Markets
Since this morning, markets again face another layer of uncertainty regarding the conflict in the Middle East. After a pause in the military actions since Friday, the US reported a missile attack by Iran on its military forces in the region. The US and Saudi-Arabia were reported to have hit targets of ‘Iran-aligned terrorists’ in Iraq. US President Trump also again threatened to hit Iran hard. This kind of sequence of events of course often occurred over the previous months. For markets is very difficult to guess what this might mean for the outcome of any negotiations and/or for the flow of energy commodities from the region. Markets apply the ‘usual’ Pavlov reaction. The Brent oil price after easing over the previous days, rebounded to currently trading just below $90 p/b. The European TTF gas contract even jumped back higher from a close below €58 p/Mwh yesterday to currently €61.2. Inflation fears returning to the forefront also overthrew this week’s calm on bond interest rate markets. European (and UK) markets again were hit substantially harder compared to the US. UK yields rose between 8.5 bps (2-y) and 4.0 bps (30-y). German yields in a similar move add between 5.5 bps (2-y) and 1.5 bps. US yields only rose 2.5 bps-1.5 bp across the curve. Equity markets in Europe show a mixed picture even after ongoing Tech related volatility in Asia this morning (South Korea in particular). US markets now are looking forward to the earnings’ reports from Meta and Microsoft to be released this evening. The EuroStoxx 50 declines 0.5%. US indices are trading mostly lower (Dow -1.0%, Nasdaq -0.5%). The rise on geopolitical uncertainty still has only a limited impact on the major dollar cross rates. EUR/USD still holds near 1.138. DXY gains slightly (101.45). USD/JPY (163.85) is back within reach of the multi-year top but for now doesn’t break the 164 big figure. Higher UK yields/risk premia again don’t help sterling. EUR/GBP is slowing creeping further north (EUR/GBP 0.857 area).
Of course, the main dish for markets still might come later today as the Fed will announce its policy decision. For the first time in quite a while, there is still ‘real’ uncertainty left going into the announcement of the decision as Fed Chair Warsh abstains from concrete ‘forward guidance’. Will the Fed policy rate (3.50%/3.75%) already be raised? The majority in the market still expects a 25 bps Fed rate hike only at the September meeting. Still, the money market is pricing a one in three chance that the trigger will be pulled today. The arguments for and against action today are both economic (e.g. waiting after favorable inflation figures for June) but also tactical in nature (Warsh can gain credibility if the Fed already acts ‘preventively’ today). Last month’s Fed dots (9 members anticipating at least one rate hike this year) only adds to the idea that it might be a close call today. To be decided at 20:00 CET this evening.
News & Views
A preliminary estimate of Belgian Q2 GDP growth published by the National Bank of Belgium today shows that activity in the country stagnated in the April-June quarter. Real GDP, adjusted for seasonal and calendar effects, was unchanged in the second quarter of 2026 compared to the previous quarter (was 0.2% Q/Q in Q1). Y/Y growth rate stood at 0.5% (was 0.8% Y/Y in Q1). The estimate only provided data on added value on the supply side of the economy. Value added in the services sector grew 0.2% Q/Q. However, activity in both industry (-0.8%) and the construction sector (-0.5%) contracted compared to the previous quarter.
Statistics Sweden published quarterly and monthly GDP indicators. The monthly indicator declined 0.2% resulting in 2.4% Y/Y growth, coming after solid May data (0.9% M/M). For Q2 as whole, the indicator estimates 1.4% Q/Q and 2.8% Y/Y growth, substantially stronger than expected. The GDP indicator provides an early picture compiled with more limited and preliminary statistics than the regular national accounts. The agency analyzes that activity for both June and for Q2 as a whole is noticeably above levels seen in corresponding periods of the preceding year. At its June 17 policy meeting, the Riksbank left its policy rate at 1.75%. Inflation is low (June CPIF 0.3% M/M and 1.3% Y/Y), due to a dampening effect of fiscal measures. The RB at that time also pointed to somewhat weaker than normal economic activity and only a tentative recovery in the labour market. Still, due to the higher inflation risks (Iran war), RB indicated a higher probability that the policy rate might be raised later this year. Today’s data at least suggest that also growth is improving. Markets still only see a first RB rate hike fully priced in by December. The krone this year weakened from EUR/SEK 10.50 to currently trade near EUR/SEK 11.05. RB reluctance to bring the policy rate to a more restrictive level in this respect probably played a role.
