Al-Watani: Global markets under the influence of inflation, the Federal Reserve, and regional tensions

A report issued by National Bank of Kuwait stated that global markets’ focus last week centered on inflation, central bank signals, and geopolitical tensions in the Middle East, with US monetary policy expectations remaining a key market driver. The Federal Reserve’s meeting minutes showed that some officials saw justification for raising interest rates in June, although they all ultimately supported keeping the federal funds rate unchanged. Federal Reserve Chair Kevin Warsh also announced the formation of five working groups to conduct a strategic review of policies, covering communications, the $6.7 trillion balance sheet, data usage, productivity and employment, and the monetary policy framework. Meanwhile, the Institute for Supply Management’s services sector purchasing managers’ index fell to 54 points, while initial jobless claims dropped to 215,000, indicating continued expansion and resilience in the labor market. US Treasury yields rose, with two-year and 10-year bond yields closing the week at 4.208% and 4.561%, respectively, while the US Dollar Index ended the week at 100.952 (+0.09%). In Canada, employment rose by 18,200 jobs in June, and the unemployment rate fell to 6.5%, with the US dollar closing the week against the Canadian dollar at 1.4154 (-0.32%). In Europe, inflation slowed in Germany and France to 2.4% and 2.0% year-on-year, respectively, although policymakers at the European Central Bank maintained a cautious stance amid persistent inflation risks. The Swiss National Bank (SNB) also reaffirmed its readiness to intervene in foreign exchange markets after keeping interest rates at 0% in June, while Swiss inflation stood at 0.5% year-on-year. The euro and US dollar closed the week against the Swiss franc at 1.1416 (-0.18%) and 0.8086 (+0.66%), respectively. The Bank of England proposed capital rule reforms aimed at supporting lending, while warning that leverage linked to artificial intelligence and geopolitical risks remain top financial stability concerns. In the Asia-Pacific region, China’s consumer price index slowed to 1.0% year-on-year, while the producer price index rose 4.1% year-on-year but fell 0.3% month-on-month, indicating fading reflationary momentum and room for further monetary easing. The US dollar closed the week against the Chinese yuan at 6.7820 (-0.05%). In Japan, producer prices rose 7.1% year-on-year, bolstering expectations of further tightening by the Bank of Japan, while policymakers encouraged increased domestic investment by pension funds.