Blog

The infoshot to help kick-start your week

Market hopes for US de-escalation dashed this weekend

Markets moved in tandem to the situation in the Middle East throughout the week, with some additional relief coming Friday morning following Trump’s claim he needed two weeks to decide whether to involve the US military in Iran. However, this sentiment was scuppered less than two days later after the Americans attacked three Iranian nuclear sites.

Trump said the operation was a “spectacular success” and warned that if Iran did not abandon its nuclear programme, he would launch more attacks that were “far worse and a lot easier.” The Iranian’s have said there was only minor damage to the Fordow site that is built deep into a mountain.

If Iranian Supreme Leader Ayatollah Ali Khamenei decides to retaliate, the bombing of American bases in the region, cyber warfare and closing off the strait of Hormuz could be among his options. More than a fifth of the world’s oil supply moves through Hormuz each day. Closing the strait would trigger an oil price rise that would have an immediate impact on inflation and supply chains across the globe. Brent crude oil has already risen from $63 to more than $75 a barrel so far this month. A couple of weeks ago, JP Morgan forecasted that the price could reach $130 if a sustained conflict in Iran leads to the closing of the strait of Hormuz for an extended period.

The ongoing situation is extremely volatile, in the early hours of this morning on Truth Social, Trump floated the idea of “Making Iran Great Again” through regime change, and as I write this morning Israel has reportedly launched a fresh strike on the Fordow nuclear site.

UK-US trade deal signed, rest of G7 fail to make progress as deadline looms

Following the trade agreement between the UK and US that was reached last month, Trump has signed off the deal that will remove some of the trade barriers introduced on “liberation day”. The pact is the first of its kind to be signed (the US-China agreement is yet to be signed) since Trump imposed tariffs on exports to the US in April. The deal will allow the UK to export up to 100,000 cars to the US at a 10% tariff rate (instead of 25%). It also contains an order that the US sets up similar terms for steel and aluminium, but the final tariff rate is not confirmed.

Leaders of the G7 met in Canada this week but none were able to secure a new agreement on trade with Trump before he decided to leave the meeting early. The US is now less than three weeks away from returning its tariffs to their original “reciprocal” tariff levels.

No surprises in interest rate decisions

As expected, the Bank of England (BoE) held interest rates at 4.25% on Thursday. The Bank’s governor, Andrew Bailey, said rates remain on a “gradual downward path” but warned the “world is highly unpredictable” and that the Bank is monitoring tensions in the Middle East and its impact on oil prices and inflation.

The Fed also opted to keep US rates at their current levels of 4.25% to 4.50%. Fed Chair, Jerome Powell said the overall US economy is “solid” but warned about inflation uncertainty and said “tariffs are a driving factor” for keeping rates the same. In response, Trump called Powell “one of the dumbest, and most destructive people” and said rates should be “2.5 points lower.”

The Bank of Japan (BoJ) also kept its rate unchanged at 0.5%. Earlier this month the Bank’s governor, Kazuo Ueda signalled his readiness to increase rates if growth accelerates.