Key Takeaways
- Oil prices stabilize after initial spike
- Two more Fed cuts possible
- Retail sales boom in China
On the latest edition of Market Week in Review, Director and Senior Investment Strategist Alex Cousley shared key watchpoints amid rising tensions in the Middle East. He also discussed the recent U.S. Federal Reserve (Fed) meeting as well as China’s housing market.
Energy Watch
As the conflict between Israel and Iran escalates, Cousley said markets are closely watching to see what the United States does. The Trump administration has signaled a decision on whether to intervene or not will be made within two weeks, he noted. In the meantime, the crisis hasn’t had much of an effect on global stock markets, outside of last Friday’s selloff.
Investors are also focused on energy prices, which Cousley called the linchpin for financial markets. “A surge in oil prices could lead to an increase in inflationary pressures, particularly in Europe,” he explained. So far, though, prices have been relatively contained.
The Plot Thickens
Shifting to monetary policy, Cousley noted the Fed held interest rates steady during its June meeting, as expected. The bigger focus was on the “dot plot”, which shows where each member of the Federal Open Market Committee thinks rates will be over the next few years. These projections suggest two more cuts are in store through the end of 2025, although Cousley noted some participants don’t see the need for any more cuts this year.
“If the labor market is still cooling and there hasn’t been a tariff-related inflation spike by the time September rolls around, we think a rate cut in mid-September is likely—with the potential for another one in December,” he remarked.
U.S. tariffs haven’t led to a big increase in prices yet, but Cousley said the impacts could start showing up over the next few months. The jobs market is also holding up fairly well, he added.
Housing Hope
Cousley finished with a look at the latest data from China. He characterized the numbers as generally disappointing, with the exception of retail sales.
“This data came in notably stronger than expected. However, some of the strength was driven by government trade-in programs, which are incentivizing consumers to swap older appliances for newer ones at cheaper rates,” Cousley explained.
Meanwhile, there are tentative signs the Chinese property market is rebounding after three years of very little transaction volume. “It’s still early days, but we’ve seen an improvement since the start of the year. Housing-related consumption also appears to be accelerating, which is an encouraging sign,” he added.
That said, Cousley expects China’s economy to grow at or slightly below the normal rate over the next six to 12 months. Some of this may hinge on the progress of trade negotiations with the U.S., he said, noting the pause on many of the larger tariffs between the two countries ends in August.