Al-Watani: Energy prices and trade fees boost expectations of continued global monetary tightening

A report issued by National Bank of Kuwait stated that global markets are increasingly pricing in inflation risks and monetary policy trajectory expectations, amid rising energy prices and the implementation of new trade measures, which bolster the likelihood of persistent inflationary pressures alongside slowing growth.

Brent crude oil rose above the $100-per-barrel threshold before retreating at the close of last week’s trading, amid fears of disruptions to major shipping routes. The surge in oil prices pushed global bond yields higher and reinforced expectations that central banks would pursue further monetary tightening.

The report noted that the United States intends to impose new tariffs ranging from 10% to 12.5% on imports from approximately 60 economies, a move that reasserts the protectionist trade policy stance of President Donald Trump following the Supreme Court’s rejection of previous tariff measures. A 10% tariff will be applied to selected partners, including Mexico, the United Kingdom, Canada, and India, while tariffs on Japan, Switzerland, and South Korea will generally be capped at 12.5%. Goods from the European Union and Taiwan will mostly face tariffs not exceeding 10%. Although exemptions cover fuel, food, fertilizers, and products already subject to specific sectoral duties, the new system renews uncertainty surrounding global supply chains and American importers. These measures could exacerbate inflationary pressures and business costs, particularly if future tariffs target excess manufacturing capacity. Meanwhile, retaliatory measures by trading partners could further weaken global trade and investment.

Initial jobless claims in the United States fell by 22,000 to 187,000 during the week ended July 18, coming in well below economists’ median forecast of 210,000 and marking the lowest level since 1969. The data suggest that employers remain reluctant to reduce headcount, despite broader uncertainty regarding economic growth, tariffs, and rising energy prices. Continuing claims showed little change, holding steady at around 1.8 million, indicating that the labor market remains generally resilient.

The sharp decline in initial claims reinforces expectations that layoffs will remain limited ahead of the Federal Open Market Committee meeting scheduled for July 28–29. Although the strength of the labor market may partly reflect a declining labor force participation rate, the data provide only limited indications of an imminent deterioration in employment conditions. This may allow policymakers to continue focusing more intently on renewed inflation risks stemming from higher energy prices and tariffs.

The National Bank of Kuwait report stated that the European Central Bank (ECB) kept its deposit facility rate unchanged at 2.25% but signaled growing readiness to resume monetary tightening, amid renewed tensions in the Middle East and the resulting rise in energy prices. ECB President Christine Lagarde noted that some policymakers had discussed the possibility of an immediate rate hike, while emphasizing that the Governing Council would assess incoming data before its September meeting.

Overall inflation in the eurozone slowed to 2.8% year-on-year in June. However, the renewed surge in oil and gas prices poses significant risks to inflation outlooks and could keep price growth above the target level through the first half of 2027.

Markets are currently pricing in a near-certain 25-basis-point rate hike in September, along with another increase before year-end. Yields on 10-year German government bonds rose to 3.21%, their highest level since 2011, while the euro weakened as investors weighed the likelihood of ECB monetary tightening against growing concerns about stagflation driven by higher energy prices and weak growth in the region.