Investors are monitoring the escalation of the conflict in the Middle East: on Monday morning, Iran launched missiles at central and southern Israel and also attacked the Nevatim and Tel Nof airbases in response to aggression against Lebanon. Although President Donald Trump called on the parties to return to negotiations, the likelihood of a diplomatic settlement in the near future appears low. In addition, May labor market data showed an increase in nonfarm payrolls to 172.0K, far above analysts’ expectations of 85.0K, which significantly increases the possibility of tighter monetary policy by the U.S. Federal Reserve this year.
Eurozone
The euro is weakening against the yen but strengthening against the dollar and the pound.
Analysts at Deutsche Bank AG believe that the eurozone will face a sharp slowdown in economic growth this year, as energy shocks caused by the closure of the Strait of Hormuz are putting significant pressure on production and investment while intensifying inflation. According to experts’ expectations, the bloc’s gross domestic product will reach 0.5%, although at the beginning of the year it was expected to reach 1.1%. The updated forecasts are confirmed by Friday’s statistics for the first quarter, which showed GDP declining from 0.1% to –0.2% quarter-on-quarter and from 1.2% to 0.3% year-on-year.
United Kingdom
The pound is weakening against the yen and the euro but strengthening against the U.S. dollar. British macroeconomic statistics have so far failed to provide the currency with the necessary support: the housing market report from Halifax Bank plc reflects the continuing uncertainty related to events in the Middle East. Despite the recent decline in mortgage rates, expectations of faster inflation remain, while the increase in borrowing costs since the beginning of the year limits housing affordability. As a result, the average price fell slightly by 0.1% month-on-month in May: the median value stood at 298.806K pounds, while the price index in the segment added 0.5%.
Japan
The yen is strengthening against the U.S. dollar, the euro, and the pound.
Late last week, the currency again approached annual lows, prompting Bank of Japan Governor Kazuo Ueda to state that the regulator intends to continue tightening monetary policy. Amid reduced capital spending and ongoing supply problems related to the blockade of the Strait of Hormuz, gross domestic product growth in the first quarter slowed from 2.1% to 1.8% year-on-year, better than Bloomberg’s forecast of 1.4%. Together with the strengthening of the U.S. dollar, this will force officials to return to a hawkish course earlier than planned.
Australia
The Australian dollar is strengthening against the U.S. currency, the euro, the pound, and the yen. The labor market report published last week showed an increase in the total number of jobs to 16.5 million, or by 0.7%; the number of filled vacancies rose to 16.185 million, or by 0.6% month-on-month and 1.9% year-on-year; the number of people with multiple jobs increased to 0.978 million, or by 0.3%; total hours worked rose to 6.1 billion, or by 0.9%; and the share of job vacancies increased by 2.1%.
Oil
Oil quotes are trading with reduced volatility, although they have already moved away from the 92.00 support level.
The situation in the Middle East remains the key factor driving quotes, which were supported by yesterday’s comments from Iran’s ambassador to Russia, Kazem Jalali. He stated that the Strait of Hormuz will remain open but will operate under new conditions that the Islamic Republic will establish jointly with Oman. Official Tehran is considering the introduction of a transit fee for vessels, the size of which will vary depending on the type of ship, its cargo, and current conditions.
