More violence, same response

Daily update

Violence has reignited in the Gulf, with Iran firing ballistic missiles at US military bases. Crude oil futures responded; Brent rose to over USD 90 per barrel. Of more political focus, Saturday’s US gasoline prices averaged almost USD 4 per US gallon. The geopolitical focus is whether the Red Sea route (taking about 7% of global oil supply) is attacked by Iranian allies.
Developed economy consumers are unlikely to change course. While oil costs are rapidly being passed to consumers, the response is to cut monthly savings rather than non-oil consumption. This cannot be sustained indefinitely if oil prices remain elevated—in the Wile E. Coyote scenario economic gravity eventually exerts itself—but it could easily be sustained for the remainder of this year.
The data calendar is quiet. German producer price data is of very limited interest (and while European price data has come in below consensus lately, the consensus for today’s release is formed from only five economic forecasts and so does not really count).
US President Trump suggested on social media that the correct response to Canadian wildfires would be to tax US importers of Canadian products. Markets are likely to ignore this—a growing number of Trump’s tariff threats over social media have not been acted upon.