Written Commentary
Renewed attacks in Persian and US termination of MoU with Iran likely ride roughshod over other news, but escalating Ukraine/Russia attacks, mooted China technology curbs, Japan govt proposal to change wording of agreement with BoJ also worth noting; also digesting Japan Bank Lending jump and services survey, UK Employment PMI; June FOMC minutes ahead.
- USA/Iran: End of MoU leaves big open question about renewed escalation, and underlines Iran regime has no intention of ceding control of Strait of Hormuz.
- USA: FOMC minutes to be scrutinised for policy hints, but may be short on details as Warsh seeks to curb forward guidance.
Q2 The Ghost In The Machine – Out Now
EVENTS PREVIEW
The fragile truce in the Persian Gulf has once again been broken, and this time the US administration has declared that the MoU ‘is over’. The question is whether either or both sides opt for escalation or continue to skirmish as they have done for a number of months. But it does underline the obvious point that Iran has had no intentions of giving up ‘control’ over the Strait of Hormuz, and per se this will remain a near insurmountable barrier to achieving a longer lasting and more permanent ceasefire agreement, if negotiations are resumed at some stage.
But in this ever more complex environment for markets and the broader global economy, the run of ‘other’ headlines in the past 24 hours also demands attention. These include China’s threat to curb AI and other technology exports, on top of its already instated exports curbs on raw and processed materials/minerals (though fuel export curbs are being reduced for July); a further escalation in tit for tat attacks on energy and other infrastructure in the Ukraine conflict; Japan’s government considering a change in the wording of its agreement with the BoJ to include a mandate to control inflation (though still retaining the requirement for the BoJ to align its policies with those of the government); continued weak China domestic Auto sales while auto exports continue to soar. Meanwhile the dramas around UK Reform Party leader Frage forcing a by-election in his constituency to district from claims of ‘sleaze’, and Le Pen declaring that she will stand in next year’s French presidential election and appeal a renewed court ruling finding her guilty of embezzlement should probably be conscribed to the category ‘media circus’, and yet both do have material implications for the political outlook in both countries.
Given all those unscheduled events/developments, a much busier day for other events may prove to be little more than roadkill, with the data run remaining meagre, amounting to digesting Japan’s Economy Watchers (services) and UK KPMG/REC Employment surveys, and a further jump in Japan Bank Lending. The June FOMC minutes from Warsh’s debut as Fed chair top the events agenda, as the expected RBNZ rate hike and a signal of more to come are digested. There are numerous ECB speakers, while policy meetings in Poland and Romania are expected to see rates left unchanged. While the US Nasdaq 100 has no stranger to bouts of intense volatility, its performance since mid-May does have echoes of the dotcom bubble burst – see chart.
In terms of the FOMC minutes, these will be scrutinised for further clues on the rate outlook, though the risk is that, like the stripped down FOMC statement after the meeting, these too may be a lot less detailed than usual, though they should at least give an idea of how many FOMC members are now leaning towards the idea of a rate hike becoming necessary.
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