Risk aversion increased in global markets amid concerns that rising costs in technology and artificial intelligence (AI) sectors could weaken end-user demand, despite persistent optimism over a lasting peace in the Middle East. Energy-driven inflation risks are shifting toward the digital sector as chip demand surges in AI and tech industries. Forecasts indicate price pressures from excess demand may make digital products less accessible, fueling worries about profitability for AI and tech companies. For instance, Apple raised prices across its product lineup due to high chip costs.
US Inflation Data and Economic Indicators
The US Personal Consumption Expenditures (PCE) price index, excluding food and energy, rose 0.3% month-on-month and 3.4% year-on-year in May, within estimates. The annual increase reached its highest since October 2023. Core PCE data showed a rise in line with expectations. Analysts noted it did not signal a significant forward-looking deterioration in pricing behavior despite high oil prices in April and May, leading to estimates of a potential slowdown in oil-driven inflation. The Fed's likelihood of hiking rates twice by year-end eased following these indicators, while forecasts for a September rate hike shifted toward October.
US Economic Growth and Jobless Claims
The US economy grew 2.1% year-on-year in the first quarter. Initial jobless claims fell by 12,000 to 215,000 in the week ending June 20, below estimates. Durable goods orders dropped 4.5% in May, lower than expected. Reports surfaced that Iran will charge fees to ships transiting the Strait of Hormuz. US and Gulf Cooperation Council (GCC) foreign ministers stated any attempt to charge fees for passage would be unacceptable, urging continued negotiations for a final deal. The UK Maritime Trade Operations reported a ship came under attack near the Strait of Hormuz for the first time since the US-Iran peace deal.
Oil Prices and Financial Markets
The downward trend in oil reversed on Thursday as Brent crude rose 2.1% to $74.96 per barrel, but traded down 1.2% at $74.1 on Friday. The US 10-Year Treasury yield fell about 3 basis points on Thursday to 4.36%, its lowest since May 8, and traded flat on Friday. The US Dollar Index dropped 0.1% to 101.3 on Friday. Gold declined 0.4% to $4,009 per ounce on the same day. The S&P 500 traded flat, while the Nasdaq fell 0.46% and the Dow Jones rose 0.14% on Thursday. American indexes started Friday in negative territory.
European Markets and Corporate News
Risk appetite rose in Europe amid falling oil prices reducing risks to growth and inflation, as the bloc's inflation-recession dilemma eased. The US Supreme Court ruled in favor of Bayer in the Roundup weed killer case, fueling expectations of reduced legal risks. Bayer's shares jumped nearly 19%, reaching the highest level since mid-February. France and Italy reportedly decided to boost cooperation across defense and energy. The UK's FTSE 100 climbed 0.65%, France's CAC 40 rose 0.55%, Germany's DAX 40 gained 1.03%, and Italy's FTSE MIB 30 increased 0.28% on Thursday. European indexes opened Friday negative.
Asian Market Turmoil
Selling pressure emerged in Asia, especially in AI and tech sectors. Tokyo's inflation rate came in at 1.7%, above estimates, reinforcing expectations that the Bank of Japan (BoJ) will maintain a hawkish stance with at least one rate hike by year-end. The US dollar/Japanese yen exchange rate hit a 40-year high of 161.95 before slowing amid expectations of Japanese intervention. The rate was down 0.1% at 161.63 on Friday. Near the close, Japan's Nikkei 225 fell 4.5%, South Korea's Kospi Index dropped 6.9%, China's Shanghai Composite Index declined 1.7%, and Hong Kong's Hang Seng Index fell 1.9%.
