📰 Market Report.
⚔️ The conflict between Israel and Iran remains unresolved and the US position remains unclear, leaving markets in suspense. We will provide all the details later. Now let’s start by talking about Japan.
📈 Japan’s core inflation hit a more than two-year high of 3.7% in May, exceeding the central bank’s 2% target for well over three years. The data underscores the challenge the Bank of Japan (BOJ) faces in balancing pressure from sticky inflation and risks to the fragile economy from uncertainty over U.S. trade policy under President Trump.
📊 The Bank of Japan (BOJ) released a research paper warning that hiking interest rates only gradually as raw material costs rise could heighten the risk of an upward spiral in wages and consumer prices. The paper analyzed data from 2002 to 2024 in Japan and Europe, which both rely heavily on imported commodities, and found that the pass-through of rising raw material costs to inflation was more moderate in Japan than in Europe.
⏳ The paper suggests the BOJ’s slow pace of interest rate hikes could be enhancing these second-round effects on inflation in Japan. The BOJ’s next 25-basis-point rate hike is expected to come in early 2026, as the central bank navigates the tricky balance between containing inflation and supporting the fragile economy.
🌏 Japan is no exception. Central banks are grappling with elevated uncertainty about economic growth and inflation, complicating their policy decision-making, especially as they near the end of their rate-cutting cycles.
📉 Moments of uncertainty: Reuters has published updated charts comparing inflation and interest rates by country. Japan, the United Kingdom, Norway and New Zealand appear to be experiencing an upward trend in their inflation rates. Meanwhile, countries such as Sweden, Canada, Switzerland, the eurozone and Australia have remained stable or have shown a downward trend.
🇺🇸 The US has fared relatively well, with inflation falling from 3% in December to 2.4% in May, which is below expectations. As widely expected, China kept its benchmark lending rates unchanged last night.
🕰️ In yesterday’s report, we mentioned that Europe was running out of time to reach an agreement with the US before tariffs were reimposed in July. But back to Japan. What about the trade agreement with the US? If you remember, it was supposedly the first country to knock on Trump’s door for a deal.
🤝 Japan’s top trade negotiator, Ryosei Akazawa, stated that Japan will not fixate on the July 9 deadline that could see reciprocal tariffs rise in its ongoing trade negotiations with the US. kazawa deflected a question on whether Japan will seek an extension of the deadline. The US tariffs are set to rise from 10% to 24% on July 9 if no deal is reached.
📞 Japanese Prime Minister Shigeru Ishiba and U.S. President Donald Trump failed to reach a deal on the tariffs earlier this week, despite holding three phone calls prior to their in-person meeting at the G7 summit.
🌍 Now, back to the main topic of the conflict in the Middle East:
🚢 Could Iran put the global economy in check by closing the Strait of Hormuz, as we have suggested in other reports? Yes, approximately 30% of global crude oil exports and 20% of gas flow through this area. The question is, how could they do it and what would be the consequences? Tactics could include harassing ships with small patrol boats, launching drones and missiles from coastal sites, or mining the waterway. All that would be necessary is to announce that the strait has been mined and leave it to Israel or the US to verify this. Oil tankers would remain stationary rather than risk crossing and suffering explosions.
📉 Energy analyst Anas Alhajji has shared a very interesting graph on social media showing how ships are already, de facto, trying to keep their distance from the Iranian coast when crossing the Strait.
🤔 The US president’s indecision about whether to intervene in the war between Iran and Israel is now public and well known. Yesterday he announced that he would spend the next two weeks reflecting on the matter: “I will make my decision whether or not to go, within the next two weeks” said Donald Trump.
💣 President Donald Trump has suggested to defense officials that the U.S. should only launch strikes against Iran’s Fordow nuclear facility if the “bunker buster” bomb (GBU-57) is guaranteed to completely destroy it. However, Trump has been told that while the GBU-57 could effectively eliminate Fordow, it may not be able to penetrate deep enough to completely destroy the facility, which is buried 300 feet underground inside a mountain.
☢️ Defense officials have briefed that perhaps only a tactical nuclear weapon could be capable of completely destroying Fordow, but Trump is not considering using a nuclear option. Israel lacks the ordnance and aircraft to strike Fordow on its own, so U.S. involvement would be required for any successful attack on the facility.
⏳ Trump is holding off on authorizing strikes, hoping the threat of U.S. involvement could lead Iran to negotiate…. Following its attacks on Iran, it appears that Israel’s strategy is not only to eliminate Iran’s nuclear capabilities, but also, and perhaps primarily, to overthrow its regime. However, an article by Al Jazeera suggests that the attacks could have the opposite effect.
🗣️ Israeli and American strategists have long argued that regime change is the only way to stop Iran from developing nuclear weapons, and these attacks seem designed to provoke an internal uprising in Iran. Just a few days ago, Prime Minister Netanyahu called on the Iranian people to rise up in rebellion.
🇮🇷 However, this may have had the opposite effect, as the attacks appear to have united public opinion in Iran across political lines, reinvigorating a deeply ingrained defensive reflex against foreign intervention. Conversation internally has shifted from political reform to national defence.
⚖️ The Iran-Israel conflict is a double-edged sword for Ukraine:
💰 The conflict has pushed up oil prices, which is a key revenue stream funding Russia’s invasion of Ukraine. This poses a challenge for Ukraine, as high oil prices will allow Russia to earn more. However, Kyiv has welcomed the Israeli attacks on Iran, which is a close ally of Russia and has provided direct aid and weapons to Moscow for strikes on Ukraine. “The Iranian regime is Russia’s ally, so the more they lose, the better,” a Ukrainian source said.
🇷🇺 Russian advances on the battlefield or deadly aerial attacks will meet with a reduced response from the White House, which already sees the Ukraine conflict mainly as a European problem. However, the conflict has also disrupted Iran’s ability to supply weapons, including drones and missiles, to Russia for use against Ukraine.
📉 Market View:
📉 The markets still seem uncertain about whether to move up or down given the uncertainty over the conflict in the Middle East. The Mini SP500 futures are retreating from the levels reached on Monday but remain above 6,000 points, currently trading at 6,024.50 points.
📉 The Nasdaq futures are also moving downwards compared to yesterday’s levels but have yet to recover the 22,000 points reached on Monday, currently trading at 21,915 points.
💵 The dollar, which began to strengthen rapidly yesterday, reaching 99 points on its DXY index, has since retreated and weakened, currently trading at 98.65, generating volatility in the major currency pairs. The EURUSD, which approached 1.1450 yesterday, is rebounding upwards today and trading above 1.15.
🌐 Global risk indicators remain calm. Neither is the dollar experiencing a spectacular surge, nor are bond yields plummeting, nor is gold seeing a dramatic rise. These three markets suggest that there is calm.
🇪🇺 In Europe, the stock markets appear set to end the week in negative territory. Today’s futures are edging up but remain well below the levels reached during the first week of June. The DAX 40 futures are currently trading at 23,345 points, down from the June high of 24,500 points. The Eurostoxx futures are trading at 5,260 points.
🛢️ Crude oil saw strong bullish movements during yesterday’s session, reaching $78.65 per barrel for Brent. However, the White House’s announcement to extend its decision on intervening in the war by two weeks has calmed markets, and the barrel has dropped to $76.75.
🥇 Gold futures continue to cool down, with the price falling below $3,360 per ounce.
₿ Bitcoin is heading into the weekend well below Monday’s levels but remains above $104,000, a level we identified as support in previous days.
