Military fallout

Daily update

The ongoing exchange of missile strikes between Iran and Israel this weekend has not had a major impact on financial markets. The severity of Israel’s initial strike against Iran was unexpected and caused a reaction. Further market moves would be justified only if there were expectations of even more disruption to energy supplies or shipping lanes.
The economic consequences of Middle Eastern conflict focuses on energy prices. The important issue is probably US inflation perceptions, as higher oil prices will hit just as trade taxes start to impact consumer prices. Higher US inflation perceptions and lower spending power might weaken US President Trump’s trade negotiating position, if international counterparts assume this undermines the US ability to continue raising taxes on their own consumers.
The G7 leadership summit takes place in Canada. It is unlikely to produce much for markets. There will be no communique (instead, a series of “thematic statements”). Assorted non-G7 leaders are attending. Generally, the usefulness of a summit is inversely related to the number of leaders attending (e.g., the G20).
The US Empire State business sentiment poll is unlikely to say much about economic realities. China’s May retail sales data were boosted by the early timing of a spending festival (service sector sales were more stable).