Perhaps still groggy from this weekend's extreme temperatures, financial markets began the week surprisingly calmly, completely ignoring the weekend's geopolitical events. Even the price of a barrel or the VIX (volatility index) is flat. Clearly, investors do not believe in an imminent response from Iran, whose room for maneuver now appears limited, both militarily and diplomatically (it should be noted, moreover, that Tehran's "official" supporters have reacted relatively little to the American intervention). Even the prospect of closing the Strait of Hormuz—through which nearly 20% of the world's oil production and 25% of its gas production transit—is hardly provoking any more reaction. Indeed, it must be said that such an action would be particularly counterproductive for Tehran: approximately 90% of its crude oil exports pass through the Strait of Hormuz, while the hydrocarbon sector represents nearly 10% of the country's GDP. Furthermore, almost all of its barrels are sold to China, and this would amount to alienating one of its main trading partners. While this scenario is therefore not preferred at this stage, it remains one of the last levers of negotiation or threat for a cornered regime.
Meanwhile, on the other side of the Atlantic, the Fed is hardly causing any more commotion. True to his current mantra, Jerome Powell persists in his stance of strategic patience. Faced with inflation still deemed too uncertain, the impact of customs duties difficult to quantify, a generally resilient economy and a labor market far from breaking, the President of the American institution sees no reason to modify monetary policy and certainly does not want to react prematurely. We will note, however, that while the labor market maintains, on the surface, an appearance of full employment, it nevertheless shows some signs of fragility, notably through the slowdown in job creation or the increase in applications for benefits. Above all, the decline in the participation rate, which Jerome Powell has been careful to explain but which is largely influenced by the marked decline in immigration, could artificially contribute to keeping the unemployment rate low. Thus, while FOMC members voted unanimously in favor of maintaining the status quo (maintaining key interest rates in the 4.25%-4.5% range) and still anticipate two rate cuts by the end of the year, their forecasts are becoming increasingly scattered in the face of uncertain macroeconomic scenarios: ten members anticipate two or more rate cuts this year, while nine foresee one or fewer.
Faced with a global environment conducive to nervousness and prevailing economic uncertainty, particularly in the United States, financial markets appear apathetic and have entered a transition period that could last throughout the summer, modulo tariffs, for which the deadline for negotiations is still set for July 9.
