Market Report.
🌍 Our geopolitical analysis appears to have been proven correct once again. Despite the optimism sparked by Trump’s numerous statements over the past few weeks regarding an imminent agreement with Iran, we have consistently maintained that there was no basis for believing such a scenario was possible, given that the positions of Israel and Iran were irreconcilable.
⚠️ But before we move on to the war report, remember that today we’ll be seeing the US inflation figures. This data is particularly important for two reasons: the world fears that the conflict in the Middle East could trigger hyperinflation if it isn’t resolved, and, on the other hand, the Fed has a new chair and we still don’t know what his stance on the matter will be.
📉 Wall Street has priced in the view that Warsh does not need to raise interest rates to combat inflation, but it remains to be seen whether that is true. Other central bankers do not seem to share this view, and the US bond market does not appear to be pricing in that scenario either.
Black Hawk Down:
🚁 President Trump announced that Iranian forces shot down a U.S. Army AH-64 Apache attack helicopter patrolling over the Strait of Hormuz. Both pilots were rescued uninjured, reportedly by a Navy sea drone in the first combat rescue of its kind using an uncrewed vessel.
💥 The U.S. quickly launched proportional self-defense strikes against Iranian air-defense sites, radar installations, and ground-control stations near the strait. Iran responded with missiles and drones toward U.S. positions and claimed to have downed an American MQ-9 Reaper drone.
🛡️ Iran’s Foreign Ministry denied intentionally targeting the helicopter, calling the incident possibly accidental, while warning that foreign forces near its waters are at constant risk.
⛴️ The escalation occurred just one day after the U.S. Energy Secretary noted a meaningful rise in tanker traffic through the strait, a tentative recovery now at risk. coincidence?
📉 The market took a brief shock when President Trump reported this on social media with the following stattement: “the United States must, of necessity, respond to this attack.” NASDAQ 100 index futures fell by almost 5% before partially recovering from the losses.
📺 Afterwards, President Trump issued a stark warning to Iran in an interview with ABC News, threatening severe consequences if Tehran continues on its current path. “If Iran’s people keep being stupid, we’ll end up in something where we have to wipe out the infrastructure of an entire nation,” Trump said.
✈️ The United States carried out a series of airstrikes inside Iran over the past several hours, targeting military and strategic infrastructure along the country’s southern coast. According to initial reports, the strikes hit the Sirik and Jask naval bases, an air defense position near Bandar Abbas, coastal missile sites in Minab and on Qeshm Island, as well as the commercial port on Qeshm.
📰 According to The Cradle, Pakistani mediators reveal that Israeli violations in southern Lebanon and Gaza are the primary obstacle, directly contradicting Trump’s claim that a settlement could be reached in two or three days. The two sides were reportedly inches away from a temporary truce in late May. That momentum collapsed when Israel launched a large-scale incursion and annexed Lebanese territory.
🛑 Iran has made clear it will not return to the negotiating table while Israeli strikes persist. Pakistani officials have told Washington that halting Israeli military action is essential for any breakthrough.
There are also signs of inflation in China.
🏭 China’s producer price index rose 3.9 percent in May from a year earlier, the highest since July 2022, exceeding market forecasts. This marks the third straight monthly rise as global energy prices pile cost pressures on manufacturers.
🔍 Core consumer inflation, which excludes volatile food and fuel prices, rose 1.1 percent from a year earlier. On a monthly basis, consumer prices edged down 0.1 percent, in line with expectations.
⛽ The energy price shock from the Iran war and the effective closure of the Strait of Hormuz are the main drivers. The PPI moved into positive territory in March for the first time since September 2022, breaking a long deflationary streak.
🔧 A sharp divide exists between sectors. Industries tied to AI demand, such as non-ferrous metals and electronic equipment, can pass on higher costs. Non-AI sectors, like automotives, face difficulty doing so, squeezing profits and dampening domestic consumption.
🚗 Domestic car sales slumped 22.3 percent in May and nearly 20 percent in the first five months. Gasoline and diesel consumption dropped 13 percent year on year after a roughly 16 percent fall in April, reflecting the hit from higher fuel costs.
India is also affected.
📊 Inflation is rising and growth is expected to slow. The Reserve Bank of India raised its inflation forecast to 5.1 percent for the current financial year and warned that growth will likely slow to 6.6 percent, down from an earlier forecast of 6.9 percent.
💱 The currency and oil prices create a treacherous situation. The Indian rupee has weakened significantly against the dollar while global oil prices rise, a critical vulnerability since India imports more than 85 percent of its crude oil.
🏃 Foreign investors are pulling record sums out of India. Foreign portfolio investors have sold Indian equities worth $29.5 billion so far this year, surpassing the $18.9 billion sold in all of last year.
🌪️ India’s economy faces growing headwinds. Weaker consumption, fragile investment sentiment, higher energy costs from the prolonged Middle East conflict, and more selective global capital are eroding the country’s appeal as a straightforward growth story.
🤖 India is seen as having missed the AI opportunity. Analysts warn that AI advancements threaten quality jobs in the country’s information technology sector. Unlike China and the U.S., India does not own any AI models, raising the risk of becoming a permanent consumer in the AI economy rather than a producer.
Also Japan.
📈 Japan’s wholesale inflation hit its highest level in three years in May, driven by rising energy costs from the Middle East conflict. The producer price index rose 6.3% year-on-year, surpassing expectations of 5.5% and hastening from 5.3% in April.
🔋 The increase was driven by higher prices for nonferrous metals, chemicals, and petroleum goods. The effective closure of the Strait of Hormuz pushed up crude oil and naphtha costs, feeding through to producer prices.
🏦 The Bank of Japan (BOJ) is anticipated to raise short-term interest rates at its upcoming meeting on June 15-16, the first hike since December. The yen-based import price index rose 25.5%, fueling ongoing inflation. Markets expect continued rate hikes every four months to manage inflation pressures.
Corporate News.
🤖 Anthropic released Claude Fable 5 yesterday. It is a strong AI model now available to enterprise customers and paid subscribers, marking the first public release from the Mythos family, which was previously limited to a few partners. Built on Mythos 5, it includes safeguards that revert to Claude Opus 4.8 for risky topics like cybersecurity and biology. It’s accessible via paid plans, APIs, and cloud platforms, with free usage until June 22 for paid users.
🚀 SpaceX is gearing up for a record IPO, aiming for a valuation of 1.75 to 1.8 trillion dollars, with a share price of 135 dollars. The company expects to raise around 75 billion dollars by offering 556 million shares on Nasdaq starting June 11-12. With over 250 billion dollars in orders and 30 percent for retail investors, Elon Musk could become the world’s first trillionaire due to his 42 to 45 percent ownership stake.
Market View.
📈 Markets are attempting to recover after yesterday afternoon’s bad news, which seems to indicate that the conflict in the Middle East is flaring up again. Nasdaq 100 futures fell almost 5% following a belligerent post by Trump. They rebounded later and are now trading around 28,975 points. S&P 500 futures made a similar move and currently stand at 7,370 points.
💵 The US Dollar Index (DXY) is moving sideways around the 99.90 area. EUR/USD is trying to recover, trading above 1.1550 at present. GBP/USD is also seeking stability, attempting to regain the 1.34 level.
📉 In Europe, the bearish trend in the markets persists, especially for DAX 40 futures, which lost their footing again during yesterday’s session and are now at 24,525 points. Euro Stoxx 50 futures are managing to stay above 6,025 points, currently trading at 6,070, and have been forming a clearly sideways range over recent sessions.
🛢️ Despite the increase in tension in the Middle East, oil fell during yesterday’s session, briefly losing the $90 mark for spot Brent and currently standing at $91 per barrel.
🥇 Gold futures have also suffered further declines, losing support at $4,300 per ounce and falling to the current $4,225/oz.
🪙 Yesterday was a bearish session for Bitcoin as well, which pulled back again, hitting lows around $60,720 and currently trading at $61,595.
