Three Huge Sources of Stress on World Financial Markets – Currency Thoughts
Three Huge Sources of Stress on World Financial Markets
June 13, 2025
Number one and most importantly, Israeli forces conducted a strike on Iranian nuclear and military installations and is promising escalating continuing attacks in the days ahead. Iranian officials are claiming the actions to constitute a declaration of war. Trump urges Iran to make a deal ASAP, while Rubio denies that the United States had any role in Israel’s attack.
Number two: Trump appears to be losing patience with the Fed’s wait-and-see policy. He is calling for a “jumbo” cut in interest rates and has hinted he might intercede if that doesn’t happen.
Number three: A further upward ratcheting of U.S. import tariffs appears to be fast approaching.
In financial market action overnight, the dollar, bond yields, and both gold and oil prices climbed, while equities and crypto fell.
- The DJIA, SPX and Nasdaq futures are down around 1.0%, and small-cap stocks have fallen even more sharply.
- Stock markets in Asia clised down 1.0% in Taiwan, 0.9% in Japan and South Korea, 0.8% in China and Singapore and 0.6% in Hong Kong. Losses so far today exceed 1.0% in Germany, France, Italy and Spain.
- Iran is a major oil producer, and Israel’s preemptive attack has sent the price of WTI oil up more than 8.0%.
- From its 52-week low just yesterday, the weighted DXY dollar index has rallied almost 1%. Advances of the greenback since Thursday’s closing amount to 1.2% against the South Korean won and New Zealand kiwi, 1.0% versus the Australian dollar, 0.8% relative to the euro and Mexican peso, 0.6% vis-a-vis the yen and sterling. The Swiss franc touched 0.8040 per dollar, its strongest level since August 2011, but net appreciation overnight of 0.5% was dampened by speculation that the Swiss National Bank may revert to a negative interest rate next week.
- The price of gold (+1.0%) benefited from the rush to safety.
- Bitcoin’s cost fell back 0.9%, in contrast.
The Central Reserve Bank of Peru’s policy interest rate, which had been cut by 25 basis points at the previous review in May, was left unchanged at 4.50% at this month’s Board meeting. Rate cuts are happening less frequently, but an end to their down-cycle is not yet at hand. A released statement after the June meeting observes in-target inflation and well-anchored expected inflation. “Economic activity expectations indicators showed a slight deterioration relative to the previous month. The outlook for global economic activity has deteriorated due the restrictive measures on international trade, with a downward bias given the high uncertainty about its effects on the global economy.” Peru’s central bank rate crested at 7/75% from January 2023 until an initial cut in September of that year. The rate had been lowered to 5.0% by the end of 2024. This month’s cut was the first change since a 25-basis point reduction in February.
The slide in Japanese industrial production in April was revised to 1.1% from a drop of 0.9% reported initially. Year-on-year output growth remained positive at 0.5% but lower than those in the first quarter. Industrial production had declined by 1.3% in 2023 and a further 2.6% in 2024. Capacity usage, which dropped by 0.4% in 2022, 1.0% in 2023 and 5.2% in 2024, rose 1.3% on month and 2.4% on year during April. Japan’s tertiary index of service sector activity rose 0.3% in April and recorded year-on-year growth of 1.9% for a third straight month.
China’s stock of M2 money was 7.9% higher in May than a year earlier but unexpectedly down from an 8.0% 12-month increase in April. New yuan loans totaled CNY 620 billion in the latest month, the second smallest incremental rise in a half year.
Industrial production in the euro area plunged 2.4% in April, reversing all of the gain in March and resulting in just an 0n-year rise of 0.8%. Compared to the first-quarter average, industrial production was 0.4% lower. Among the bloc’s four largest economies, IP fell in April by 1.9% in Germany, 1.4% in France and 0.9% in Spain versus a 1.0% increases recorded by Italy.
Euroland’s trade balance in April was also reported this Friday and continues to be tugged and pushed around by higher, yet uncertain, U.S. tariffs. The seasonally adjusted surplus shrunk from 28.8 billion euros in March to EUR 14.0 billion a month later, with exports falling even more sharply than did imports. On an nonadjusted basis, the surplus of EUR 9.9 billion amounted to only half of what analysts were anticipated and down from EUR 13.6 billion in April 2024. For January-April, the surplus of EUR 71.0 billion was similar to EUR 68.6 billion a year earlier.
German, French and Swedish consumer price inflation in May were left unrevised from their initial readings of 2.1%, 0.7% and 0.2%. France’s pace was at a 51-month low, whereas Sweden’s represents a 54-month low. The month-on-month rise of just 0.1% in German consumer prices was the least since January.
German wholesale prices in May fell 0.3% on month and to a 5-month low year-on-year increase of just 0.4%.
Finnish CPI inflation remained at 0.5% for a fourth consecutive month.
Spanish CPI inflation in May has been revised upward to 2.2% from 2.1% but still amounts to a 3-month low.
In Slovakia, consumer prices increased 0.5% and accelerated to a 17-month high of 4.1%, double the year-on-yea pace recorded in mid-2024.
Capacity utilization in Canada of 80.1% last quarter exceeded 79.9% for the first time in two years and was up from 78.6% in the first quarter of 2024.
Market participants await the preliminary June U. Michigan index of U.S. consumer sentiment, which during the Trump presidency has dived from a reading of 74.0 in December 2024 to 52.2 in May. Chaos as a primary objective rather than an unavoidable but temporary consequence of needed change will do that.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Reserve Bank of Peru, Euroland industrial production and trade balance, Japanese industrial production and tertiary index
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