PETER’S BUSINESS & FINANCE BRIEFING – Monday 16 June 2025, 06:00 Hong Kong
● Benjamin Netanyahu vows to attack Iran for ‘as long as necessary’ ● Oil surges as much as 14% at one stage ● Trump approves US Steel merger with Japan’s Nippon Steel
Monday’s Opening Call
Hang Seng (Hong Kong) Projected Open: 23,884 -9 points -0.0%
Nikkei 225 (Japan) Projected Open: 37,970 +136 points +0.4%
Quick Summary - 4 Things To Know Before Asian Markets Open
Israel has attacked Iran, targeting nuclear facilities and wiping out Tehran’s top military chain of command and several of the country’s nuclear scientists. It is the first time Israel has targeted Iranian nuclear sites with airstrikes. Israel warned Saturday that “Tehran will burn” as it exchanged a fresh round of missile attacks with Iran and PM Benjamin Netanyahu said his campaign could bring down the Islamic republic. The strikes were part of Operation Rising Lion and Israel is carrying out "extensive strikes in various areas of Iran". Iran responded by sending what it says were hundreds of ballistic missiles toward Israel. Iran’s supreme leader, Ayatollah Ali Khamenei said Israel “should anticipate a harsh punishment.” Over the weekend, Israel and Iran exchanged fresh waves of attacks, striking one another with missiles and drones.
Investors fled risky assets to haven assets Friday. The scale of the attack took markets by surprise, pushing up prices of assets thought to offer protection in times of heightened volatility. The US dollar finally rallied on Friday after trading around a three-year low the previous day. Gold, another classic safe-haven asset, hit an almost two-month high on news of the strikes. US Treasury prices rose in Asian trading, pushing yields lower. However, yields on the 30-year, 10-year and 2-year Treasury notes were higher later in the day as investors feared a surging oil price would push up inflation.
The most dramatic market reaction was seen in oil, as investors worried about retaliation from Iran and potential oil supply disruption. Crude futures jumped as much as 13% following the airstrike but came off those highs as the day progressed. Oil options volatility soared to the highest level in three years as traders sought protection from surging prices. Oil markets are concerned that Iran will retaliate by attacking either Israeli or American targets, leading to a major military escalation and a potential oil supply disruption. Brent finally settled at $74.23 a barrel, up 7% on the day.
Donald Trump issued an executive order on Friday approving US Steel’s merger with Japan’s Nippon Steel, after the companies signed a national security agreement with the US government. US Steel and Nippon said the national security agreement will give the US government a “golden share” and make certain commitments related to governance, domestic production, and trade. The companies did not elaborate on what powers the US government will wield with its golden share. “All necessary regulatory approvals for the partnership have now been received, and the partnership is expected to be finalised promptly,” US Steel and Nippon Steel said in a statement.
Israel & Iran Strike At Each Other In New Wave Of Attacks
Israel has attacked Iran, targeting nuclear facilities and wiping out Tehran’s top military chain of command and several of the country’s nuclear scientists. It is the first time Israel has targeted Iranian nuclear sites with airstrikes. Israel warned Saturday that “Tehran will burn” as it exchanged a fresh round of missile attacks with Iran and PM Benjamin Netanyahu said his campaign could bring down the Islamic republic. The strikes were part of Operation Rising Lion and Israel is carrying out "extensive strikes in various areas of Iran".
Netanyahu said in an address Israel launched a “targeted military operation” against Iran’s nuclear and ballistic missile program. Israel hit Iran’s main nuclear enrichment site at Natanz, its leading nuclear scientists, and struck the heart of its ballistic missile program, Netanyahu said. Iran’s nuclear facility at Isfahan was also hit by Israel. He added Iran was a threat to "Israel's very survival". “This operation will continue for as many days as it takes to remove this threat,” Netanyahu said. He said Israel will strike "every site and every target" of Iran, after Iran launched waves of missiles in retaliation for the strikes on Friday. But despite the strikes, much of Iran’s nuclear program remains intact.
Iran responded by sending what it says were hundreds of ballistic missiles toward Israel. Iran’s supreme leader, Ayatollah Ali Khamenei said Israel “should anticipate a harsh punishment.” Iran's President Masoud Pezeshkian has threatened a "more severe" response if Israel continues its attacks. Iran fired two waves of ballistic missiles at Israel Friday, with around 100 in total, according to Israeli officials. Over the weekend, Israel and Iran exchanged fresh waves of attacks, striking one another with missiles and drones.
“The Hard Retaliation operation has begun,” Iran’s state news agency said. Explosions could be seen in Tel Aviv and Israelis were advised to seek shelter. Such a rapid escalation is a departure from earlier exchanges, when Iran would wait days or weeks to strike back against Israeli attacks. While Iran has pledged reprisals, most of the attack drones it fired toward Israel were intercepted. That has observers on the lookout for a different response, such as shutting down the Strait of Hormuz, a key choke point for oil traders.
Iran said the Israeli attack has derailed diplomacy. Nuclear talks between the US and Iran had been scheduled to resume over the weekend. Donald Trump warned the violence will only get worse and urged Tehran’s government to strike a nuclear deal before it’s too late. I gave Iran chance after chance to make a deal,” Trump said on social media. He warned Tehran to make a deal “before there is nothing left.” However, Trump has built his political comeback in part on past US foreign-policy failures, and this conflict now threatens to derail his pledge to avoid direct involvement in foreign wars.
US Secretary of State Marco Rubio made clear that Israel had taken “unilateral action against Iran” without US support. Rubio warned Iran against targeting US interests. “We are not involved in strikes against Iran and our top priority is protecting American forces in the region,” Rubio said in a statement. “Israel advised us that they believe this action was necessary for its self-defence.” Iran’s foreign minister Abbas Araghchi said the strikes could not have happened without a green light from the US, adding that Washington was “responsible for the dangerous repercussions of this aggression”.
Iran vowed that its retaliation for the Israeli strike will be “definite”, targeting both Israel and the US. “Both the Zionist regime and the US will pay a heavy price and receive a tough slap,” said Brigadier General Abolfazl Shekarchi, spokesperson for Iran’s armed forces. He accused the US of providing “direct support” for the early Friday morning attack. Speaking on state television, Shekarchi claimed that residential buildings were struck in an effort to target senior figures in their homes, which he said, “does not demonstrate power”.
Investors Rush To Haven Assets After Israel Strikes Iran
Investors fled risky assets to haven assets Friday after a series of Israeli airstrikes on Iran marked a major escalation of conflict in the region. The scale of the attack, which Israel said was targeting Iran’s nuclear program, took markets by surprise, pushing up prices of assets thought to offer protection in times of heightened volatility.
The US dollar finally rallied on Friday after trading around a three-year low the previous day. The dollar’s role as a safe-haven trade was reaffirmed by its rise against both the Swiss franc and Japanese yen. Prior to the strikes, it seemed like nothing could stem the dollar’s slide. The Israeli strikes offered “the oversold and undervalued dollar a catalyst for a rebound,” according to ING currency strategists.
Gold, another classic safe-haven asset, hit an almost two-month high on news of the strikes. US Treasury prices rose in Asian trading, pushing yields lower. However, yields on the 30-year, 10-year and 2-year Treasury notes were higher later in the day as investors feared a surging oil price would push up inflation.
“The news has led to significant fears about an escalation and a wider regional conflict,” Deutsche Bank strategists said in a note early Friday. “The effects of the attack have cascaded across global markets, with a strong risk-off move for several asset classes.”
In equities, Asian stock markets were down, but in contained fashion. On Wall Street, US shares suffered more than most global stocks as US stock investors anticipate a major Middle East conflict that will have global ramifications. Israel’s Benjamin Netanyahu has said the operation “will continue for as many days as it takes to remove this threat.” This is particularly relevant given other strikes on Iran were sharp and pointed. Many investors are concerned this time is different. Today’s attack is a “re-intensification of geopolitical risk, just when trade-tensions between the US and China appeared to be thawing,” said Alex Joiner, Melbourne-based chief economist at IFM Investors.
There are several central bank policy meetings next week including the US Federal Reserve, Bank of Japan and Bank of England. Rising oil prices on the back of the weekend’s developments is likely to cloud their inflation outlook, especially if the situation escalates and Iran hits US assets in the region. A $10-a-barrel increase would boost year-over-year growth in the consumer-price index by 0.5 percentage points, cutting into consumer spending and GDP growth, said Ryan Sweet, chief US economist at Oxford Economics.
Oil Surges After Israel Launches Unilateral Airstrikes Against Iran
The most dramatic market reaction was seen in oil, as investors worried about retaliation from Iran and potential oil supply disruption. Crude futures jumped as much as 13% following the airstrike but came off those highs as the day progressed. US West Texas Intermediate rose as much as 14%, to $77.62 per barrel at one stage, while global benchmark Brent surged 13% at its peak, to $78.50 per barrel. It was the biggest single session move since May 2020. For both benchmarks, oil options volatility soared to the highest level in three years as traders sought protection from surging prices. Brent finally settled at $74.23 a barrel, up 7% on the day.
Oil markets are concerned that Iran will retaliate by attacking either Israeli or American targets, leading to a major military escalation and a potential oil supply disruption. Andy Lipow, president of Lipow Oil Associates, said, “Iran knows full well that President Donald Trump is focused on lower energy prices.” Lipow told CNBC that actions by Iran affecting Middle Eastern oil supplies and consequently raising gasoline and diesel prices for Americans are politically damaging to the US president. Saul Kavonic, head of energy research at MST Marquee, said the oil markets have largely been shrugging off geopolitical risks for the last year, so these recent developments are a “wake-up call” that these risks are more “tangible and imminent” than many expect.
The prospect of a broader tit-for-tat conflict in the Middle East, a crucial supplier of global energy markets, could push oil prices much higher, according to analysts. Helima Croft, a former CIA analyst who is now at RBC Capital Markets, questioned whether the latest strike was a limited military engagement as occurred in autumn or if Iran would seek to internationalise the cost of the action by targeting regional energy supplies.
The International Energy Agency’s Executive Director Fatih Birol wrote in a post on X, “the IEA is actively monitoring the impact on oil markets from the Israel-Iran situation. Markets are well supplied today but we’re ready to act if needed. The IEA oil security system has over 1.2 bln barrels of emergency stocks & has proved vital to safeguarding the world economy.
China To Eliminate Tariffs For African Nations In New Trade Pact
China plans to sign a new economic pact with 53 African nations it has diplomatic ties with, eliminating all tariffs and extending market access beyond just least developed countries (LDCs) to include middle-income nations. “China is ready to welcome quality products from Africa to the Chinese market,” said the foreign ministry after a meeting in Changsha. While Beijing already offers duty- and quota-free access to many African LDCs, the new deal aims to level the playing field. To support LDCs like Tanzania and Mali, which may face competition from more developed peers like South Africa, China also pledged additional assistance such as training and marketing support. Although China-Africa trade has grown, it remains heavily tilted in China's favour, with a US$62 billion surplus last year. At a Beijing summit in 2023, China committed 360 billion yuan (US$50bn) in credit and investments over three years, signalling renewed engagement with the continent after the pandemic.
China Delays Approval Of $35bn US Chip Merger Amid Trade War
A US$35bn US semiconductor industry merger is being delayed by Beijing’s antitrust regulator, after Donald Trump tightened chip export controls against China in a move that exacerbated trade tensions between the world’s two largest economies. China’s State Administration for Market Regulation (SAMR) has postponed its approval of the proposed deal between Synopsys, a maker of chip design tools, and engineering software developer Ansys, according to the Financial Times citing two people with knowledge of the matter. The transaction between the American groups, which has received the blessing of authorities in the US and Europe, had already entered the last stage of SAMR’s approval process and was expected to be completed by the end of this month, said the people.
The delay comes as Washington moved to ban chip design software sales by US companies, including Synopsys, to China in late May. That decision has contributed to the complexity of China’s approval process for this deal, according to the FT. The report said that approval, while taking longer than expected, could still come through if Synopsys were able to submit solutions that addressed the Chinese regulator’s concerns. However, another person with knowledge of the matter said SAMR’s approval process had recently been prolonged from its original 180-day schedule due to the complexity of the deal itself, rather than being directly linked with the ongoing trade war.
On the company’s latest earnings call on May 28, Synopsys chief executive Sassine Ghazi said the company was “working cooperatively and actively negotiating with SAMR to secure China regulatory clearance”, and that it expected to close the deal “in the first half of this year”.
Chinese Firms In Talks To Join Group To Buy Li Ka-Shing’s Ports
China’s largest shipping company is among the firms in talks to invest in a multinational consortium seeking to buy billionaire Li Ka-shing’s global ports, according to Bloomberg News, in an effort to ease Beijing’s concerns over the controversial deal. China Cosco Shipping Corp. is one of several Chinese state-backed companies in discussions with the consortium led by Italian billionaire Gianluigi Aponte’s Terminal Investment Ltd. on matters including how they might participate in the port deal, Bloomberg reported. The buying group also includes US firm BlackRock and its Global Infrastructure Partners unit. Once completed, the agreement to sell the two Panama ports and 41 others around the world is expected to net tycoon Li’s CK Hutchison Holdings more than US$19 billion in cash.
The inclusion of Chinese investors in the consortium emerged as one of the options to advance the ports sale after high stakes talks in Switzerland last month between Chinese and US officials. Beijing has fiercely opposed the sale, including two ports along the Panama Canal, over concerns it could affect its global shipping and trade ambitions. Meanwhile, Donald Trump celebrated the deal as returning the strategic waterway to American influence.
Trump Approves US Steel Merger With Japan’s Nippon Steel
Donald Trump issued an executive order on Friday approving US Steel’s merger with Japan’s Nippon Steel, after the companies signed a national security agreement with the US government. US Steel and Nippon Steel said the national security agreement will give the US government a “golden share” and make certain commitments related to governance, domestic production, and trade. The companies did not elaborate on what powers the US government will wield with its golden share. “All necessary regulatory approvals for the partnership have now been received, and the partnership is expected to be finalised promptly,” US Steel and Nippon Steel said in a statement.
The national security agreement calls for Nippon Steel to make US$11 billion in new investments by 2028, including initial spending on a greenfield project that will be completed after 2028, the companies said. Trump said Thursday that the golden share gives the president “total control” without elaborating. Pennsylvania Sen. Dave McCormick told CNBC last month that the golden share will effectively allow the government to control a number of board seats.
Trump opposed US Steel’s controversial sale to Nippon Steel in the runup to the 2024 presidential election. But Trump started softening his opposition to the takeover after assuming office, ordering a new review of the deal in April. To supposedly protect US Steel, Trump announced that he was doubling US tariffs on steel imports to 50%. Those tariffs went into effect on June 4.
Trump has avoided calling the deal an acquisition or merger, describing it as a “partnership” in a May 23 post on his social media platform Truth Social. US Steel made clear it would become a “wholly owned subsidiary” of Nippon Steel North America under the terms of the merger agreement in an April 8 filing with the Securities and Exchange Commission.
UK Freezes $252mn Of Properties Linked To Ex-Bangladesh Minister
More than £185 million (US$252mn) worth of properties linked to Bangladesh’s former land minister have been frozen by Britain’s National Crime Agency. The NCA’s freezing orders of more than 300 properties is one of the highest-profile developments yet in Bangladesh leader Muhammad Yunus’s effort to track down foreign assets. Bangladesh’s central bank is aiming to raise as much as US$100mn for future litigation to reclaim funds from business and political figures tied to the country’s ousted prime minister.
Japan Industrial Output Shrinks More Than Initially Thought
Japan’s industrial production fell by 1.1% month-over-month in April, steeper than the preliminary estimate of a 0.9% drop and reversing a 0.2% gain in the previous month. This marked the second monthly decline in output so far this year. The downturn was mainly driven by sharp contractions in production machinery (-8.7% vs 7.1% in March), transport equipment excluding motor vehicles (-4.1% vs 6.6%), and fabricated metals (-3.8% vs -0.6%). On a year-on-year basis, industrial output grew by 0.5%, easing from a 1.0% increase in March but still marking the fourth consecutive month of annual growth.
China New Yuan Loans Below Forecasts
Chinese banks extended Rmb 620 billion in new yuan loans in May, up from Rmb 280 billion in April, which was the lowest level for that month since 2005, as trade tensions with the US escalated. In May, however, a fragile 90-day trade truce was reached and the People’s Bank of China and the Chinese government introduced support measures to stabilize the economy and financial markets, including across-the-board interest rate cuts and liquidity injections. Despite the monthly rebound, the May loan figure fell well short of economists’ expectations of Rmb 850 billion and Rmb 950 billion in May last year. Meanwhile, total social financing increased by Rmb 2.29 trillion, more than double April’s Rmb 1.16 trillion and roughly in line with forecasts. However, other indicators pointed to continued softness in credit demand. Outstanding loan growth slowed to 7.1% the lowest rate since at least 1998. M2 money supply growth eased to 7.9%, down from 8% in April and missing the 8.1% forecast.
FDI Into The Philippines Drops 27.8% In March
Net foreign direct investment (FDI) into the Philippines dropped by 27.8% y/y to a three-month low of US$0.5 billion in March. The decline was driven by lower net inflows across all major FDI components, including debt instruments (-31.6%), equity capital (-27.4%), and reinvestment of earnings (-1.2%). For the first quarter of 2025, net FDI inflows totalled US$1.8 billion, down by 41.1% from the US$3 billion recorded during the same period last year.
Malaysia Retail Sales Growth At Over 1-Year Low
Retail sales in Malaysia increased by 4.7% year-on-year in April, easing from 6.6% in the previous month. This marked the lowest reading since January 2024. On a monthly basis, retail sales fell by 0.3% in April 2025, partially reversing a 2.9% gain in the previous month.
Indonesia Retail Sales Drop For First Time In Year
Retail sales in Indonesia shrank by 0.3% y/y in April, reversing from March's 7-month high of 5.5% growth and marking the first decline since April 2024. On a monthly basis, retail sales dropped 5.1%, partly reversing March’s 13.6% surge, which was the strongest monthly gain in nearly three years.
Eurozone Trade Surplus Falls In April As US Tariffs Weigh
The Eurozone’s trade surplus narrowed to €9.9 billion in April, down from €13.6 billion a year earlier and below economists’ expectations of €18.2 billion. It also marked a steep drop from March’s all-time high of €37.3 billion, with the decline largely driven by a sharp fall in the surplus of chemicals following the implementation of new US tariffs. Total exports fell 1.4% year-on-year to €243 billion. Export growth to the US decelerated sharply (3.9% vs. 63.9%), while exports to China and the UK declined by 14.9% and 6.0%, respectively. Meanwhile, imports edged up just 0.1% to €233 billion, reflecting stagnating domestic demand. Imports from the US and China rose at a slower pace, up 4.8% and 8.9% respectively, while imports from the UK fell 4.4%.
Eurozone Industrial Output Slumps In April
Eurozone industrial production dropped by 2.4% month-over-month in April, reversing a downwardly revised 2.4% gain in March and falling short of analysts’ expectations for a 1.7% decline. This marked the sharpest monthly contraction since July 2023, with output falling across all major categories. On an annual basis, industrial output growth slowed to 0.8% in April from 3.7% in March, missing forecasts of a 1.4% increase.
US Consumer Sentiment Rebounds In June
A closely watched University of Michigan survey released Friday indicated an uptick in US consumer sentiment last month. The university’s Survey of Consumers rose to 60.5 in June, well ahead of the Dow Jones estimate for 54 and a 15.9% increase from a month ago. This marks the first increase in sentiment in six months, driven by broad-based gains in assessments of current conditions (63.7 vs. 58.9 in May) and future expectations (58.4 vs. 47.9). Despite the rebound, sentiment remains about 20% below its December 2024 level, when consumer confidence received a temporary post-election boost.
Inflation expectations showed notable improvement. Year-ahead inflation expectations dropped sharply to 5.1% in June from 6.6% in May, which were levels not seen since 1981. Five-year inflation expectations declined for the second consecutive month, easing to 4.1% from 4.2%. Still, inflation expectations remain above readings seen throughout the second half of 2024.
The moves coincided with a softening in the heated rhetoric that has surrounded President Donald Trump’s tariffs. After releasing his April 2 “liberation day” announcement, Trump has eased off the threats and instituted a 90-day negotiation period. “Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed,” Joanne Hsu, survey director, said in a statement. “However, consumers still perceive wide-ranging downside risks to the economy.”
Week Ahead - June 16th to 22nd
Geopolitical tensions in the Middle East will remain in focus this week following Israel’s strike on Iran’s nuclear facilities, heightening fears of a broader regional conflict. Meanwhile, investors will also be closely watching any progress on trade negotiations between the US and its key partners. Traders are not optimistic about a consensus being reached at the G7 Summit in Canada, where leaders of the world’s largest economies will meet to discuss major global challenges. It’s also a busy week for monetary policy decisions. The Federal Reserve, People’s Bank of China (1-year and 5-year Loan Prime Rate), Bank of Japan, and Bank of England are all expected to keep interest rates unchanged. Decisions are also due from central banks in Switzerland, Sweden, Norway, Turkey, Brazil, Indonesia, the Philippines, and Taiwan.
A surge in long-term borrowing costs, high inflation and a month-long string of weak debt auctions are raising the pressure on the Bank of Japan ahead of its monetary policy meeting this week. Yields on 30-year bonds hit a record high of 3.2% last month, pushed up by an ongoing buyers strike among domestic life insurers. While they have since dipped to about 2.9%, many analysts see a tricky balancing act for the BoJ, which has been easing off on its long-running bond-buying programme. Almost no one in the market expects the central bank to raise interest rates from their current level of about 0.5% at the meeting, particularly given that weeks of tariff negotiations between Tokyo and Washington have failed to result in an agreement, leaving Japanese financial markets shrouded in uncertainty.
On the data front in the US, key releases include US retail sales and industrial production. There will also be plenty of housing data: NAHB Housing Market Index, mortgage rate applications, housing starts and building permits.
In Asia, there will be key data from China this morning, including May’s industrial production, retail sales, fixed asset investment and unemployment rate. Japan’s trade data, inflation numbers and Tankan Index will all be in the spotlight this week. Australia will release its unemployment data on Thursday. There will also be non-oil exports from Singapore.
Elsewhere, UK inflation will also be in focus. From the eurozone will come May’s CPI data and Germany’s ZEW economic sentiment index.
Asia-Pacific Markets Fall As Israel Conducts Military Strikes On Iran
Asia-Pacific markets fell Friday as Israel conducted a military strike on Iran, targeting its nuclear program. US equity index futures fell, and US bonds gained during Asian trading hours. Hebe Chen, an analyst at Vantage Markets in Melbourne, said, “the airstrike is set to swiftly freeze the buzzing risk appetite in Asian markets, especially heading into a weekend where countless flashpoints could erupt, any one of which might profoundly redraw both the geopolitical map and the financial landscape.”
Japan’s Nikkei 225 fell 0.9% to 37,834, wiping out most of the benchmark index’s weekly gains. Over the five days the Nikkei was up 0.2%. Basic materials, textiles and other stocks exposed to potentially surging oil prices were sold heavily in Tokyo, while shares in Japan’s largest energy companies, Inpex (+3.0%), Eneos (+1.8%) and Idemitsu (+1.1%), rose. Japanese shipping lines also climbed as traders bet on freight rates surging as a result of Israel’s attack on Iran. Shares in the country’s three major shipowners, Mitsui OSK Lines, NYK and Kawasaki Kisen Kaisha, opened up as high as 3% before paring gains. The biggest risks were vessels being attacked in the Red Sea followed by a full closure of the Gulf and Strait of Hormuz, causing a halt to energy exports.
South Korea’s Kospi was 0.9% lower Friday after rallying for seven consecutive sessions. Earlier in the week, South Korea’s Kospi stock index hit a more than three-year high, as investors cheered President Lee Jae-myung’s election victory. During his campaign, president Lee Jae-myung promised the country’s retail investors that Kospi would reach 5,000 points during his term. The index climbed almost 3% last week, its third consecutive weekly gain and is up 20.6% so far in 2025, making it the region’s best performing major index.
Australia’s S&P/ASX 200 closed 0.2% lower. For the week it was up 0.4%.
In India, the BSE Sensex fell 573 points, or 0.7%, closing at 81,119 on Friday. For the week, it was down 2.3%.
Yields on Japanese Government Bonds (JGBs) fell Friday, as investors sought safe-haven assets after Israel’s military strikes on Iran. The yield on 10-year JGBs fell 4 bps to 1.41%, its lowest level since May 12. The yield on 5-year JGBs also fell 5 bps to 0.97%, while that of 30-year JGBs dropped 2 bp to 2.89%. Similarly, yields on South Korea’s 10-year government bonds dropped 5 bps to 2.79%.
Chinese Shares Fall On Rising Geopolitical Tensions
Hong Kong stocks dropped on Friday as rising geopolitical tensions dimmed investors’ appetite for risk assets. The Hang Seng Index fell 143 points, or 0.6% to 23,893. It eked out a small weekly gain of 0.4% following a temporary de-escalation of US-China trade tensions. The city’s benchmark index is up 19.1% year-to-date. The Hang Seng Tech Index fell 1.7% Friday.
On the mainland, the CSI 300 Index dropped 0.7% to 3,864. For the week, it was down 0.3%.
This morning investors will have a chance to react to the weaker than forecast loans data that China released on Friday after market. That data showed neither the export market nor the domestic markets are holding up well. May’s activity data, (retail sales, industrial production and fixed asset investment), due for release later this morning will be scrutinised for confirmation.
European Stocks Moderately Lower
European equity indices posted modest declines. The Stoxx Europe 600 index closed 0.9% lower. Germany’s DAX and France’s CAC 40 also fell a little more than 1.0%. The UK’s FTSE 100, which had initially rallied, also ended the day lower by 0.4%. For the week, the Stoxx 600 was down 1.6%, while the FTSE 100 was up 0.1% over the five trading days, having hit a record high on Thursday.
European defence stocks climbed, further cementing their status as Europe’s top-performers so far this year.
Airline stocks fell. Shares of Wizz Air closed 5.7% lower, after the company suspended its flights to and from Tel Aviv and said it would reroute planes set to cross the airspace involved in the escalating conflict between Israel and Iran. Shares of Air France KLM closed 4.7% lower. The airline on Friday suspended its flights to and from Tel Aviv. British Airways owner IAG shed 3.7%. European airline stocks were still reeling from Thursday’s fatal Air India crash, which sent the sector 3.4% lower in Thursday’s session.
Europe’s auto stocks were down 2.2% for the session. It comes as automotive industry groups have warned of growing production threats over a rare earth shortage. Milan-listed shares of Stellantis, which owns household names including Jeep, Dodge, Fiat, Chrysler and Peugeot, fell 3.4%. Italian luxury carmaker Ferrari (-2.8%), Germany’s Porsche (-1.4%) and French car parts supplier Valeo (-3.1%) all fell.
US Stocks Hit Hard By Israeli Strikes On Iran
On Wall Street Friday, all three major stock indices lost more than 1% after the violence in the Middle East sparked fears of a wider conflict. The sell-off extended as the conflict intensified, pushing energy prices higher and adding another complication at a time of heightened geopolitical tensions. The S&P 500 dropped 1.1% to close at 5,977. The Dow fell 770 points, or 1.8%, ending at 42,198. The Nasdaq Composite lost 1.3% and settled at 19,407.
Nvidia (-2.1%) and other stocks that have led the market’s comeback from the April lows dropped as investors shed risk. All the Magnificent 7 stocks fell. Travel stocks were also under pressure with higher oil prices likely to increase jet fuel prices. Among the airlines Delta Air Lines was down 3.8%, United Airlines fell 4.4%, American Airlines tumbled 4.9% and Southwest Airlines slipped 2.6%. Other travel shares retreated with Royal Caribbean Cruises (-2.9%), Carnival Corp (-4.9%), Norwegian Cruise (-5.0%), Airbnb (-2.4%) and Booking Holdings (-3.0%) all closing lower.
At the other end of the spectrum, energy stocks were the only sector with gains. Exxon Mobil (+2.2%), Chevron (+0.7%), ConocoPhillips (+2.4%) and Occidental Petroleum (+3.8%) all climbed. Energy equipment and services stocks were also up. Halliburton (+5.5%), Schlumberger (+1.9%), Baker Hughes (+1.1%) and Transocean (+3.4%) were among the notable gainers.
Defence and weapons makers climbed as traders bet on more military spending. RTX rose 3.3% and Lockheed Martin climbed 3.7%.
MP Materials, the sole US domestic producer of rare earths, jumped 4.6%. The Trump administration is said to be developing a plan to use Cold War-era powers to prioritize and fund rare earth projects it deems critical to national security.
Oracle shares jumped 24% last week, their best performance since 2001, after the company’s earnings report pointed to momentum in its cloud business. The stock has outperformed all of tech’s megacaps so far this year. CEO Safra Catz gave revenue guidance for the next fiscal year that was well ahead of consensus.
Treasuries Rebound From Lows
Treasury bond yields rose on Friday as investors bet on higher inflation after Israel and Iran traded air strikes. The yield on the US 10-year Treasury note rebounded 4 bps to 4.41%, after dipping to a one-month low of 4.31% early on Friday, as investors assessed escalating tensions in the Middle East. Thursday's auction saw stronger-than-expected demand for the notes, easing worries that investors would shun the US government’s longest maturity. The 2-year yield, which moves with interest rate expectations, was 4 bps higher at 3.95%.
“If Israel and Iran escalate you might see higher inflation expectations make their way through the market,” said Matthew Scott, head of core fixed income and multi-asset trading at AllianceBernstein. “You can see a world where that might sideline the Fed.”
US Dollar Rebounds
The US dollar index climbed 0.3% to above 98 on Friday, rebounding from three-year lows as escalating geopolitical tensions in the Middle East fuelled demand for safe-haven assets. However, for the week, the greenback was 1.1% lower against a basket of currencies, taking its decline for the year so far to 9.5%.
The Israeli shekel posted its biggest intraday drop in five years against the dollar, sliding 3.3% at one point. It later trimmed losses to about 1%. The Bank of Israel said it was “prepared and ready” to support financial markets after the strike.
The Swiss franc, which has been a consistent beneficiary of the flight from risk since the start of the year, rose against the US dollar and euro. The yen, which had been trending higher against the US dollar ahead of the news, sank by 0.4% to ¥144.09 as traders braced for potentially severe volatility.
The offshore yuan weakened 0.2% to around Rmb 7.19 per dollar on Friday, reversing gains from the previous session, as the US dollar strengthened. Investors are turning their attention to a batch of key economic data set to be released today, including figures on industrial output, retail sales, and the unemployment rate.
The Indian rupee fell to an eight-week low of 86.17 on Friday. India’s consumer inflation eased to 2.82% in May, the lowest since February 2019, down from 3.16% in April and below expectations, nearing the RBI’s lower 2% tolerance band.
Gold Closes In On All Time High
The price of gold rose more than 1%, closing in on an all-time high on Friday, as risk off trading prompted investors to chase so-called haven assets. The spot gold price, which has climbed steadily since the start of the year as an index of rising geopolitical and trade tensions, extended gains from earlier in the week. The price settled 1.4% higher at $3,432 and approaching its previous all-time high of $3,500. Gold rose 3.7% over the week.
Bitcoin Falls To 2-Week Low
Bitcoin dropped 3.0% to around $104,200 Friday, extending losses from recent sessions to hit a two-week low, after beginning the week a stone’s throw from its record of almost $112,000 as escalating geopolitical tensions and economic uncertainty triggered risk-off sentiment. But in a positive sign for traders, Bitcoin has held above $100,000 for more than 30 days in a row for the first time ever.
“The airstrikes sent oil spiking, which jolted inflation expectations and yanked rates higher, creating a chain reaction across risk assets,” said Ben Kurland, CEO at crypto research and charting platform DYOR. “Crypto, in particular, got hit because it’s highly sensitive to liquidity and macro volatility. When oil rips and yields rise, the appetite for leverage shrinks.” “What we’re seeing though isn’t panic selling, it’s mechanical de-risking,” he added. “The big moves aren’t always about fear, they’re often about forced math.”
Peter Lewis’ Money Talk Podcast
On Monday’s “Peter Lewis’ Money Talk” podcast, I’ll be joined by Alex Wong, director at Alex KY Wong Asset Management, and Nitin Dialdas, Chief Investment Officer at Mandarin Capital. In the second part of the show I’ll speak with Christopher Wood, Global Head of Equity Strategy at Jefferies.
The podcast is also available on Apple Podcasts, YouTube Studio and Spotify.
Spotify
YouTube Studio
https://www.youtube.com/playlist?list=PLnwqOJD9ie5gHH29bNfuG1Nscy8rdJo6O
Apple Podcasts
This podcast is sponsored by Surfin Group, which is headquartered in Singapore and offers online financial services to 60 million customers across 10 countries. You can find out more about them by going to their website www.surfin.sg
