Oil Prices Stabilize Near 5-Month High as Middle East Conflict Threatens Global Supply Chain

Economic

Commodity

Summary:

Oil prices held steady after a 10% surge fueled by Israel-Iran hostilities and fears of US military involvement, with Brent trading near $77 and WTI above $75. Rising tensions and a sharp drop in US inventories added to supply fears...

Rising Tensions Sustain Oil Price Surge

Oil markets remained firm on Wednesday, maintaining gains from a rally that has pushed prices up nearly 10% since Israel launched surprise strikes on Iran's nuclear sites last week. Brent crude traded close to $77 per barrel, while West Texas Intermediate held above $75—levels not seen since early 2025. The geopolitical pressure is intensifying as President Donald Trump issues increasingly aggressive statements toward Iran, including a demand for “unconditional surrender” and threats against its Supreme Leader, further stoking fears of wider military engagement.

The surge in oil prices is being driven less by actual supply disruption and more by expectations of what could happen next. Though Iran’s oil infrastructure remains intact and there is no current blockade of the Strait of Hormuz, the mere possibility of escalation has triggered a significant risk premium in global oil pricing.

Strait of Hormuz: The Market’s Pressure Point

The Strait of Hormuz—through which about 20% of the world’s crude oil flows—is again in focus. Although there are no indications that Iran is preparing to shut down this vital route, the perceived threat remains enough to send ripples through commodity markets. The Strait’s strategic importance stems from its role as the main artery for oil exports from Saudi Arabia, the UAE, and other Gulf producers. A disruption here could have immediate and dramatic consequences for global energy supply and pricing.

Charu Chanana of Saxo Markets highlighted that Trump’s rhetoric signals a breakdown in diplomatic options. She warned that in the event of a blockade or any actual disruption in Hormuz, oil prices could experience a rapid and substantial spike. This reflects not a proven causal chain, but a market behavior driven by heightened sensitivity to geopolitical developments in this corridor.

Market Volatility and Investor Behavior Intensify

Oil price volatility has now reached its highest level in three years, surpassing even the period following Russia’s 2022 invasion of Ukraine. This heightened state of uncertainty is prompting increased demand for hedging instruments. Brent’s prompt spread has widened significantly, indicating near-term supply concerns, while options markets show stronger bullish sentiment than seen during previous geopolitical shocks.

The movement in related markets underscores investor nervousness. Gold, traditionally viewed as a safe-haven asset, also rose modestly, and global equities exhibited downward pressure, reflecting broader economic anxieties.

Crude Inventories Shrink Sharply in the US

Adding to the bullish oil outlook is the steep decline in US crude inventories. Industry figures suggest a drawdown of over 10 million barrels last week—the largest since summer 2024. If verified by the Energy Information Administration, the drop would point to tightening domestic supply, either from stronger-than-expected demand or increased exports amid global uncertainty.

This supply-side contraction comes at a time when the market is already grappling with fears of a larger conflict. The dual pressure of falling inventories and geopolitical instability has created a scenario where any new disruption could trigger a disproportionately large price reaction.

Geopolitical Stakes: Strategic Signals from Israel, Iran, and the US

The conflict’s escalation has not only altered commodity markets but also redefined strategic dynamics. Israeli Prime Minister Benjamin Netanyahu has publicly stated that it is in America’s interest to support Israel in neutralizing Iran’s nuclear program. Meanwhile, Iran is reportedly readying its missile capabilities in preparation for potential strikes on US military bases in the region, should Washington move from support to direct intervention.

Though the US has not yet taken military action, its role as Israel’s primary arms supplier and defense partner, along with public military positioning, suggests the potential for deeper involvement remains very much alive.

Oil’s sharp rally and continued strength underscore the extent to which geopolitical risk is shaping market expectations. While no actual disruption has yet materialized in the Strait of Hormuz or Iran’s energy infrastructure, the perceived probability of conflict-induced supply shocks has fundamentally altered short-term market behavior. Combined with a record draw in US inventories, these developments point toward a fragile equilibrium where any misstep in diplomacy or military posturing could ignite further price escalation. In the near term, traders and policymakers alike will be watching both the battlefield and the Strait for signals of what comes next.

Source: Bloomberg

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Economic

Middle East Situation

US Edges Closer to Military Engagement Amid Escalating Middle East Tensions

The United States is approaching a critical decision point in its response to the intensifying Israel-Iran conflict. On Tuesday, President Donald Trump held a high-level national security meeting to assess potential US involvement, following five consecutive days of aerial exchanges between Iran and Israel. While the US has thus far provided defensive support to Israel without initiating direct strikes, mounting regional volatility and Trump’s increasingly aggressive rhetoric have fueled speculation that American military intervention is imminent.

Trump’s demand for Iran’s “unconditional surrender,” posted on social media, was coupled with veiled threats toward Iran’s Supreme Leader Ayatollah Ali Khamenei, raising the diplomatic stakes considerably. The President followed this meeting with a conversation with Israeli Prime Minister Benjamin Netanyahu, deepening coordination between the two countries as Israel prepares for a broader offensive targeting Iran’s nuclear infrastructure.

Strategic Air Superiority and Shifting Military Dynamics

Israeli forces claim to have gained control of the skies over Iran, largely due to US-supplied equipment. According to satellite imagery and UN nuclear watchdog assessments, Israeli strikes have damaged key facilities, including underground enrichment sites at Natanz. The Fordow site, another critical Iranian nuclear facility, has so far escaped damage, though it remains a top target.

Defense Minister Israel Katz warned Tehran that “very significant targets” in the capital were next in line, urging civilians to evacuate. In tandem, Iranian officials announced they are preparing a “punitive operation” and threatened to strike US military bases in the region should Washington proceed with a direct offensive.

The exchange has already caused severe casualties. More than 200 people have been reported killed in Iran, and at least 24 deaths have occurred in Israel, alongside hundreds of injuries. Iran’s ability to retaliate, however, is constrained. Proxy forces across Lebanon, Syria, and Iraq—long used by Iran to project regional power—have suffered substantial degradation since late 2023, limiting Iran’s retaliatory channels.

Trump's Policy Calculus: Pressure, Retaliation, and Military Leverage

Trump’s administration appears to be leveraging maximum pressure to isolate Iran diplomatically while maintaining the option of military force. The presence of the USS Nimitz carrier strike group en route to the Gulf reinforces this strategy, signaling readiness without committing to immediate action. Vice President JD Vance emphasized that multiple policy tools remain available, reaffirming the administration's stance that Iran will not be permitted to enrich uranium for weapons purposes.

The administration has not fully abandoned diplomatic options. Trump indicated that senior officials, including envoy Steven Witkoff or VP Vance, might still engage in direct talks with Iran—though no timelines have been disclosed. The dual posture of coercion and conditional diplomacy reflects the complexity of balancing deterrence with crisis de-escalation.

Geopolitical Fallout and Economic Ripples

The deteriorating situation has reverberated globally, particularly through energy markets. Oil prices surged to their highest level in nearly five months, reflecting fears of supply disruptions. Israel’s Oil Refineries Ltd. was forced to shut down after a strike killed three employees, compromising a facility that handles up to 200,000 barrels per day.

More broadly, concerns have resurfaced about the vulnerability of the Strait of Hormuz—a chokepoint through which roughly one-fifth of the world’s crude oil supply flows. While Iran has not initiated a blockade, the risk has grown. In response, Qatar instructed liquefied natural gas tankers to wait outside the strait as a precaution.

The situation also impacted financial markets, with US equities declining as traders braced for the potential expansion of conflict. The shutdown of US diplomatic facilities in Jerusalem and Tel Aviv for the next three days further underscores the growing risk environment.

Diplomatic Uncertainty and a Shrinking Window for Negotiation

Global leaders, including German Chancellor Friedrich Merz, warned that if Iran does not return to the negotiating table, the complete dismantling of its nuclear infrastructure might become a multilateral priority. The comment reflects a possible shift in the transatlantic stance—from urging restraint to accepting force as a policy tool.

Republican voices in the US Senate have also begun to pressure the White House to move decisively. Senator Lindsey Graham has openly called for coordinated attacks on Fordow, arguing that diplomacy has failed and military action is now necessary.

Despite the intensity, some signals suggest that combat may have temporarily subsided. Israeli military officials noted a reduction in missile activity from Iran on Tuesday compared to the weekend. Whether this signals tactical recalibration or a diplomatic opening remains uncertain.

The Middle East is once again at a critical juncture. As Israel steps up its offensive and Iran prepares retaliatory operations, the United States must decide whether to shift from support to direct involvement. Trump’s confrontational tone suggests diminishing patience, but any military escalation risks inflaming a region already on edge. The coming days will likely determine whether this standoff escalates into a broader war—or if a fragile path back to diplomacy can be preserved.

Source: Reuters

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Daily News

[Quick Facts]

1. Japan's exports decline for the first time in eight months due to tariff impact

2. Iran has been preparing for a possible attack on U.S. bases

3. Military action will not end unless Iran's Fordow nuclear facility is destroyed

4. U.S. CBO: "One Big Beautiful Bill Act" will increase the fiscal deficit by US$2.8 trillion

5. U.S. homebuilder confidence falls to lowest level since end of 2022

6. Villeroy de Galhau: ECB needs to be “flexible and pragmatic” in response to Iraq war

7. U.S. retail sales decline for second consecutive month as tariffs and financial concerns dampen consumer spending

[News Details]

Japan's exports decline for the first time in eight months due to tariff impact

Due to U.S. tariff measures exerting pressure on global trade, Japan's exports declined for the first time in eight months, intensifying concerns of a technical recession following the economic contraction earlier this year. The Ministry of Finance reported on Wednesday that May exports fell 1.7% YoY, primarily dragged down by automotive, steel, and mineral fuel sectors. Analysts' median forecast anticipated a 3.7% decline. Imports decreased 7.7% YoY, mainly due to reduced crude oil and coal imports.

The decline in exports and widening trade deficit have heightened fears of a potential second-quarter contraction in Japan's economy, risking a return to technical recession. Domestic consumption remains subdued amid persistent inflation outpacing wage growth. The U.S. has imposed a 25% tariff on imported automobiles and auto parts, along with a 10% tariff on all other Japanese goods. In early June, President Trump doubled steel and aluminum tariffs to 50%. After two months of negotiations, Japanese Prime Minister Ishiba Shigeru failed to reach a trade agreement with Trump during the G7 summit. The 10% U.S. tariff on Japanese goods is set to revert to the 24% rate announced in April starting July 9.

Iran has been preparing for a possible attack on U.S. bases

According to reports from The New York Times, informed U.S. officials indicate that Iran has mobilized missile systems and other military assets, preparing for potential retaliatory strikes against U.S. military installations in the Middle East should the U.S. engage in hostilities with Iran following Israel's escalation. The report states that approximately 36 aerial refueling tankers have been deployed to Europe to support combat aircraft tasked with defending U.S. bases or extending bomber operational ranges, potentially enabling strikes against Iran's nuclear infrastructure.

As Israel pressures the White House for direct involvement in the Iran conflict, U.S. officials are increasingly concerned about the prospect of a broader regional war. They warn that if the U.S. participates in strikes against Iran's critical nuclear sites, such as Fordow, Iran-backed Houthi forces are almost certain to resume attacks on Red Sea shipping lanes. Additionally, pro-Iranian militias in Iraq and Syria may attempt to target U.S. military facilities in those regions. Other officials suggest that Iran might initiate mine-laying operations in the Strait of Hormuz, aiming to trap U.S. naval forces in the Persian Gulf through maritime interdiction tactics.

Military action will not end unless Iran's Fordow nuclear facility is destroyed

On the 17th local time, Israeli National Security Advisor Hanegbi stated that Israel's military operations against Iran will not conclude unless the Fordow nuclear facility is destroyed. Hanegbi emphasized that Israel is maintaining ongoing communication with the U.S. but is not attempting to persuade Washington to join the strike. He asserted that the operational plan is entirely autonomous, encompassing all aspects of the offensive strategy. Reports indicate that Iran's Fordow underground nuclear site is situated approximately 90 meters beneath the surface and houses thousands of uranium enrichment centrifuges. Conventional Israeli weaponry is insufficient to target such a deeply buried facility, and an airstrike to neutralize it would necessitate U.S. military intervention.

U.S. CBO: "One Big Beautiful Bill Act" will increase the fiscal deficit by US$2.8 trillion

According to CCTV News, on June 17th local time, reporters learned that the Congressional Budget Office (CBO) released a comprehensive analysis indicating that, after accounting for macroeconomic effects, the Trump administration's tax reform and budget legislation are projected to increase the federal deficit by US$2.8 trillion over the next decade. The report incorporates debt service costs, revealing that the legislation will elevate interest rates and add US$441 billion in interest expenses based on federal debt baseline forecasts. Earlier this month, the CBO issued a static scoring analysis estimating that the administration's proposals would generate trillions in tax cuts and spending reductions, but also result in a US$2.4 trillion deficit increase over ten years and cause an additional 10.9 million Americans to lose health insurance coverage.

U.S. homebuilder confidence falls to lowest level since end of 2022

U.S. homebuilder confidence plummeted to its lowest level since December 2022, as elevated mortgage rates and concerns over tariffs and economic stability deter prospective buyers. The National Association of Home Builders (NAHB) and Wells Fargo jointly reported a decline of 2 points in the overall market index to 32, below economists' expectations of 36. The index's three components all declined, with the current sales index reaching its lowest point since 2012. Metrics measuring prospective buyer traffic and future sales outlook over the next six months also hit over-one-year lows.

Villeroy de Galhau: ECB needs to be “flexible and pragmatic” in response to Iraq war

European Central Bank Governing Council Member and Banque de France Governor Francois Villeroy de Galhau stated on Tuesday that following the outbreak of the Israel-Hamas conflict, the ECB must adopt a more flexible approach to monetary policy implementation.

Villeroy de Galhau noted that after the ECB lowered interest rates to 2% this month, the institution remains in a favorable position. However, he emphasized that the escalation of Middle Eastern tensions has led to a significant surge in oil prices, increasing uncertainty in the outlook.

Will core inflation be influenced by commodity price fluctuations and the spillover effects of oil prices? Villeroy de Galhau addressed this at the Financial Times Global Borrowers and Bond Investors Forum in London.

He further added that the ECB must adopt a more "flexible and pragmatic" approach than ever before.

U.S. retail sales decline for second consecutive month as tariffs and financial concerns dampen consumer spending

U.S. Department of Commerce data released on Tuesday indicates that May's nominal retail sales declined by 0.9% MoM, marking the largest decrease since the beginning of the year and primarily driven by automotive sector weakness. April's figures were revised downward to a 0.1% decline, representing the first consecutive monthly decline since late 2023.

Among the 13 retail categories analyzed, seven experienced declines, with notable contractions in building materials, gasoline, and motor vehicle sales. Expenditures at restaurants and bars registered the steepest drop since early 2023, remaining the sole service sector category within the retail report to show a decline.

Consumers preemptively purchased automobiles and other goods ahead of President Trump's tariff implementation, yet recent data indicates a pullback in discretionary spending. While tariffs have not yet significantly fueled inflation in the U.S., consumer confidence remains fragile, and household financial stability is deteriorating due to persistent increases in living costs and elevated interest rates.

Data shows that the control group's sales grew by 0.4% in May, driven by gains in sporting goods, furniture, and apparel. This metric excludes food service, auto dealerships, building material stores, and gas stations.

[Today's Focus]

UTC+8 14:00 UK May CPI

UTC+8 15:30 ECB Executive Board Member Elderson Speaks

UTC+8 16:45 ECB Governing Council Member Escriva Speaks

UTC+8 17:30 ECB Governing Council Member Villeroy Speaks

UTC+8 20:30 U.S. May New Residential Construction Annualized Starts

UTC+8 23:00 ECB Chief Economist Lane Speaks

UTC+8 23:15 Bank of Canada Governor Macklem Speaks

UTC+8 02:00 Federal Reserve June Monetary Policy Decision

UTC+8 02:30 Fed Chairman Powell Holds a Press Conference on Monetary Policy

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Economic

US Tariffs Weigh Down Japan’s Trade Outlook

In May 2025, Japan’s total exports declined by 1.7% compared to the same period last year, breaking an eight-month streak of growth. The decline, though smaller than the forecasted 3.8% drop, highlights the immediate impact of aggressive US trade measures, especially on Japan’s automobile industry. The 25% tariff imposed by the United States has directly affected one of Japan's most export-dependent sectors and introduces severe risks to broader economic momentum.

The downturn is most visible in Japan’s trade with its key partners. Exports to the United States fell by 11.1%, while shipments to China declined by 8.8%, reflecting not only the direct consequences of tariffs but also an overall cooling of global demand. Despite these setbacks, Japan managed a smaller-than-expected trade deficit of 637.6 billion yen ($4.39 billion), better than market expectations of nearly 893 billion yen.

Auto Sector at the Heart of Tariff-Driven Decline

Japan’s auto exports, which account for approximately 28% of its total shipments to the United States, are bearing the brunt of the tariff fallout. These vehicles are now subject to a 25% penalty, with an additional 24% 'reciprocal' tariff set to take effect on July 9 unless bilateral negotiations achieve a breakthrough. The escalation poses a significant obstacle to Japan’s industrial recovery, especially as manufacturing output has struggled to gain consistent traction over the past year.

The rush of exports earlier this year—motivated by fears of future tariff enforcement—appears to have front-loaded US-bound shipments, temporarily inflating figures but now contributing to the sharp pullback seen in May.

Macroeconomic Vulnerabilities Deepen

The export contraction arrives at a critical juncture for Japan’s economy. With GDP shrinking in the first quarter due to sluggish private consumption, the new external shock from tariffs risks pushing the economy toward a prolonged stagnation. Economists from the Japan Research Institute warn that should the full suite of proposed tariffs be implemented, US-bound exports could drop by 20–30%, potentially shaving up to 1 percentage point off Japan’s GDP.

This prospect not only affects short-term growth projections but also threatens structural recovery. A contraction in one of Japan’s most globally competitive sectors—autos—could cascade into broader industrial slowdowns, layoffs, and suppressed household spending.

BOJ’s Policy Constraints Grow Tighter

The Bank of Japan finds itself constrained in its ability to respond. On Tuesday, it held interest rates steady and announced a slower-than-expected reduction in its balance sheet beginning next year. This cautious stance underscores the central bank’s dilemma: inflation remains muted, growth is stalling, and monetary tools have limited remaining firepower after a decade of stimulus.

The threat from tariffs exacerbates this challenge. Any resulting downturn would likely push the BOJ to delay normalization even further, locking it into a reactive position with limited leverage to stimulate growth or anchor expectations.

Trade Diplomacy and Domestic Stakes

Prime Minister Shigeru Ishiba's administration is under pressure to deliver a diplomatic resolution with Washington. However, no deal has yet been struck with President Trump, whose trade policy increasingly targets long-standing US allies with sector-specific levies. Japan’s government is reportedly lobbying hard for exemptions, but time is running out as the July 9 deadline for expanded reciprocal tariffs nears.

The structural dependency on the US market, combined with a highly concentrated export profile, reveals a broader strategic vulnerability in Japan’s trade model. Without diversification or protection, any deterioration in US trade relations quickly translates into macroeconomic strain.

Japan’s first export contraction in eight months reflects more than just a cyclical slowdown—it reveals the real economic damage already being inflicted by trade protectionism. With US-bound auto exports plummeting and broader manufacturing under threat, Japan’s policymakers face a dual challenge: restoring external trade flows while managing a precarious internal recovery. If diplomatic efforts fail and tariffs persist, the country’s economic recovery could be significantly derailed, setting back growth and complicating the Bank of Japan’s already cautious exit from ultra-loose monetary policy.

Source: Reuters

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Economic

Commodity

Middle East Situation

Middle East Tensions Push Crude Oil Toward Five-Month Peak

Oil markets have entered a highly volatile phase after geopolitical escalation between the United States, Israel, and Iran reignited concerns over global supply security. On Tuesday, Brent crude settled more than 4.4% higher, trading above $76 per barrel—the highest since early 2025—while West Texas Intermediate hovered near $75. The surge followed public warnings from President Donald Trump about the potential for direct US military strikes on Iran’s Supreme Leader Ayatollah Ali Khamenei and a call for Iran’s “unconditional surrender.”

This marked escalation in rhetoric came after Israel’s unexpected strikes on Iranian nuclear facilities and amid growing speculation that the US may be preparing to enter the conflict militarily. Although Iranian oil infrastructure has not been damaged, the shockwaves have already begun to ripple across global shipping and commodities markets.

The Strait of Hormuz as a Strategic Flashpoint

Central to oil market anxiety is the Strait of Hormuz—a narrow maritime chokepoint through which roughly 20% of the world’s daily crude supply transits. While there is currently no evidence that Iran plans to interrupt shipping in the region, the strategic vulnerability of the strait makes even the suggestion of blockade or conflict a powerful driver of price volatility.

Charu Chanana, chief investment strategist at Saxo Markets, noted that Trump’s aggressive posture signals the end of diplomatic channels. If Iranian exports are disrupted, or if access to the Strait of Hormuz is obstructed in any form, crude prices could rise dramatically. This potential risk is not only about immediate disruptions but also about how markets are pricing in future geopolitical uncertainty.

Volatility Surges, Hedging Activity Intensifies

Market indicators reveal that oil volatility has reached a three-year high. Hedging activity among producers has sharply increased, with a noticeable rise in futures and options volumes. This behavior underscores the industry’s heightened risk aversion as traders brace for multiple potential outcomes, ranging from a temporary escalation to a prolonged conflict that destabilizes a major oil-producing region.

Investor demand for safe-haven assets such as gold has also increased, reflecting a broader sentiment shift. These moves signal growing unease not only about oil supply chains but also about macroeconomic stability, given the intertwined nature of energy prices, inflation expectations, and global monetary policy.

US Strategic Role and Fallout Scenarios

Israel’s strategic calculus appears to hinge on drawing deeper US military participation. Prime Minister Netanyahu explicitly framed US involvement as aligned with America’s own security interests, emphasizing the shared threat posed by Iran’s nuclear ambitions. Intelligence reports cited by the New York Times indicate that Iran has already prepared retaliatory capabilities targeting US military bases in the region should American forces become directly involved.

This threat matrix intensifies the uncertainty facing global energy markets. While direct confrontation has not yet occurred, the geopolitical signals point toward a rising probability of military entanglement, especially as diplomatic backchannels appear to be closing.

Domestic Oil Stocks Shrink as Supply Tightens

Adding to bullish pressure, US crude inventories reportedly declined by more than 10 million barrels last week—potentially the steepest drop since summer 2024. If validated by the Energy Information Administration’s official data, this drawdown would signal robust domestic demand or export-driven depletion, tightening an already sensitive supply outlook. The confluence of tightening fundamentals with geopolitical shocks is compounding upward price pressure.

The oil market is navigating a critical inflection point as geopolitics and supply dynamics collide. With the US signaling potential direct involvement in the Middle East conflict, and with oil flow through the Strait of Hormuz increasingly seen as vulnerable, prices are reacting not only to current realities but to mounting expectations of disruption. The coming weeks may determine whether this is a short-lived spike or the onset of a longer-term revaluation of oil’s geopolitical risk premium.

Source: Reuters

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Cryptocurrency

Legislative Momentum Reshapes Crypto Landscape

On June 17, 2025, the US Senate passed the “Guiding and Establishing National Innovation for US Stablecoins” (GENIUS) Act with a strong bipartisan vote of 68-30. Though not yet enacted into law, the bill marks a significant turning point in US digital finance policy. By establishing the first federal regulatory framework for stablecoins—cryptocurrencies backed by the US dollar—the legislation sets in motion structural changes that could rapidly accelerate mainstream adoption.

The bill must now pass the House of Representatives and receive President Trump’s signature. Given Trump’s active endorsement of stablecoins—evident through his family-backed initiative “USD1” in partnership with BitGo—the likelihood of final approval appears strong. However, the path forward may be complicated by political concerns and potential additions related to broader cryptocurrency regulation.

Investor Sentiment and Market Performance Reflect Anticipation

The crypto and broader financial markets have responded optimistically. Circle (CRCL), the largest US stablecoin issuer, has seen its stock value surge nearly 400% since its IPO on June 5. This remarkable rise suggests investor confidence in the sector’s regulatory future and the perceived safety of stablecoin-backed platforms. Coinbase’s legal chief noted that just a year ago, the idea of such legislation seemed implausible, underscoring how swiftly political and institutional sentiment has evolved.

While Circle and Coinbase celebrate, major financial institutions are actively exploring entry strategies. Bank of America (BAC) confirmed discussions with peers about launching a collaborative stablecoin network, and retail giants like Amazon and Walmart are reportedly conducting feasibility assessments.

Structural Features of the GENIUS Act

The GENIUS Act proposes differentiated oversight: stablecoin issuers with assets over $10 billion will be regulated by the Federal Reserve and the Office of the Comptroller of the Currency, while smaller issuers fall under state jurisdiction. All issuers must fully back tokens with either US cash or Treasurys, submit to audits, and maintain transparent public disclosures. These conditions mirror the liquidity principles of money market funds, although the law explicitly prohibits stablecoin issuers from paying interest—mitigating their appeal as savings instruments.

This structure is intended to reassure both regulators and users that stablecoins are reliable payment instruments rather than speculative assets. The requirement of regular audits and clearly defined redemption mechanisms aims to reduce risks of investor panic or system collapse, often observed during crypto market volatility.

From Speculation to Institutionalization: A Broader Payment Revolution

If the bill becomes law, traditional payment networks such as Visa and Mastercard may face disruption. Stablecoins offer real-time settlement and programmable capabilities that could render existing systems inefficient in comparison. Retailers—particularly those seeking to reduce payment processing costs or develop closed-loop financial ecosystems—may opt for in-house stablecoins.

The anticipated competitive wave may also deepen financial inclusivity by lowering barriers to US dollar access globally. Supporters of the bill argue that its provisions enable a consistent and secure environment for both traditional financial firms and innovative crypto players, leveling the regulatory playing field.

However, this expansion raises concerns about tech conglomerates wielding too much influence over digital currencies. Critics like Senator Elizabeth Warren argue that the entry of firms like Meta or Amazon into the stablecoin market could lead to monopolistic behavior. In response, the bill stipulates that any tech company aiming to issue stablecoins must secure approval from a specialized Treasury Department committee.

Implications for Financial Policy and Market Forecasting

Treasury Secretary Scott Bessent projects that this legislation could push the US stablecoin market to exceed $2 trillion in total valuation by 2028. With current global stablecoin circulation hovering around $250 billion, such a trajectory would indicate substantial scaling and capital inflows.

Yet uncertainties remain. Some Democrats remain uneasy about the lack of restrictions on the President’s family profiting from stablecoins—a clause notably excluded from the bill. Furthermore, as discussions continue in the House, there is growing speculation that the bill could be absorbed into a more comprehensive digital asset regulatory package. This could delay final approval and introduce new conditions that alter its scope.

Still, the Senate’s passage of the GENIUS Act signals a critical shift: digital currencies are no longer viewed merely as speculative tools but as integral components of future financial systems. Whether this results in deeper stability or newer risks will depend on how swiftly and transparently stakeholders adapt to the forthcoming rules.

The GENIUS Act, now approved by the Senate, positions the US as a potential global leader in stablecoin regulation. It balances innovation with oversight, opening the door for both Wall Street and Silicon Valley to shape the future of money. As policymakers deliberate in the House and the private sector races to prepare, the stablecoin era is no longer a question of "if," but "how soon."

Source: Yahoo Finance

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Laura Fletcher

U.S. retail sales dropped more than expected in May, weighed down by a decline in motor vehicle purchases as a rush to beat potential tariff-related price hikes ebbed, but consumer spending remains supported by solid wage growth for now.

The largest decline in sales in four months reported by the Commerce Department on Tuesday added to moderate job growth last month in suggesting that domestic demand was softening. That was reinforced by other data showing production at factories, outside motor vehicle assembly, decreased in May.President Donald Trump's aggressive and often shifting tariff position has heightened economic uncertainty, making it difficult for businesses to plan ahead. Federal Reserve officials meeting on Tuesday and Wednesday are expected to leave the U.S. central bank's benchmark overnight interest rate unchanged in the 4.25%-4.50% range while monitoring the fallout from the import duties and rising tensions in the Middle East.

"Tariff announcements have had a clear impact on the timing of large-ticket purchases, notably autos, but there are few signs yet that tariffs are leading to a general pullback in consumer spending," said Michael Pearce, deputy chief economist at Oxford Economics. "We expect a more marked slowdown to take hold in the second half of the year, as tariffs begin to weigh on real disposable incomes."Retail sales fell 0.9% last month, the largest decrease since January, after a downwardly revised 0.1% dip in April, the Commerce Department's Census Bureau said. The second straight monthly decline unwound the bulk of the tariff-driven surge in March.

Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, decreasing 0.7% after a previously reported 0.1% gain in April.

They increased 3.3% year-on-year in May.

Sales last month were also held down by lower receipts at service stations because of cheaper gasoline as the White House's protectionist trade policy has raised fears over global growth, restraining oil prices. But hostilities between Israel and Iran have boosted oil prices. A 25% duty on imported motor vehicles and trucks came into effect in April. Unseasonably cooler weather likely also hurt sales.Receipts at auto and parts dealerships tumbled 3.5%. Sales at building material and garden equipment and supplies dealers dropped 2.7%. Receipts at service stations fell 2.0%, while those at electronics and appliance stores slipped 0.6%.

Sales at food services and drinking places, the only services component in the report, declined 0.9%. Economists view dining out as a key indicator of household finances.

But online sales jumped 0.9%, while those at clothing retailers increased 0.8%. Furniture store sales soared 1.2%. Sporting goods, hobby, musical instrument and book store sales advanced 1.3%.

Retail sales excluding automobiles, gasoline, building materials and food services increased 0.4% in May after an upwardly revised 0.1% fall in April.

These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have dropped 0.2% in April.People shop for groceries at Eastern Market in Washington

A man shops for meat at Eastern Market in Washington, U.S., August 14, 2024. REUTERS/Kaylee Greenlee Beal/File Photo Purchase Licensing Rights, opens new tab

DOWNSIDE RISKS MOUNTING

Economists estimated that growth in consumer spending, which accounts for more than two-thirds of economic activity, was so far this quarter tracking at least a 2.0% annualized rate after slowing to a 1.2% pace in the first quarter.

The Atlanta Fed is forecasting GDP rebounding at a 3.5% annualized rate in the second quarter. The anticipated surge will largely reflect a reversal in imports, which have fallen sharply as the frontloading of goods fizzled. The economy contracted at a 0.2% pace in the January-March quarter.

Downside risks to consumer spending are, however, rising. The labor market is slowing, student loan repayments have resumed for millions of Americans and household wealth has been eroded amid tariff-induced stock market volatility. Economic uncertainty could lead to precautionary saving.

"The outlook for consumer spending is cloudy," said Bill Adams, chief economist at Comerica Bank.

Stocks on Wall Street fell. The dollar rose against a basket of currencies. U.S. Treasury yields fell.

Economists said retailers likely offered discounts last month, adding that could explain part of the benign consumer price data in May. They, however, expected price pressures to build up in the month ahead.

That thesis was supported by a separate report from the Labor Department's Bureau of Labor Statistics showing import prices, excluding fuels and food, increased 0.4% in May after advancing 0.5% in April. In the 12 months through May, the so-called core import prices increased 1.3%.

Core import prices are being driven by dollar weakness, with the greenback down about 6.2% this year on a trade-weighted basis. Trump's aggressive trade posture has shaken investors' confidence in the dollar, eroding the appeal of U.S. assets.

"This is another sign that inflation will pick up this summer and into the fall as prices start to reflect the higher costs for goods from enacted tariffs," said Ben Ayers, senior economist at Nationwide.

A third report from the Fed showed manufacturing output edged up 0.1% in May, lifted by a 4.9% jump in motor vehicle and 1.1% rise in aerospace and miscellaneous transportation equipment production. That followed a 0.5% decline in April.

But excluding motor vehicles, factory output fell 0.3% amid declines in fabricated metal products, machinery and nonmetallic mineral products. There was also a steep decrease in energy nondurable consumer goods production.

Manufacturing, which accounts for 10.2% of the economy, relies heavily on imported raw materials.

Trump has defended the duties as necessary to revive a long-declining U.S. industrial base, but economists say that cannot be accomplished in a short period of time, citing high production and labor costs as among the challenges.

"Continued uncertainty around where trade policy will ultimately land is preventing many businesses from taking on new capital expenditures, unsure of the policy and underlying demand environment," said Shannon Grein, an economist at Wells Fargo. "We expect manufacturing to continue to tread water in the months ahead."