The weekend saw a disturbing escalation: reciprocal strikes on energy infrastructure and a veiled Iranian threat to shut the Strait of Hormuz, the lifeline for a third of the world's oil. Yet traders seem to believe the conflict will remain contained, that the global economic machine can hum on, unshaken.
What began as a long-distance hostility between Israel and Iran has now entered the terrain of direct confrontation, albeit still executed from afar. In recent days, Israel has ramped up its aerial campaign, unleashing a series of intensive strikes deep into Iranian territory. Tehran, undeterred, has responded with a barrage of missile and drone attacks aimed at Israeli positions.
Yet for all the ferocity, this is a conflict conducted at arm's length. The natural barriers that keep the two adversaries apart are not seas or mountains, but sovereign borders. Between them lie the territories of Turkey and Syria to the north, and Iraq and Jordan at the centre. These third-party nations, willingly or otherwise, serve as the buffer zones through which airstrikes are routed and missiles lobbed.
Such a configuration lends the conflict a peculiar remoteness. It is a theatre of war in which the antagonists rarely meet face to face, yet their enmity flares with unrelenting vigor. For now, direct engagement remains tempered by distance - but the fuse burns shorter with each passing exchange.
Israel wants to destroy Iran's nuclear program and even bring down the local regime. The US position is relatively passive, but Washington is allowing its ally to conduct its operations.
On the financial markets, this escalation has pushed up oil prices. Over the weekend, however, the price per barrel did not consolidate the initial gains that had taken it from around USD 65 to USD 75. Another consequence was that stock market indices took a dive on Friday. This was enough to push weekly performance into the red on Wall Street (down 1.1% for the S&P 500 on the day and down 0.4% for the week) and in Europe (down 0.9% for the Stoxx Europe 600 on the day and down 1.6% for the week). Investors focused more on defensive stocks and the oil and gas sector. The fear index, the VIX, rose slightly but did not spike. Investors were a little nervous, but they reacted with relative calm. The recent tensions between Israel and Iran have gradually de-escalated. Although this episode is the most intense in recent years, it is not considered, at this stage, likely to ignite the region. The geopolitics of the Middle East have changed significantly over the past 20 years, with the natural alliances that emerged after World War II being replaced by converging economic interests between capitals that were once openly hostile...
In other financial news, China reported much stronger-than-expected retail sales for May last night, while industrial production grew slightly less than economists had forecast. These are fairly good statistics, overshadowed by a continued slide in real estate prices, which is not the least of Beijing's problems as it struggles to revive a sector that weighs heavily on the local economy. Investors are mainly waiting for the US central bank's decision on interest rates on Wednesday evening, which will set the tone for the markets over the summer. In reality, the Fed will not change its current rates (4.25 to 4.50%), which is almost certain. The chairman, Jerome Powell, will perform his usual balancing act: promising nothing, suggesting everything. Financiers are hoping that “suggesting everything” will leave open the possibility of a rate cut at the meeting scheduled for September. This would be the first easing since December 2024. On Wednesday, the Fed will also update its economic forecasts, as it does once a quarter, which will provide new insights for forecasters of all stripes.
What to know at the start of the week:
- Donald Trump has vetoed an Israeli plan to assassinate Iran's supreme leader, according to US officials.
- G7 leaders began a meeting in Canada on Sunday amid growing divisions with the US over foreign policy and trade.
- Emmanuel Macron traveled to Greenland to show European solidarity after threats of annexation by Washington.
- Taiwan added Chinese companies Huawei and SMIC to its export control list.
- On the macro agenda this week, there are a lot of central banks. On Tuesday, the Bank of Japan will kick things off with a likely status quo on rates. The Bank of Sweden (consensus -0.25%) and the Fed (status quo) will follow on Wednesday. They will be followed by the Swiss National Bank (-0.25%) and the Bank of England (status quo) on Thursday. Other macro statistics of interest include the German ZEW economic sentiment index on Tuesday and US retail sales on Wednesday.
In Asia-Pacific, Chinese and Australian markets are balanced at the start of the week, while green is dominant elsewhere. Japan was up 0.7% and South Korea rose 1.6%. India was up 0.9%. European indices are bullish and so are futures on Wall Street.
Today's economic highlights:
- Dollar index: 98,000
- Gold: $3,413
- Crude Oil (BRENT): $73.37 (WTI) $70.6
- United States 10 years: 4.44%
- BITCOIN: $106,800
In corporate news:
- Bunge announces that it has received regulatory approval in China for the acquisition of Viterra.
- Sarepta reports a second death from liver failure following treatment with its gene therapy.
- Google proposes creating an AI podcast based on search results.
- ICOP has acquired a 61.89% stake in Palingeo and has subsequently launched a mandatory takeover bid.
- EQT has established a new fund with a total size of 23 billion euros.
- Victoria's Secret is under pressure from activist investor Barington Capital Group to revamp its board and focus on its core bra business.
- Brookfield has agreed to acquire Internet service provider Hotwire for approximately $7 billion, according to the WSJ.
Analyst Recommendations:
- Adobe Inc.: Phillip Securities upgrades to buy from reduce with a price target raised from USD 480 to USD 560.
- Celanese Corporation: Wells Fargo upgrades to overweight from equalweight with a price target raised from USD 45 to USD 66.
- Incyte Corporation: Stifel upgrades to buy from hold with a price target raised from USD 75 to USD 107.
- Mckesson Corporation: CTBC Securities Investment Service Co LTD upgrades to add from buy with a price target raised from USD 564 to USD 748.
- Packaging Corporation Of America: Jefferies downgrades to hold from buy with a price target reduced from USD 245 to USD 205.
- Sarepta Therapeutics, Inc.: Piper Sandler & Co downgrades to neutral from overweight with a target price reduced from USD 70 to USD 36.
- Smurfit Westrock Plc: Jefferies upgrades to buy from hold with a price target raised from USD 44 to USD 55.
- Spotify Technology S.a.: DZ Bank AG Research downgrades to sell from buy with a target price of USD 650.
- Blackrock, Inc.: BNP Paribas Exane maintains its outperform recommendation and raises the target price from 950 to USD 1150.
- Cloudflare, Inc.: TD Cowen maintains its buy recommendation and raises the target price from USD 150 to USD 200.
- Gamestop Corp.: Baptista Research maintains its underperform recommendation and reduces the target price from 19 to USD 13.40.
- Leonardo Drs, Inc.: JP Morgan maintains its neutral recommendation and raises the target price from 33 to USD 48.
- On Semiconductor Corporation: Wells Fargo maintains its overweight recommendation and raises the target price from USD 45 to USD 60.
- Vertiv Holdings Co: Citigroup maintains its buy recommendation with a price target raised from USD 98 to USD 130