Introduction to Global Markets
Global markets have been experiencing a significant amount of volatility in recent times, particularly with the ongoing conflict between Israel and Iran. Despite the uncertain situation, there has been a sense of cautious optimism among investors, leading to a relatively positive tone across world markets.
The Current Situation
The conflict between Israel and Iran has been ongoing for over a week, with both sides engaging in bombing and retaliatory strikes. However, there have been some indications of a possible de-escalation, with President Donald Trump considering direct talks with Iran. The Iranian foreign minister has also been in negotiations with European counterparts in Geneva. While the situation is still fluid and fragile, it appears to be less bleak than it was a week ago, which has helped to boost market sentiment.
Impact on Markets
The positive tone in global markets has led to a rise in most stock markets, with Wall Street being a notable exception. The ongoing conflict has also led to a decline in oil prices, with oil experiencing its biggest decline in over a month. The situation is being closely watched by investors, who are waiting to see how developments over the weekend will impact markets on Monday.
Central Banks and Interest Rates
It has been a significant week for central banks, with several major banks making announcements about interest rates. The Federal Reserve took a hawkish turn, indicating that interest rates may be higher than expected. The Bank of Japan, on the other hand, took a dovish turn, indicating that it may reduce its balance sheet. The Swiss National Bank cut rates to zero, and Norway’s central bank delivered a surprise rate cut. Brazil’s central bank also raised rates to the highest level since 2006.
Trade and Tariffs
The trade front has been relatively quiet, with the Trump administration finding it harder to secure trade deals than expected. China is not backing down, and it holds significant leverage in terms of rare earths and pharmaceuticals supply. The US is also a smaller market for Chinese exports than it used to be, which gives China more room to maneuver.
Key Market Moves
The next few weeks will be pivotal for markets, with investors watching several key events. These include the half-year point, the July 9 expiry of Trump’s pause on ‘reciprocal’ tariffs, and Trump’s two-week window to decide on the level of US involvement in the Iran-Israel war.
Charts of the Week
Two significant charts have caught attention this week. The first, from Goldman Sachs, shows wage pressures in developed G10 countries cooling down. The second, from economist Phil Suttle, shows developed and emerging market interest rate paths diverging sharply. This divergence is likely to have significant implications for markets in the coming weeks.
Conclusion
In conclusion, global markets are experiencing a significant amount of volatility, driven by the ongoing conflict between Israel and Iran, as well as developments in central banks and trade. While there are some indications of cautious optimism, the situation remains fluid and fragile. Investors will be watching several key events in the coming weeks, which will help to determine the direction of markets. As the situation continues to evolve, it is essential to stay informed and up-to-date on the latest developments.
