Israel Strikes Continue Amid Reports Iran Keen To De-Escalate

Political

Summary:

Tehran is signaling it wants to deescalate hostilities with Israel and is willing to resume nuclear talks with the US as long as Washington doesn't join the Israeli attacks, the Wall Street Journal reported.

Israel and Iran exchanged fire for the fourth consecutive day on Monday, stoking fears of an all-out war with the potential to drag in others in the oil-rich region and force the US into a more hands-on stance.

Iran fired several waves of drones and missiles over the last 24 hours, while Israel continued hitting the Islamic Republic’s capital, Tehran, and killing one more senior military official.

Since Friday, 224 people have been killed in Iran, according to the government, which said most of the casualties were civilians. Iranian attacks killed 24 people in Israel, according to the Israeli government press office, and injured 592.

Tehran is signaling it wants to deescalate hostilities with Israel and is willing to resume nuclear talks with the US as long as Washington doesn’t join the Israeli attacks, the Wall Street Journal reported Monday citing Middle Eastern and European officials it didn’t identify. A similar report by Reuters says Iran conveyed the message through Qatar, Saudi Arabia and Oman.

Oil fell on the WSJ report, with Brent futures dropping around 4 percent - they rose over 10 percent Friday. US Treasuries pared earlier drops and European bonds gained as traders reacted to diminishing concerns about inflation.

It’s not clear whether Israel would agree to stop missile strikes. Israeli officials have said they want to ensure Iran doesn’t have the capacity to build a nuclear weapon.

The exchange of missile salvos between Israel and Iran is the most serious escalation after years of shadow war. Analysts fear it might push the Middle East into a regional conflict, causing wider human loss and potentially disrupting energy flows and vital trade routes.

One missile landed near the US consulate in central Tel Aviv, causing minor material damages but no injuries to personnel, the ambassador to Israel, Mike Huckabee, said Monday. Many cars were crushed and buildings damaged in the area of the city where the strike happened.

For Iran’s government, the showdown poses an existential dilemma. It can’t risk appearing weak, yet its options are shrinking. Proxy forces across the region, which regularly rallied to its support in the past, have been debilitated by Israeli action over the past 20 months. Hezbollah, the Lebanese militia the US and others designate as a terrorist group, is noticeably absent from the conflict and hasn’t signaled it will start attacks on Israel.

Tensions between the arch-enemies erupted into full-blown conflict on Friday, when Israel attacked Iranian military and nuclear sites, and killed several top generals and atomic scientists. Since then, it has achieved air superiority over large parts of Iran, including Tehran, and degraded the ability of the Islamic Republic to defend against its strikes.

Iran has countered by firing drones and ballistic missiles at the Jewish state. Israel believes Iran still has thousands of missiles left, according to National Security Adviser Tzachi Hanegbi, who spoke in an interview with the Army Radio.

US President Donald Trump has sent contradicting signals since the onset of the Israeli attacks. He first urged Iran to reach a nuclear deal and, on Sunday, added it and Israel “should make a deal, and will make a deal.”

“We will have PEACE, soon, between Israel and Iran!” he said on Truth Social. “Many calls and meetings now taking place.”

Yet, shortly after, he also said “but sometimes they have to fight it out.”

Market sentiment at the start of the week was already less bearish before the WSJ report, with analysts betting attacks would subside in the near term.

“The market currently anticipates a limited conflict, though there is little indication that hostilities will end quickly,” said Jochen Stanzl, chief market analyst at CMC Markets.

The potential for disruption of key shipping routes if strikes continue will give policymakers trying to forecast risks to inflation pause. Navigation signals from hundreds of vessels in the Strait of Hormuz and the Persian Gulf went awry over the weekend, forcing seafarers to rely on less precise mechanisms which increase the risk of collisions.

Iran reported an explosion at one of its natural gas plants linked to the giant South Pars field on Saturday. While the country exports little gas and Israel appears not to have targeted its oil fields or crude-shipment facilities, the move risks pushing up global energy prices - which soared on Friday - even more.

The United Nations atomic watchdog convened an emergency meeting to assess Israel’s attacks on Iranian nuclear facilities and disrupted monitoring of the Islamic Republic’s stockpile of near-bomb grade uranium. The International Atomic Energy Agency’s board meets Monday in Vienna, just days after a divisive vote found Iran in non-compliance with its legal obligations.

The IAEA said multiple strikes on Iran’s uranium-conversion facility at Isfahan, south of Tehran, resulted in serious damage.

Iran’s deputy foreign minister, Kazem Gharibabadi, told state television that “we will no longer cooperate with the agency as we did before.”

According to Iran’s Fars news service, a key parliamentary committee said Tehran should no longer adhere to the nuclear Non-Proliferation Treaty, the bedrock arms-control agreement that compels signatories to accept inspections. For now, it’s unclear if the government will take such steps.

Worst Conflict

Arch-enemies Israel and Iran have long maintained simmering animosity. The Jewish state’s been accused of cyberattacks and assassinating Iranian scientists, while Tehran’s funded anti-Israel militias in the Middle East.

Those tensions soared after Hamas, a Palestinian group backed by Iran, attacked Israel on Oct. 7, 2023. That led to Israel and Iran firing missiles and drones on each other twice last year.

Still, this is their most serious conflict yet. Since the fighting began, Israel struck Iran’s nuclear and military sites using jets and drones, and killed several top commanders and atomic scientists.

Several waves of strikes in Iran were conducted overnight, targeting approximately 100 military targets, according to the Israeli Defense Forces spokesperson. He added one third of Iran’s missile launchers have been destroyed.

Israel said it was aiming to end Iran’s ability to build a nuclear bomb, which it sees as an existential threat. Tehran maintains its atomic program has purely civilian purposes.

Trump is set to meet other leaders of the Group of Seven major economies in Canada and the conflict will be at the forefront of their talks. Israel is calling on Washington and European nations to help it attack Iran, arguing that such help is needed to stop Tehran from developing a nuclear weapon.

While the US has helped defend Israel by intercepting missiles and drones, Trump has not yet indicated if the US will join in the strikes on Iran.

For all that Israel’s already damaged Iranian atomic sites and says it will continue to strike them. Several Western analysts say it needs US help to destroy some key facilities located deep underground.

Source: Rigzone

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Adam

Forex

US Dollar started the week on a weak note but has been trying to stay near the 98 level since last week. There has been some buying just below 98, but it has not been strong. Rising geopolitical tensions and a sudden jump in oil prices are driving safe-haven demand and raising concerns about supply shocks.

The main focus is on the increasing attacks on energy infrastructure between Israel and Iran. This conflict could impact not just the Middle East but global demand for the dollar as well.

Iran’s threat to close the Strait of Hormuz puts about one-third of global oil trade at risk. This could push inflation higher again, which is worrying for markets.

If inflation rises, the chances of the Federal Reserve cutting interest rates in the near future may drop. Higher energy prices could make it harder for the Fed to meet its goal of price stability, leading policymakers to wait longer before making any changes.

Fed’s Interest Rate Strategy

Interest rates are expected to stay the same at the Fed meeting on Wednesday. However, the key focus will be on the Fed’s updated economic projections and the wording in its statement. The main question for the dollar is whether the Fed will signal any rate cuts before the end of the year.

Weak employment and growth data from the US have led markets to expect a possible rate cut in September or December. But rising geopolitical tensions and the recent increase in energy prices have slightly delayed these expectations. As a result, markets now see almost no chance of a rate cut in July.

This week’s manufacturing data, retail sales, and unemployment claims will be closely watched. These reports may influence the Fed’s tone. If the data is stronger than expected, it could lead to more strength for the dollar.

US Dollar Outlook Still Fragile

Although geopolitical risks are giving the US dollar some short-term support, the overall outlook for the dollar remains weak. The US Dollar has fallen more than 10% from the 110 level seen earlier this year, and it keeps losing value, especially against EUR/USD and the currencies of commodity-exporting countries.

To be sure, the euro has gained strongly due to the European Central Bank’s cautious approach to cutting interest rates. Meanwhile, currencies like the USD/NOK have benefited from higher energy prices.

At the same time, President Trump’s expansionary fiscal policies, tax cuts, and possible new tariffs could worsen structural issues in the US economy and hurt confidence in the dollar. This may increase the risk of a larger external deficit and raise questions about the dollar’s status as the world’s reserve currency.

In summary, while the dollar gets some short-term support from geopolitical risks and the Fed’s cautious approach, key indicators still suggest a fragile outlook. The US dollar is trading around a critical support and resistance level near 98. If it manages to stay above this level, a short-term rebound may happen. However, in the longer term, the dollar is likely to remain under pressure due to trade imbalances and expectations of rate cuts.

Investors will watch not only the Fed’s decision but also developments in energy prices and geopolitical signals from the G7 Summit. In this period of weak global risk appetite, the dollar’s direction will depend both on US policy and political risks around the world.

Technical Outlook for the US Dollar

The US dollar is still struggling to hold a key support level as its downward trend continues from earlier this year. Based on the recent upward move, the index has now reached the Fibonacci 1.272 level at 97.65.

This zone can be seen as an expansion point in the trend. If the US dollar closes below 97.65 on a daily basis, the decline may continue towards 96.25 and then 94.25.

However, if support at 97.65 holds, the 99.65 level could become important for any short-term rebound. A move above this resistance might signal rising dollar demand, with the potential to push the index toward the 100-102 range. Still, technical indicators are showing weakness in dollar demand for now. As long as the index stays below 99, the risk of further declines remains.

Source:investing

Risk Warnings and Disclaimers

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Olivia Brooks

Political

KANANASKIS, Alberta, June 16 (Reuters) - Leaders from the Group of Seven nations began annual talks on Monday with wars in Ukraine and the Middle East adding to global economic uncertainty, as host Canada tries to avoid a clash with U.S. President Donald Trump.

The G7 leaders from Britain, Canada, France, Germany, Italy, Japan and the U.S., along with the European Union, are convening in the resort area of Kananaskis in the Canadian Rockies until Tuesday.

With an escalating Israel-Iran conflict, the summit in Canada is seen as a vital moment to try and restore a semblance of unity among democratic powerhouses.

Canada has abandoned any effort to adopt a comprehensive communique to avert a repeat of a 2018 summit in Quebec, when Trump instructed the U.S. delegation to withdraw its approval of the final communique after leaving.

Leaders have prepared several draft documents seen by Reuters, including one calling for de-escalation of the Israel-Iran conflict and other statements on migration, artificial intelligence and critical mineral supply chains. None of them have been approved by the United States, however, according to sources briefed on the documents.

"I do think there's a consensus for de-escalation. Obviously, what we need to do today is to bring that together and to be clear about how it is to be brought about," British Prime Minister Keir Starmer told reporters.

The first five months of Trump's second term upended foreign policy on Ukraine, raised anxiety over his closer ties to Russia and resulted in tariffs on U.S. allies.

Talks on Monday will centre around the economy, advancing trade deals, and China.

Efforts to reach an agreement to lower the G7 price cap on Russian oil even if Trump decided to opt out have been complicated by a temporary surge in oil prices since Israel launched strikes on Iran on June 12, two diplomatic sources said. Oil prices fell on Monday on reports Iran was seeking a truce.

The escalation between the two regional foes is high on the agenda, with diplomatic sources saying they hope to urge restraint and a return to diplomacy.

"We are united. Nobody wants to see Iran get a nuclear weapon and everyone wants discussions and negotiations to restart," France's President Emmanuel Macron told reporters in Greenland on Sunday before travelling to Canada.

He added that given Israel's dependence on U.S. weapons and munitions, Washington had the capacity to restart negotiations.

Trump said on Sunday many calls and meetings were taking place to broker peace.

Russian elephant elephant in the room

Highlighting the unease among some of Washington's allies, Trump spoke on Saturday with Russian President Vladimir Putin and suggested the Russian leader could play a mediation role between Israel and Iran.

Macron dismissed the idea, arguing that Moscow could not be a negotiator because it had started an illegal war against Ukraine.

A European diplomat said Trump's suggestion showed that Russia, despite being kicked out of the group in 2014 after annexing Crimea, was very much on U.S. minds.

"In the eyes of the U.S., there's no condemnation for Ukraine; no peace without Russia; and now even credit for its mediation role with Iran. For Europeans, this will be a really tough G7," the diplomat said.

Ukraine's President Volodymyr Zelenskiy and NATO Secretary General Mark Rutte will attend the summit on Tuesday. European officials said they hoped to use the meeting, and next week's NATO summit, to convince Trump to toughen his stance on Putin.

"The G7 should have the objective for us to converge again, for Ukraine to get a ceasefire to lead to a robust and lasting peace, and in my view it's a question of seeing whether President Trump is ready to put forward much tougher sanctions on Russia," Macron said.

Source: Reuters

Risk Warnings and Disclaimers

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Adam

Economic

It was an encouraging week for economic data, with inflation showing signs of moderation and consumer sentiment rebounding for the first time this year. The labor market remains broadly stable, with the unemployment rate holding at a healthy 4.2%, although a recent uptick in continuing jobless claims suggests some signs of cooling.

Altogether, the backdrop appears supportive of the Federal Reserve’s path toward easing. But Wall Street watchers say policymakers may need more convincing before delivering any cuts.

"We don’t know really how the second half of the year is going to play out," Loretta Mester, former Cleveland Fed president, told Yahoo Finance last week.

Mester added that although the "hard" economic data, like the recent labor and inflation reports, have been encouraging, "the real question is what is going to happen in the second half of the year and [if] those trends continue. That's where the high level of uncertainty still is with us."

The uncertainty centers on the scope and scale of President Trump's tariffs in the aftermath of his April "Liberation Day" announcements, which sent shockwaves through markets and businesses.

Since then, many of those "reciprocal" tariffs have been paused, but the 10% baseline duties for most countries remain in place. The president is set to notify US trading partners of their respective unilateral tariff rates in the coming weeks.

In the meantime, Mexico and Canada continue to face fentanyl-related tariffs, and industry-specific tariffs on steel, aluminum, and autos remain unchanged.

Last week, the US and China agreed to a framework and implementation plan aimed at easing tariff and trade tensions. President Trump signaled his approval, saying the deal was "done," pending final sign-off from him and Chinese President Xi Jinping. As part of the agreement, Trump said the US would impose a total of 55% tariffs on Chinese goods.

Many market observers said the deal was sparse on details. Outside analysts like the budget lab at Yale have calculated the effective tariff rate on China overall to be around 33%.

"The Fed is on hold until we get a little more clarity about not only the magnitude of the tariffs and the breadth of the tariffs, but what effect they all have on inflation and what effect the tariffs and other policies, including the budget bill, will have on growth and employment," Mester said.

'Wait-and-see time period'

Despite the words of caution, markets are increasingly confident that rate relief is on the horizon, with nearly 70% now betting the Fed begins easing in September, up from 60% a week ago. Investors are putting a roughly 20% chance on the first cut arriving as soon as July, according to CME Fed projections as of Monday morning.

Still, markets have almost fully priced in that the Fed will hold rates steady at next week’s policy meeting.

Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, said any rate cuts before September would likely require significant labor market deterioration. He also cautioned that the inflation threat hasn’t disappeared, especially with tariff effects still uncertain.

"People are suggesting that maybe the tariffs won't have an inflationary impact. I think it's too early to decipher that," Schutte said. "All the inventories that have been pulled forward by importers, by consumers, by businesses to actually steady and ready themselves for the tariffs may be impacting the inflation data right now. It often has taken time in the past for that to show up in the actual numbers."

He added that the Fed is in a "wait-and-see time period."

"That's where I don't think the Fed likely cuts until September, unless you see significant weakening in the labor market, and then the question is always: Is it too late or not?"

HSBC US economist Ryan Wang acknowledged the "double-sided risks" tariffs pose, noting that while goods prices will likely continue to rise through the rest of the year, early signs of a cooling labor market could help offset that by exerting downward pressure on inflation.

But while markets may be betting on a smooth path to cuts, Wang warned the Fed will need confidence that inflation isn’t rising in an "uncontrolled fashion" and that activity in the broader economy isn’t slipping too quickly. "The benign version of rate cuts will take time to develop," he said.

For now, the Fed appears firmly in a holding pattern — acknowledging the encouraging data, but not yet convinced it’s time to shift course.

Source: finance.yahoo

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Adam

Economic

Middle East Situation

The focus as we start the new trading week is the escalating tensions between Iran and Israel. There have been strikes from both sides, and there is currently no end in sight, even as world leaders urge for calm. Headline risk is huge as we start a new week. The risk off tone to markets was clear at the end of last week, although the market reaction has been moderate so far on Monday.

For now, it does not look like the markets are pricing in the possibility of a supply side shock for oil. The oil price is higher by a mere 0.5%. and is below $75.00 per barrel, and the gold price is falling. European and US stock market futures are pointing to a higher open later today.

Why are markets so calm?

So, why the sense of calm in financial markets when the war between the two countries continues to rage? President Trump seemed to calm fears when he said that the two sides could find a resolution, but they need to fight it out first. The prospect of US involvement in this conflict used to spook markets, however, now there is a chance that Trump could have a holistic influence. Reports suggest that Trump vetoed an Israeli plan to assassinate Iran’s Supreme Leader, which suggests that he is already having a moderating impact on this conflict, although there has been no direct involvement by US troops.

Due to this, there may need to be a major escalation in the conflict before we get another sharp upswing in oil and gold prices. Financial markets are very good at absorbing geopolitical risk, and Opec+’s supply boost is also helping to cushion the blow.

Back in 2022, when Russia invaded Ukraine, the oil price rose by more than 80% in the weeks and months before Russia invaded Ukraine, however, we may not cross the $100 per barrel level this time. There is expected to be excess oil supply this year and next, which will absorb some of the geopolitical risks for the oil price. Added to this, Opec + Is already boosting their supply, so oil traders will be discounting the supply boost when considering the impact from this latest geopolitical conflict.

Where could oil go next?

The oil price could have further to run if the conflict takes a more sinister turn. Firstly, if it spreads beyond just Iran and Israel, Secondly, if the attacks against Iran directly target export routes, or if Iran tries to punish Israel or the West by attacking the straits of Hormuz, which is used to transport one fifth of the world’s oil supply.

The key question from a geopolitical standpoint is what does the US do next? President Trump has said that the US could intervene against Iran, and the UK has said that it will send fighter jets to the region. The EU is scheduled to have a meeting about the conflict this Tuesday, and this week’s G7 meeting is likely to be dominated by the situation.

Why Donald Trump could limit oil’s upside

Interestingly, the US’s involvement could have a calming effect on the oil price. President Trump has proudly touted his ability to keep a lid on oil prices, and we do not think that he will want to entertain a conflict that could put huge pressure on the price of energy. Instead, we think that US involvement could see the attacks on Iran narrow to nuclear sites, after Israel said that it gathered intelligence that Iran had enough uranium to make 9 atomic bombs.

The market reaction

The dollar is giving up last Friday’s gains as we start a new week, suggesting that its role as a haven might be short lived. The dollar was one of the weakest currencies in the G10 FX space last week, however, it did attract some haven flows on Friday, more so than the Swissie and the yen. Bitcoin sold off alongside stocks on Friday, however, it is erasing losses at the start of this week and is back above $106k. We believe that the situation in the Middle East would need to deteriorate rapidly and enter a more dangerous phase for Bitcoin to fall below $100,000.

Global stocks slumped sharply on Friday; however, the FTSE 100 was protected from the worst of the sell off. The FTSE 100 managed to eke out a gain last week, even though other global indices registered losses. The top performing sector was energy, which benefited from the surge in oil prices. As volatility recedes and if European and US stocks stage a recovery, then we could see UK oil majors and the FTSE 100 underperform at the start of this week.

Can tech lead the stock market recovery?

The weakest stocks on Friday included airlines, credit card companies, and tech, as the prospect of higher interest rates spooked the market. However, with oil stabilizing on Monday, we could see these sectors trying to claw back some gains today. Likewise, bond yields are also receding early in the European session, after rising on Friday. If oil prices can remain contained, then rate cut expectations for the world’s major central banks could remain stable.

In the week ahead, the markets will be incredibly sensitive to headline risk, especially what comes out of the G7 meeting, and the international response to this conflict. However, there are also some key economic events to watch out for. We list the two main ones below.

The Federal Reserve Meeting

There Is a mere 3% chance of a rate cut from the Fed this week, as the central bank is set to push back against pressure from Donald Trump to cut rates. However, there was some expectation that after a softer inflation print for May, and a clear slowing in the US labour market, the Fed may signal that interest rate cuts would be coming down the line. However, concerns that Chinese tariff rates will remain elevated, along with the recent rise in oil prices could shift the dynamic at the Fed, and we expect them to remain non-committal about the timing of potential future rate cuts.

We also get the latest import price data from the US this week. If they come in stronger than expected on Tuesday, it could lead to a more cautious tone from the Fed when it comes to rate cuts. After recent softer economic data, the market priced in two full hikes from the Fed for the rest of this year. It is imperative that traders look closely at the Fed’s latest Dot Plot of median interest rate expectations, which are also released at this week’s meeting. If the Fed signals only one rate cut is coming this year, then we may see an immediate recalibration of interest rate expectations, further upside pressure on bond yields, especially at the short end of the curve, and the dollar losses may be halted.

UK: the May inflation report and the BOE

The Bank of England will announce its latest interest rate decision on Thursday, and they are likely to sound a similar message to the Fed. Upside risks to inflation have increased due to the conflict in the Middle East. The BOE is likely to express the fact that upside inflation pressures are out of its control, and it will remain data dependent when it comes to adjusting policy. This means that if the oil price is elevated in the long term and this feeds into inflation, the BOE will need to keep a tight lid on rate cuts.

If oil prices remain stable in the coming days, then the market may focus on some expected good news on inflation in the UK. The market expects inflation to soften last month, after April’s jump higher. Weaker price growth is expected to reflect an amendment to vehicle excise duty, and airfares are also expected to have fallen last month, which is why service price growth is expected to moderate to 4.8% from 5.4% in April.

The BOE will also need to maintain a fine balance, since a softening labour market is likely to depress wage growth in the coming quarters. Even so, we expect the BOE to stick with their line that easing monetary policy will be careful and gradual.

Source: xtb

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Risk Warnings and Disclaimers

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Warren Takunda

Economic

Israel’s war with Iran threatens to keep interest rates higher for longer as the Bank of England struggles to control inflation, economists have warned.

A surge in oil prices since Israel struck Iran risks reigniting inflation and has exposed the vulnerability of the Bank’s forecasts, said Robert Wood, at Pantheon Macroeconomics.

“Events in the Middle East driving up oil prices last week are a reminder of just how close to the wind the MPC [Monetary Policy Committee] is sailing,” he said.

Oil prices have risen from $65 per barrel to around $74 over the last week in a move that threatens to push British inflation closer to 4pc this year, double the Bank’s 2pc target.

Mr Wood warned that the jump in energy costs could also ignite another wage-price spiral, as workers demand bigger pay packets to compensate for higher bills.

Andrew Bailey, the Bank’s Governor, and the rest of the MPC are expected to keep rates on hold at 4.25pc on Thursday before cutting borrowing costs in August to take the headline rate to 4pc.

Mixed bag

Investors currently expect the Bank to eventually take the base rate down to 3.5pc over the next year. However, Mr Wood warned that events in the Middle East could force officials to hold borrowing costs at 4pc to stop inflation from spreading through the economy.

“We find it far from implausible that inflation ends next year above 3pc if events in the Middle East worsen, or a cold winter boosts natural gas prices,” Mr Wood said.

Inflation rose to 3.4pc in April, the highest level in more than a year.

George Buckley, economist at Nomura, said: “We have had an energy shock in the past and look where it led us: to a whopping increase in inflation across the board, not just for energy, which did require a monetary policy response.”

However, Mr Buckley said the impact of conflict in the Middle East may be mixed, with higher oil prices leading to more expensive petrol, but also potentially prompting businesses to hold off investment. This would slow the economy and reduce upward pressure on inflation.

The economy shrank in April and the job market has shown signs of weakness, meaning the Bank’s officials face conflicting signals that make it harder to decide the most appropriate level of interest rates.

Michel Nies, at Citi, said the conflict “and the associated changes in energy prices, shipping costs and risk sentiment will remind MPC members of the volatility and unpredictability of the operating environment”.

He said it may push some MPC members who voted to cut rates in May to prompt for a pause this week.

“It is possible that some of the more hawkishly minded members within the group of five that voted for a 0.25 percentage point cut recalibrate to a more neutral position, more truly in line with ‘gradual and careful’,” he said, referring to Mr Bailey’s guidance on the pace of future changes in rates.

Source: TheTelegraph

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Adam

China–U.S. Trade War

Middle East Situation

Economic

China’s Economic Data Weakens as Trump Tariffs Hit Manufacturing and Exports

President Trump confirmed a new tariff package on Chinese goods last week. The total tariff rate now stands at 55%, including the existing 25% from his first term. This announcement came as China released new economic data showing signs of strain.

The chart below shows that China’s industrial output grew by only 5.8% in May, marking the slowest pace in six months. In April, output had risen by 6.1%. This decline signals weakening momentum in factory activity and export production.

Trump Trade War, China Slowdown, and Middle East Crisis Fuel Oil Volatility_1

Moreover, exports to the US have also dropped. However, the chart below shows that China’s total exports still grew by 4.8% in May, although the steep decline in U.S.-bound shipments offset this growth.

Trump Trade War, China Slowdown, and Middle East Crisis Fuel Oil Volatility_2

On the other hand, retail sales in China increased to 6.4% in May, up from 5.1% in April. This marks the fastest growth since December 2023. The rise was driven by strong Labour Day holiday spending and the early launch of the “618” online shopping festival.

Trump Trade War, China Slowdown, and Middle East Crisis Fuel Oil Volatility_3

Despite the boost in consumer activity, China’s overall growth outlook remains fragile. The housing sector continues to slump, with new home sales declining. Fixed asset investment grew by just 3.7% in the first five months, below the expected 3.9%. These indicators reflect weak domestic demand and persistent structural challenges.

Trump Trade War, China Slowdown, and Middle East Crisis Fuel Oil Volatility_4

Trump’s tariff hike now threatens to deepen these challenges. Higher trade barriers will likely further reduce China’s exports to the US. In turn, this may weaken Chinese factory output and increase pressure on its economy.

Iran-Israel Conflict Impact Safe-Haven Demand

Tensions in the Middle East escalated after Iran launched missiles at Israel, responding to Israeli strikes on nuclear facilities. The risk of broader regional war has surged. This uncertainty has rattled global markets.

Gold (XAUUSD) prices climbed on safe-haven demand. Meanwhile, the US dollar remains under bearish pressure, which boosts EUR/USD and keeps USD/CHF in a long-term downtrend. The spike in volatility followed a familiar pattern: stocks dropped, Treasuries gained, and gold rallied.

As fears mount, safe-haven assets may continue to outperform while risk-sensitive markets, such as equities, face downward pressure.

The G7 summit also focused on how geopolitical tensions could disrupt global supply chains, particularly in the energy and critical minerals sectors. Leaders expressed concern that prolonged conflict in the Middle East could drive WTI crude oil (CL) prices higher and strain efforts to control inflation. Rising energy costs would put more pressure on central banks, which are already struggling to strike a balance between growth and price stability.

US officials at the summit defended recent tariff measures as necessary for national interest. However, several allies warned that protectionist policies and regional wars could further fragment the global economy.

Iran Strikes Drive Rebound Toward $77 Resistance.

The monthly chart for WTI crude oil shows a strong rebound following Israel’s launch of strikes on Iran. This rebound has pushed the price toward the resistance level within the symmetrical triangle, located around the $77 area. However, the move reflects heightened volatility driven by the geopolitical crisis, which could lead to unpredictable price action in the coming weeks.

Trump Trade War, China Slowdown, and Middle East Crisis Fuel Oil Volatility_5

The chart also shows a similar symmetrical triangle that formed between 2011 and 2014. A breakdown from that pattern triggered a significant move. However, the price has held above the long-term support of nearly $55 and has started to rebound this time. A breakout above $90 would likely trigger a strong rally toward the $110 area.

Threat of Supply Disruptions Fuel Oil Rally Toward $100

The weekly chart for WTI crude oil shows a rebound from the long-term support zone, highlighted in orange on the chart. The price is bound within the red dotted trend lines and consolidating amid ongoing global events in 2024 and 2025.

Sanctions on Russia triggered an earlier rebound toward the $80 resistance level. However, Trump’s inauguration pushed prices back down toward the long-term support at $55. The recent release of new tariffs on China sparked another rally, followed by a surge driven by fears of supply disruptions from the Iran-Israel conflict.

A break above $80 would confirm a breakout from the triangle pattern and could initiate continued bullish momentum toward the $100 region.