site. "Even subtle emotional cues can shift expectations and pricing behaviour in financial markets," they wrote. "Portfolio managers, particularly in the banking sector, may need to recalibrate models to include emotional tone as a market-moving variable." * US FIRMS MUSCLE IN: U.S. defense giants, backed by a Congressional delegation, used this week's Paris Airshow to showcase their cutting-edge technology and court European partners as they seek to tap into the rising regional military spending. Reuters' Joe Brock, Giulia Segreti, Paul Sandle and Tim Hepher show how despite the pledges by many European nations to boost military self-sufficiency, the continent remains heavily reliant on U.S. defense firms such as Lockheed Martin, Raytheon, Boeing, Anduril, Palantir and Elon Musk's SpaceX. * G6-PLUS?: President Trump's early departure from this week's G7 summit in Canada left the group without an overarching agreed communique and raised questions about the future shape of the group, opens new tab. Writing on the Chatham House site, the RIIA's economy and finance director Creon Butler outlines different formats that could be considered, including "G6-plus" without the full attendance of the United States or "G7-plus" with invited guests and limited issue-specific statements. * REFINING OKLAHOMA: Nestled beneath Oklahoma's Wichita Mountains sits a warehouse containing the only machine in the United States capable of refining nickel, a crucial energy transition metal now dominated by China. President Donald Trump has said he wants to boost U.S. production of minerals and, as Reuters' Ernest Scheyder shows, Oklahoma's push into minerals processing marks a turn in efforts to wean America off Chinese rivals. The state houses the country's only nickel refinery, its largest lithium refinery, two lithium-ion battery recycling plants, a rare earths magnet facility, and several electronic waste collection facilities. That's more than in any other state. Chart of the day During the parade of central bank meetings this week, Swiss interest rates returned to zero, and Norway's central bank surprised markets with a quarter point cut. Both decisions were currency-related and have been influenced by the swooning dollar and rising geopolitical tensions. The supercharged Swiss franc has drawn safe-haven demand and threatens Switzerland with deflation, as it flirts with 10-year highs against the green back. The Norwegian crown is highly linked to the oil price and hit its strongest level in two years this month as crude shot higher on Middle East worries. The major central banks all held the line, largely due to growing uncertainty over trade, oil prices and war. Today's events to watch * Philadelphia Federal Reserve's June business survey (8:30 a.m. EDT), May leading indicator (10:00 a.m. EDT); Canada May house prices, retail sales and producer prices (8:30 a.m. EDT) * European foreign ministers meet Iranian counterpart in Geneva * European Union finance ministers meet in Luxembourg, European Central Bank Vice President Luis de Guindos attends * U.S. corporate earnings: Accenture, Kroger, Carmax, Vertex Pharmaceuticals, Darden Restaurants Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, opens new tab, is committed to integrity, independence, and freedom from bias. Want to receive the Morning Bid in your inbox every weekday morning? Sign up for the newsletter here.
Reuters
37 minutes ago
- Reuters
Wall St Week Ahead Stocks take a breather as investors assess geopolitics, economic data
NEW YORK, June 20 (Reuters) - Investors will focus on the Israel-Iran conflict and U.S. economic data releases next week to assess the near-term outlook for stocks, as the S&P 500 hovers just below its February highs. The S&P 500 (.SPX), opens new tab has rebounded sharply from its early-April selloff, as tariff-related tensions have eased. However, the U.S. benchmark index appears to be taking a breather at some 2.7% below its February closing high. The index has gone 27 trading sessions since coming within 5% of its February high but has not yet set a new record. With Israel and Iran trading missiles, escalating threats of a sweeping conflict in the Middle East sent oil prices sharply higher and led to caution in markets. "We're all waiting on pins and needles to see what happens with the Israel-Iran situation," said Brian Jacobsen, chief economist at Annex Wealth Management. So far, the oil market has absorbed most of the impact from geopolitical turmoil, with equities relatively stable. Yet stock investors remain concerned that higher oil prices could stoke inflation and upset plans for interest rate cuts from the Federal Reserve. On Wednesday, the Fed held rates steady and policymakers signaled borrowing costs are still likely to fall this year. But they estimated the overall pace of expected future rate cuts would be slower than they saw at their March meeting. They cited expectations that higher inflation would flow from President Donald Trump's tariff plans. "The question is oil prices and what that does to inflation – which has implications for monetary policy and how long the Fed keeps rates "meaningfully restrictive"," said Sonu Varghese, global macro strategist at Carson Group. The big near-term risk for equities, investors said, was if the U.S. were to join Israel's bombing campaign against arch-enemy Iran. Trump is keeping the world guessing whether the U.S. would join Israel's bombardment of Iranian nuclear and missile sites, as residents of Iran's capital Tehran streamed out of the city on the sixth day of the air assault. The White House said on Thursday that Trump would decide on U.S. action in the next two weeks. "If we were to see the U.S. enter the war or further escalation in the attacks between the two countries, that would give the S&P 500 and equity markets more reasons to react negatively," said Damian McIntyre, head of multi-asset solutions at Federated Hermes in Pittsburgh. On the other hand, a de-escalation in Middle East tensions could prompt a relief rally for stocks. "If both sides can kind of just slowly de-escalate, that would be positive for equity markets, positive for risk markets," McIntyre said. "Markets are taking a bit of a wait-and-see approach here," he said. Still, any stock market pullbacks due to rising geopolitical tensions are likely to be fleeting, investors said. "History says that usually military shocks are shallow and short-lived, and so until further notice, I think that's how Wall Street will react to this one," Sam Stovall, chief investment strategist at CFRA Research, said. Investors will also parse a slew of incoming data releases, including U.S. business activity and housing sales on Monday, consumer confidence numbers on Tuesday and the PCE Price Index on Friday. U.S. consumer confidence plunged in the past few months, with households fearing tariffs could prompt a recession and higher inflation. However, with inflation in check and the U.S. reaching a truce in its trade fight with China, investors expect to see a pickup in sentiment. "Remember, the survey-based data all got crushed in the March, April, May time frame ... my expectation is we're still going to see an improvement," Mark Hackett, chief market strategist at Nationwide said.
Reuters
44 minutes ago
- Reuters
Rupee gains slightly to cap week clouded by Middle East conflict
MUMBAI, June 20 (Reuters) - The Indian rupee ended modestly higher on Friday but fell for a second consecutive week as the conflict between Iran and Israel remained the key driver for global markets and kept energy prices elevated, pressuring oil-sensitive currencies in Asia. The rupee ended at 86.5850, up from its close of 86.7225 in the previous session. It was down nearly 0.6% on the week. While escalating tensions in the Middle East kept risk appetite under pressure for much of the week, markets found some relief on Friday after U.S. President Donald Trump pushed back a decision on U.S. military involvement in the Israel-Iran war. Brent crude oil prices declined more than 2% on the day after rallying to a five-month high of $79.04 per barrel earlier in the week. Most equity gauges in Asia logged gains, with India's benchmark equity indexes, the BSE Sensex (.BSESN), opens new tab and Nifty 50 (.NSEI), opens new tab, rising 1.3% each. Analysts pointed out that oil prices and the Middle East conflict would likely remain the key drivers for FX markets in the near term. On the day, the dollar index was a tad lower at 98.6 but was on course for a weekly gain. "The FX market has taken the somewhat lower probability of the U.S. intervening in Iran already this weekend as an opportunity to re-enter USD short positions, especially against European currencies," ING Bank said in a note. "This confirms that a constant flow of oil-positive, risk-negative geopolitical news is needed to keep the dollar supported," the note added. For the rupee, meanwhile, traders will also gauge the extent of portfolio inflows that a large IPO scheduled next week will draw. Sizeable inflows could help the rupee hold ground above the 86.50 mark while a sharp rise in crude oil prices could build momentum for a fall below 87, a trader at a foreign bank said.
