War, What is it Good For?

June 13, 2025
6 min read
  • Israel and Iran heading towards open warfare.
  • Crude oil prices surge. Gold is up. USD rallies across the board. Global stocks plunge while bonds rally.
  • The June University of Michigan preliminary consumer sentiment is today’s data highlight.

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War, What is it Good For?

US

Heightened risk of a full-scale war between Iran and Israel has triggered a sharp flight to safety and sent crude oil prices soaring. Crude oil prices spiked as much as 13% to its highest level since end-January. Gold prices rose by nearly 2% and is trading a little under the April record high of $3’500/oz. USD reasserted its safe haven status, advancing broadly.

Israel launched large-scale airstrikes against Iran’s nuclear facilities and ballistic-missile factories. Israel Prime Minister Benjamin Netanyahu said the operation “will continue for as many days as it takes.” In response, Iranian supreme leader Ayatollah Ali Khamenei said Israel will “pay a very heavy price” and should “expect a severe response from Iran’s armed forces.” US Secretary of State Marco Rubio confirmed the US was not involved in the strikes.

Escalating military tensions in the Middle East will keep USD and Treasuries bid in the near-term. However, the fundamental USD downtrend is intact, supported in part by scope for a more dovish Fed and US protectionist trade policy. US President Donald Trump warned yesterday he may soon hike auto tariffs from their current 25% level.

Risk is the Fed delivers a dovish hold next week. US inflation pressures remain contained. PPI services less trade, transportation, and warehousing which feeds into the PCE, was flat m/m in May after falling by -0.3% in April.

Moreover, US consumer spending faces some headwinds. Household net worth decreased by -$1.6 trillion in Q1 after rising $164 billion in Q4 driven by a sharp decline in the value of holdings of corporate equities. Lower household net worth points to slower growth in real personal consumption expenditure (chart below).

The June University of Michigan preliminary consumer sentiment index is up next (3:00pm London). Headline is expected at 53.6 vs. 52.2 in May. The sentiment data no longer appears to be a reliable indicator of future spending behavior. Instead, attention will be on the extent of easing in inflation expectations. Consumers' one-year inflation expectations are forecast to fall -0.2pts to 6.4% and expectations 5 to 10 years out are forecast to dip -0.1pts to 4.1%.

Peru

Peru central bank kept the policy rate steady at 4.50%, as expected. The bank’s press release was neutral. The bank noted that “most indicators of both current situation and economic activity expectations remained in the optimistic territory” but warned “the outlook for global economic activity has deteriorated.” Moreover, the bank reiterated it expects headline and core inflation to settle around 2% in the projection horizon.

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