Bassanese Bites: Wall of worry – June 16 2025
Global markets
Global stocks were generally edging higher last week before Israel’s attack on Iran caused an understandable sell-off on Friday.
Israel-Iran conflict appears contained
My early thoughts on the Israel-Iran tit-for-tat remain the same. Markets won’t much care if they keep exchanging missiles, provided it does not spark a wider Middle East conflict (which I suspect most Arab countries don’t want to be drawn into) or threaten global oil supply (such as Iran threatening to block the Strait of Hormuz).
While equity markets might just yawn, the conflict offers a further boost to gold and some support to beleaguered oil prices.
It’s also noteworthy that the US dollar has so far not played its traditional “safe haven” role in the face of renewed Middle East tensions. This highlights the likely weakening trend for the long-mighty greenback.
Threadbare trade deal and good inflation
Prior to Israel’s attack on Iran, markets were greeted with some encouraging news last week. After weeks of hopeful speculation, Trump declared “our deal with China is done”, even though it only appeared to relate to China continuing to sell America rare earths in exchange for access to more US technology.
China’s agreement to supply rare earths will apparently be subject to a six-month review. Meanwhile, American tariffs on Chinese imports will hold at 55%, while China’s tariff on the US will be 10%.
Call that a “deal”? I think Trump is bored with the whole process and just wants to move on to tax cuts and illegal immigration.
In other encouraging – albeit likely dated – news, US consumer prices remained remarkably benign in May. Core prices rose only 0.1%, keeping the annual rate steady at 2.8%. Front-loading of imports ahead of the planned tariffs, along with some softness in consumer spending, likely accounts for the benign result. Of course, worse may be to come – but so far at least the feared tariff-induced surge in inflation has yet to materialise.
Softening jobless claims and immigration TACO
It’s early days on the activity front, but US weekly jobless claims have also moved higher in recent weeks. Claims can be volatile and subject to seasonality, but this could be an early sign of labour market softness that markets are now watching closely.
