Global stock markets were dominated by short selling on Thursday amid a sharp escalation of military action in the Middle East.
Middle East fears
The S&P 500 index closed in the red on June 18, falling 0.03% to 5,980.87 points. The Dow Jones Industrial Average fell 0.10% to 42,171.66 points, and the Nasdaq Composite rose 0.13% to 19,536.27 points.
Global indices are falling mainly due to investor concerns about possible US intervention in the Middle East, which could trigger inflation, and the lack of progress in reaching trade agreements.
On June 18, the Fed kept its key rate unchanged at 4.25-4.5%. Jerome Powell noted that the US economy is showing resilience, but inflation is still above target, so the regulator will act cautiously and make decisions based on incoming data. He stressed that premature policy easing could undermine the progress made in the fight against inflation, so the Fed is in no hurry to cut rates.
At the same time, this year’s tariff increases are likely to lead to higher prices and put pressure on economic activity in the country. The regulator raised its inflation forecast for 2025 to 3% from the 2.7% expected in March. The GDP growth forecast for 2025 has been lowered to 1.4% from 1.7%. GDP estimates are also difficult at present, as its dynamics in the first quarter were significantly affected by changes in imports, as businesses accumulated inventories ahead of the introduction of tariffs.
Nevertheless, the number of applications for unemployment benefits in the US fell to 245,000 last week, compared with 250,000 a week earlier, which was the highest figure since October last year. The actual figure was in line with analysts’ expectations.
Eurozone economy
The European STOXX50 index is down 0.76% today to 5,226.81 points. Amid geopolitical uncertainty, investors are weighing potential inflationary pressures that could force central banks to tighten monetary policy. However, consumer prices in the eurozone rose by 1.9% in May, compared with 2.2% in April.
The Swedish Central Bank on Wednesday lowered its interest rate by 25 basis points to 2% per annum, as expected. Today’s policy decisions by the central banks of Switzerland and Norway will also be in focus after the European Central Bank decided earlier this month to err on the side of caution, hinting at a pause in its rate-cutting cycle.
The Bank of England’s key rate decision will also be announced today. The rate is expected to remain unchanged, as despite inflation falling to 3.4% in May, it remains above the 2% target and could rise if the Israeli-Iranian conflict leads to higher oil prices.
Impact of the Middle East conflict on Asian markets
Asian markets are also showing short-term sentiment for the same geopolitical reasons. The Chinese CSI 300 index is down 0.82% to 3,843.09 points. On Friday, the People’s Bank of China is expected to announce its key interest rate decision, and there is a high probability that the rate will remain unchanged.
The Japanese Nikkei 225 index is down 1.02% to 38,488.34 points. However, shares in Japan’s Nippon Steel Corp. rose 2.26% after it announced that its acquisition of US Steel, which the US government had opposed for over a year, had finally been completed.
