Only the Middle East Conflict Seems to Matter These Days – Currency Thoughts
Only the Middle East Conflict Seems to Matter These Days
May 18, 2026
(139) Now into its twelfth week, the negotiating impasse between the United States and Iran and ongoing halt to shipping traffic through the Strait of Hormuz continues to override all other factors affecting financial markets especially in the face of evidence of mounting inflationary pressure around the world. The latest U.S. proposal, an offer to lift sanctions against Iran if the leaders in Tehran agree to stop development of a nuclear weapon, has reportedly been rebuffed just like earlier deal proposals. Meanwhile, Trump’s message keeps waffling between threats of utter annihilation and olive branches of lasting peace, and the economic barometer being watched by all, the global price of oil, remains above the $100 per barrel threshold. At $103.6, however, WTI crude is 1.8% lower than the pre-weekend close.
Bitcoin’s price has slipped under $80,000, and gold is 0.4% firmer.
The dollar has given back some of the ground gained last week, with overnight declines of 0.7% against the kiwi, 0.5% versus sterling, 0.3% relative to the Swiss franc, 0.2% against the euro but no change versus the yen. The beleaguered Indonesian rupiah recovered 0.4% but not before touching a fresh record low of 17,718 per dollar.
Ten-year sovereign debt yields have fallen by 8 basis points in the U.K., 7 bps in Italy, 6 bps in France and 5 bps in Spain, but there have been also increases of four bps in Australia, three bps in Switzerland and two basis points in Japan.
Pac Rim stock markets this Monday dropped by 1.5% in Australia and Indonesia, 1.1% in Hong Kong and 1.0% in Japan. In Europe, by contrast, share prices are higher in Germany, the U.K. and Spain. U.S. markets opened higher but just marginally so.
Today’s main data release has been the monthly assortment of Chinese indicators.
- A 3.5% year-on-year drop in property market prices was the deepest decline in 11 months.
- Unemployment fell to a 3-month low of 5.2% from a 13-month high of 5.4% in the previous month.
- Fixed asset investment dropped by 1.6% on average in the first third of 2026 versus a 3.8% decline in full 2025.
- Industrial production growth of 4.1% year-on-year undershot expectations and was down from a reading of 5.7% in March.
- Likewise, the 0.2% uptick in retail sales between April 2025 and last month was well under analyst expectations and down from 1.7% in March.
Bulgaria is the latest economy to confirm rising inflation. A 6.8% on-year jump in consumer prices there in April was up from 4.1% in March, 3.3% in February and a cyclical low of 1.2% in September 2024.
The British Rightmove house price index hasn’t recorded a positive year-on-year change since January. May’s reading is minus 0.3%.
Several economies released first-quarter GDP results. Mongolia had the strongest showing with GDP advancing 3.1% on quarter and by a greater-than-expected 7.9% on a year-on-year basis. In Thailand, GDP grew 0.7% on quarter and 2.8% on year, its biggest gain on such a basis since the first quarter of 2025. By contrast, Chilean GDP was 0.5% below the level in the first quarter of 2025, compared to on-year growth of 1.6% in the prior quarter and 2.5% in full-2025. Swiss GDP grew 0.5% during the winter quarter, up from 0.2% in the final quarter of last year.
The U.S. National Association of Home Builders monthly housing market index had a reading of 37 for the third time among the first five months of 2026 but up from a score of 34 in April.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Chinese retail sales and industrial production, U.S. NAHB index
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