Conflict

Daily update

The scale of Israel’s air strikes against Iran were not anticipated by financial markets (US President Trump having suggested a deal with Iran was close, just yesterday). As a result, the oil price has had the largest spike since Russia’s invasion of Ukraine. The economic disruption may well be contained—the starting point was quite a weak oil market, given expectations of a US growth slowdown.
Oil price moves do affect consumers’ inflation expectations, which tend to be dominated by food and fuel (and in the US, political partisanship). Today’s US Michigan inflation expectations data is no exception. It only matters economically if consumers change their behavior in response to shifts in expectations, which is rarely the case.
Somewhat overshadowed by global events, Trump appeared to launch another attack on the independence of the Federal Reserve, declaring that they would force a rate cut. The US president does not have that authority (as things stand), but the intent may make investors nervous about the role of the US dollar as a reserve currency.
Europe offers little to distract markets, with some final consumer price inflation data from the regions. The UK has an inflation expectations survey, subject to the same limitations as the US data.