Middle East Airspace Shut After Israel Strikes Iran, Airlines Cancel Flights

Israeli airstrikes on Iran earlier on Friday should have limited impact on global inflation and growth, according to analysts at Capital Economics.

In a note to clients, the analysts led James Swanston said that the violence could affect the world economy through higher oil prices. Should Israel choose to attack Iran’s oil production and export facilities, they estimated that Brent crude could jump to around $80 to $100 per barrel, which would add roughly 0.5 to 1 percentage points to developed market inflation by the end of the year.

Any rise in energy inflation would be another reason for central banks to proceed cautiously with cutting interest rates, and for the Federal Reserve to maintain its current wait-and-see attitude to future rate reductions, the analysts said.

However, they flagged that, even after a spike in crude following the strikes, oil prices are "considerably lower than they were a year ago."

Israel launched what it called a "preemptive" large‑scale airstrike on Iran early Friday, hitting “dozens” of military and nuclear targets, while a state of emergency was declared across Israel amid warnings of an imminent missile and drone counter‑strike from Tehran.

Iran’s state media also confirmed reports saying that Israel has killed Iran’s Revolutionary Guards Commander Hossein Salami.

Iran pledged a “harsh” retaliation against both Israel and the United States, while analysts have flagged worries that Tehran’s response could heighten security risks in the Strait of Hormuz, a critical artery for global shipping.

Elsewhere, U.S. Secretary of State Marco Rubio said that Israel carried out its military action against Iran independently, citing self-defense as the driving motive behind the strikes.

The White House had warned it would consider military measures should nuclear negotiations fail, with a key response deadline ending Thursday.

Source: Investing

A member of the Biden administration once described the Group of Seven industrialized countries—the US, Canada, Italy, France, Germany, the UK and Japan—as “a steering committee for the world’s most advanced democracies.” The three-day meeting of G-7 leaders, which gets underway in Canada on June 15, is unlikely to produce such bold pronouncements.

In place of the more or less amicable familial gatherings of recent years, the upcoming conclave feels like a last resort for finding common ground in a world where President Donald Trump keeps describing the host country as a potential 51st state for the US, where the West represents a dwindling share of the global economy and where businesses and investors are eager for any sign of US trade deescalation with the European Union and Japan. (The UK, for its part, is still waiting on actual implementation of its recent tariff deal with Trump.)

The risk of a schism between the US and the rest of the forum’s members—similar to the 2018 summit that produced those infamous images of a defiant Trump, arms folded—can’t be ruled out. After all, last month, with the ink barely dry on a G-7 finance ministers’ communique that promised more stability and less uncertainty, Trump threatened the EU with an even higher 50% blanket tariff. Trade isn’t the only irritant. The US is at odds with its partners on a number of issues, says Emma Ashford, senior fellow at the Stimson Center, a Washington think tank, including its attempts to obtain a settlement with Russia at the cost of Ukrainian sovereignty. Another point of contention is how best to deal with China.

Despite—or because of—these tensions, the G-7 this year still feels necessary, even if 50 years from its founding the club’s claim to being representative of the larger world has been looking increasingly flimsy. At its inception in the 1970s as a kind of geopolitical getting-to-know-you campfire, the grouping accounted for two-thirds of the global economy; today, it’s less than half.

The forum has been described to me by participants as the final frontier for “getting stuff done” as larger multilateral institutions from the United Nations to the World Trade Organization wither in the glare of de-globalization. The format is smaller, more informal and less binding. If China or Russia were involved—and Russia was a member until its 2014 annexation of Crimea—it would probably be a steering committee for absolutely nothing.

Canada’s Mark Carney, who became prime minister by rallying voters against Trump’s bullying, will have his work cut out playing the gracious host. He may be helped by the fact that, away from the Oval Office, Trump will find it harder to ambush unsuspecting guests with a public dressing-down.

Canada is also opting for a larger geopolitical chessboard with the guest list: Narendra Modi of India, a key member of the BRICs grouping that styles itself as a bridge between the West and the Global South, has been invited. So has Mexican President Claudia Sheinbaum, the other pillar of the United States-Mexico-Canada Agreement that Trump wants to tear up. Ukrainian President Volodymyr Zelenskiy also will be present and is expected to seize the opportunity to once again press Trump to take a tougher stance with Russian President Vladimir Putin, as he did when the two leaders met in April on the sidelines of Pope Francis’ funeral in Rome, says Nicoletta Perozzi, of the Italian think tank IAI.

The hope among other member countries is that a transactional Trump can be convinced of the benefits of a big, beautiful summit when it comes to dealing with his bugbears—like China. While the G-7 hasn’t taken a consistent approach on China, there’s an incentive to use the summit to adopt a united position with the US against economic and trade imbalances as China revs up its export engine to compensate for the pain of Trump’s tariffs. The G-7’s finance ministers’ communique made reference to harmful subsidies and unfair competition, as well as the flood of e-commerce packages from Temu and Shein that fly under customs officials’ noses.

At a press briefing last week, Germany’s new chancellor, Friedrich Merz, attempted to set the tone for a productive dialogue, saying: “Let’s stop talking about Donald Trump with a raised finger and wrinkled nose. You have to talk with him, not about him.” Still, the forum’s European members will have to work hard to strike a balance between bowing to the US president’s demands and defending their own positions, particularly in areas such as support for Ukraine, trade and harnessing trustworthy artificial intelligence.

People familiar with the preparations for the upcoming summit say member nations have already agreed they won’t try to reach consensus on a joint communique, as is tradition—an acknowledgment of the gulf separating the US from the other members on Ukraine, climate change and other issues.

Whatever happens in Canada, there will be lingering questions over the future of the G-7. One is whether the forum can survive as an exclusive talking shop. In the past, there have been plenty of suggestions from outside observers about whether membership should be expanded to other economies. One could imagine proposing Australia or South Korea, two economic growth engines that are also trusted allies of the West; Australia has been a target of Chinese coercion, and South Korea indirectly supplied more shells for Ukraine than all European countries combined. “There is a strategic choice coming,” says Paul Samson, head of Canadian think tank CIGI.

The other question is whether we are entering a prolonged era of coalitions rather than alliances. The US and China’s recent trade talks resemble a kind of G-2; meanwhile, Europe’s coalition of the willing on Ukraine looks effective precisely because it’s smaller, more credible on defense and more flexible than the EU’s current setup.

For the G-7, the existential risk is that the price of exclusivity is irrelevance.Read next: US Tariffs Threaten to Derail Vietnam’s Historic Industrial Boom

Source: Bloomberg Europe

Chicago soybeans rise on surging oil prices but biofuel worries cap gains.Wheat rebounds from 4-week low, corn eases to hold near 6-month low.Grain markets shrug off USDA report, focus on ample supply and tepid demand.

Chicago soybeans ticked up on Friday on the back of a jump in crude oil prices after Israel conducted strikes on Iran, though the oilseed market remained capped by uncertainty over U.S. biofuel targets and expectations of abundant global supply.

Wheat edged higher to recover from an earlier four-week low, while corn eased to move back towards a six-month low from last week.

Favourable crop prospects continued to hang over grain markets, with relatively benign weather in the U.S. Midwest and the onset of wheat harvesting in the Northern Hemisphere.

The most-active soybean contract on the Chicago Board of Trade (CBOT)was up 0.2% at $10.44-3/4 per bushel, rebounding from a one-week low on Thursday. CBOT soyoiladded 1.3%.

Oil prices jumped nearly 9%, hitting their highest in months after Israel said it struck nuclear and military sites in Iran, dramatically escalating tensions in the Middle East and raising worries about disrupted oil supplies.

"Rising crude oil prices lifted soyoil prices by making biodiesel more attractive, boosting demand for soyoil as a key biofuel ingredient," said Johnny Xiang, founder of Beijing-based AgRadar Consulting.

That brought relief for the soybean complex after renewed concern on Thursday about U.S. biofuel policy.

The U.S. Environmental Protection Agency (EPA) on Friday is expected to propose lower than-anticipated biofuel blending mandates, four sources told Reuters.

ADM, a key U.S. soybean crusher and biofuel producer, cut bids for soybeans this week ahead of the EPA announcement.

CBOT cornshed 0.7% to $4.35-1/2 a bushel.

The market shrugged off a tighter stocks forecast for U.S. corn in a monthly U.S. Department of Agriculture report on Thursday, which was broadly expected following brisk recent exports.

Supply pressure has built in corn and soybeans amid favourable growing weather in the U.S. Midwest and as Brazil begins harvesting what is expected to be a bumper second corn crop following a record soybean harvest.

CBOT wheatwas up 0.8% at $5.30-1/2 a bushel.

The wheat market is facing seasonal harvest pressure in the Northern Hemisphere, where large crops are anticipated in the United States, Europe and Russia, despite mixed weather in recent months.

"The groundwork for higher prices is there but the time frame is months rather than weeks, and before that can happen, we have to go through North Hemisphere harvest pressure," said Ole Houe, head of advisory services at IKON Commodities in Sydney.

Source: TradingView

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Unshaken by Trump, Israel Moves Alone

Source: CNN

The European Central Bank is approaching its goal for consumer-price growth, President Christine Lagarde said, warning of uncertainty emanating from US tariffs.

“Our primary responsibility at the ECB is price stability, and this is clearly defined in our strategy,” Lagarde told the Xinhua News Agency. “We are within reach of the 2% medium-term inflation target that we have defined as price stability. But we cannot have price stability if we do not have financial stability.”

Lagarde spoke to the Chinese media company a week after the ECB reduced interest rates for an eighth time, to 2%, with officials now saying they’re well placed to tackle the economic challenges ahead. A pause in rate cuts in July is widely expected, though analysts and markets still expect one more reduction by year end.

US President Donald Trump’s erratic trade behavior is one major factor clouding the outlook and potentially stoking prices.

“What will impact one will impact others, and if the situation is not resolved satisfactorily and the uncertainty is not removed, the corporate world will rethink their supply chains,” Lagarde said. “They will rethink their supply and their sourcing, and that will cause more fragility and a period of uncertainty, during which growth will probably be impaired, during which we could have inflationary pressure as a result.”

Source: Bloomberg Europe

Source: Reuters