Weekly house view | War in the Middle East

The week in review

Israel struck Iran’s nuclear programme and military facilities last week, killing top commanders and scientists after the UN nuclear watchdog found Tehran was breaching its nonproliferation obligations. Iran retaliated, with the two sides duly trading missile strikes. Markets’ initial reaction remained rather muted as Iran’s oil infrastructure facilities remained untouched, but the situation could change if Israel strikes them or if Iran blocks the Strait of Hormuz, a crucial maritime route where approximately 20% of the world's oil is transported.

On the macro front, US core inflation remained subdued in May, with the data suggesting price rises may have been delayed as businesses front-loaded inventories before the implementation of tariffs.

On the tariff front, the US and China revived a trade deal agreed in Geneva last month that had faltered, agreeing a tactical truce that will see rare earth export restrictions eased for six months. Oil (WTI) rose 12% last week on disruptions to Iran’s production and potential escalation of the conflict, which pushed leading equity markets down. Bond yields fell on the week on the soft US inflation but rose on Friday on the Middle East conflict and the rise in oil prices. Safe-haven gold rose 3.7% on the week. 

Quote of the week

“I think it's time for a deal,” Trump said of the Israel-Iran conflict before heading to a G7 meeting, adding: “Sometimes they have to fight it out”.

Key data

US CPI registered 2.4% in May, below expectations for 2.5%. The core measure, which strips out changes in food and energy prices, was flat at 2.8%. Nationwide continuing claims — the number of persons receiving benefits through standard programs — rose by 54,000 to 1.956 mn in the week ended 31 May, above consensus expectations and the highest level since 2021.