Market Report.
📊 The U.S. Federal Reserve maintained its benchmark interest rate within the 4.25% to 4.5% bracket on Wednesday, a level it has held steady since December. The U.S. Federal Reserve, in addition to the rate decision, signaled that two interest rate reductions remain possible by 2025’s conclusion, as communicated by the committee this week.
📉 The latest inflation data published in the US showed that inflation was rising below expectations and that forecasts of an increase in inflation due to Trump’s tariffs did not seem to be materializing for the time being. However, yesterday Powell returned to the same topic.
📈 Federal Reserve Chair Jerome Powell acknowledged that tariffs will lead to a “meaningful increase in inflation” in the coming months, as the costs get passed on to consumers. In this case, the Fed expects growth to slow “eventually” and sees the possibility of stagflation. The central bank had in March expected the PCE to hit 2.8%. The PCE came in at just 2.1% in April. The Fed also sees economic growth slowing to 1.4% this year, down from an earlier estimate of 1.7%.
💬 President Trump continued to criticize the Fed, saying the federal funds rate should be at least 2 percentage points lower, and again slammed Chair Powell. Yesterday, Trump posted on Truth Social: “Too late – Powell is the WORST. A real dummy, who’s costing America Billions!”.
💱 In yesterday’s report, we discussed the trend towards using alternative currencies to the dollar in international export contracts. Confidence in the US dollar is waning after months of President Trump’s erratic policymaking, leading to a significant decline in the dollar’s value against other major currencies.
🇨🇳 China seems to have a plan in this regard. The PBOC is positioning the yuan as a rival to the US dollar, an extension of efforts by President Xi Jinping to build China into a financial power with a stable currency playing a greater role in global trade.
🌐 PBOC Governor Pan Gongsheng laid out his vision for a new global currency order, predicting a more competitive system with a few sovereign currencies co-existing and checking each other. Pan called on countries with widely used currencies to shoulder their responsibilities by pushing for economic reforms and strengthening fiscal discipline and financial regulation. One option discussed is promoting a “super-sovereign” currency, such as the IMF’s Special Drawing Rights (SDRs), but there is a lack of consensus on this and a need for more regular and larger issuance of SDRs.
🇬🇧 The United Kingdom’s year-on-year inflation rate for May remained at 3.4%, meeting forecasts. U.K. Finance Minister Rachel Reeves emphasized that the Treasury had enacted “essential measures to stabilize public finances and reduce inflation,” though she acknowledged ongoing efforts are required to achieve full control. The Bank of England is scrutinizing the inflation report closely as it prepares for its upcoming monetary policy review.
🇺🇸🇪🇺 The U.S. and the European Union face an escalating race against the clock to finalize a resolution on trade tariffs by July 9, as progress in these discussions has been slow since both sides temporarily reduced tariffs on each other’s goods until mid-July. If an agreement remains elusive, reciprocal import taxes could escalate to 50% on EU exports, while the bloc maintains comprehensive retaliatory measures against U.S. imports.
Geopolitics:
⚔️ Will the US finally attack Iran? Well, the US president’s stance is eccentric. Yesterday, on FOX News, during a series of questions from reporters to Trump about whether he would authorise an attack on Iranian nuclear facilities, Trump replied: ‘I might, I might not. Nobody knows what I’m going to do, right?’
📰 Last night, media reports indicated that Trump had approved military action against Iran, but Washington decided to postpone it for now, waiting for Tehran to abandon its nuclear programme.
✈️ US has evacuated the Al Udeid airbase in Qatar, one of the greatest US military bases in the Middle East. Could these be preventive measures in anticipation of an imminent US attack on Iran?
🤝 According to Reuters, the foreign ministers of Germany, France and Great Britain plan to hold nuclear talks with the foreign minister of Iran in Geneva on Friday.
⚠️ Russia warns: The U.S. should not provide or even consider direct military assistance to Israel, calling it a dangerous escalation. Meanwhile, Russia have clarified that their cooperation agreement with Iran does not include any military cooperation clause. Furthermore, they assure that Iran has not requested military aid from Russia at this time. “Iran didn’t want our help, If the situation escalates, we’ll see if they will need help” Putin said.
🛬 On the other hand, some media outlets report that cargo planes continue to arrive in Iran from China, speculating that they may be supplying military equipment.
🗺️ Regarding the current conflict in the Middle East, Armstrong Economics comments: “The elimination of Israel’s opponents in the Middle East under the pretext of bringing peace in recent decades has included the assassination of Saddam Hussein, Bashar al-Assad and Muammar Gaddafi. The attacks on Iran are part of this neoconservative agenda, which has continued to shape US foreign policy even under the Trump administration”. “This roadmap has had disastrous and unforeseen consequences, such as the rise of ISIS and the refugee crisis that has destabilised Europe. It also risks escalating the conflict into a nuclear war, especially given Pakistan’s threat to use nuclear weapons against Israel if it attacks Iran”.
Market View:
📉 The market is not very pleased after the Federal Reserve did not deliver a more pro-rate cut speech yesterday. The Mini S&P 500 futures have retreated towards the 6,015-point area. The Nasdaq 100 futures have even lost the 22,000-point zone, although they remain close to it at 21,845 points.
📉 In Europe, whose markets have not shown sufficient strength this week, declines have continued, breaking the week’s lows with DAX futures below 23,195 points and Eurostoxx 50 futures below 5,250 points at present.
💵 Meanwhile, the dollar has managed to recover, with its DXY index rising above 99 points at the moment. This has generated a corresponding downward movement in the EUR/USD pair, which has lost 1.15 and is currently trading at 1.1450.
🛢️ At the same time, crude oil remains high, with Brent crude trading near $77 per barrel, in line with the ongoing tensions in the Middle East that do not seem to be resolving.
🥇 Gold futures, however, have lost the $3,400 per ounce support they held this week and are currently falling towards $3,365 per ounce, indicating that this market is discounting lower risk and a dollar recovery.
₿ Meanwhile, Bitcoin manages to stay afloat above $104,000, currently trading above $104,750.
