The Middle Eastern conflict seems to ebb and flow almost hour by hour and US involvement can only be a further escalation. The crass coining of ‘Make Iran Great Again’ is astonishing. The net effect so far has seen oil prices fall back to where they started but the focus on this is diluted as the US is now a net exporter. 

Meanwhile the 9th July tariff deadline looms large. If there is no ‘deal’ (this is becoming a jaundiced word) then EU exports will suffer a 50% hit and they will respond in kind, that inflationary spectre has not gone away.

Federal Reserve Chairman Powell acknowledged this and has stuck to his guns of patience and wait and see, despite regular social media abuse from his President (apparently he is one of the dumbest most destructive people in government...). Trump compares his lack of action to the ECB’s ‘10’ interest rate cuts (there have actually only been 8, there were 10 hikes) forgetting that there is not exactly a read across in terms of economic activity. If stagflation hits the US it will be his doing.

The ECB cut by 25bp at their last meeting and 2% looks to be a level they are happy with. Eurozone activity as a whole is perking up (although distorted somewhat by frontloading ahead of tariffs) despite the still fragile political landscape. As mentioned, a resolution of the tariff saga is critical.

The Bank of England held base-rates at 4.25% with a 6-3 split as UK CPI stays above their target at 3.4%. The SONIA curve discounts two more cuts before a floor of 3.5% which feels like the right level unless we see a dramatic drop off in activity, we did see a negative GDP print for April.

Euro and Dollar credit spreads widened a little due to recent events but regained that ground in short order. Sterling credit spreads, however, hardly moved and are still offering the best all-in yields as the widest developed market spread and also above the highest sovereign yields across the curve. Due to this we have seen limited issuance into Sterling in comparison to EUR (May was the busiest month ever) and USD but what we have seen has been of good quality especially in some infrastructure names. The water sector still looks shaky and the Thames Water story goes from bad to worse.
 

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