Weekly house view | US hits Iran’s nuclear facilities
The week in review
The US struck Iran’s key nuclear facilities with 14 “bunker buster” bombs late last week in an operation that inflicted “extremely severe damage and destruction”, Washington said. Market tensions had risen prior to the strikes, sending global equities lower. The MSCI World lost 0.4%i (in USD) on the week and the dollar remained broadly unchanged. However, Israel’s stock market rose on Sunday, pointing to a contained market reaction to the US strikes on expectations that any Iranian retaliation will be moderate. On the monetary policy front, the Federal Reserve left interest rates unchanged, with the median “dot” in estimates from policymakers pointing to two quarter point cuts in 2025. Fed Chair Powell said monetary policy is “well positioned” and stressed the “right thing to do” is to wait and gather more information over the summer. However, Governor Waller said the Fed could cut rates as early as July. In Europe, the Swiss National Bank (SNB) cut its policy rate by 25 basis points to 0.0%, as expected, aiming to counter “lower inflationary pressure.” June’s rate cut marked the sixth consecutive reduction and brought the rate to its lowest level since September 2022. We expect weak price pressures will lead the SNB to cut rates by a further 25bps in September, bringing the policy rate to -0.25%. However, the outlook is uncertain, with policy decisions likely to depend on developments in the Middle East and trade tensions. Last week, the Bank of England and the Bank of Japan both left rates unchanged.
Quote of the week
“We’re not at war with Iran. We’re at war with Iran’s nuclear program,” US Vice President JD Vance said on Sunday.
Key data
US housing construction fell to a five-year low in May, as homebuilders grappled with volatile tariffs on imported materials, stubbornly high mortgage rates and excess inventories of unsold units. Also in May, retail sales fell 0.9% on the month, more than expected. Consumers are cutting some durables spending after frontloading earlier, but solid e-commerce sales (+0.9%) suggest the slowdown in consumption is moderate. WARN layoff notices also picked up (from extremely low levels).