Europe: Stocks subdued as corporate news outweighs US credit downgrade

EUROPEAN stocks closed flat on Monday, following a five-week winning streak, as declines from a surprise US credit rating downgrade were offset by upbeat corporate updates.
The pan-European Stoxx 600 index pared earlier declines to close 0.13 per cent higher at 549.98, hovering around the seven-week intraday high it touched on Friday.
Credit rating agency Moody's cut its ratings on US debt on Friday, citing concerns about the nation's growing US$36 trillion debt pile, which sent jitters across global markets earlier in the day.
'The downgrade reflects what markets already know: we're in a new fiscal regime defined by austerity via tariffs and caps... Don't overreact to the downgrade itself as history shows these calls often lag the fundamentals,' said Lale Akoner, global market analyst at eToro.
Wall Street's main indexes were lower, and longer-dated US Treasury yields rose, though were off their session peaks.
Meanwhile, US President Donald Trump's sweeping tax-cut bill, which had been stalled for days, won approval from a key congressional committee on Sunday, while Treasury Secretary Scott Bessent said in television interviews that President Donald Trump will carry out tariff threats if trading partners do not negotiate in 'good faith' on deals.
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'There's some issues around the tariffs coming back and reminding everyone that while we've seen some de-escalation, it's not kind of all over and done with,' said Richard Flax, chief investment officer at Moneyfarm.
De-escalation in US-China tariff war and hopes of interest rate cuts from the European Central Bank have helped regional markets recover from the early April slump when Trump announced 'reciprocal' tariffs, with Germany's DAX touching a record high on Monday.
Travel and leisure stocks were the biggest gainers on the index.
Ryanair rose 4.8 per cent after the Irish low-cost carrier reported strong demand across Europe and projected that fares would rebound and recover much of the decline that dented profit last year.
Peers Lufthansa and EasyJet rose 2.6 per cent and 3.2 per cent, respectively.
BNP Paribas rose 3.4 per cent, one of the biggest boosts, after the French bank announced a share buyback plan worth 1.08 billion euros (S$1.6 billion).
Meanwhile, Britain agreed the most significant reset of defence and trade ties with the European Union since Brexit by reaching a deal that includes a security and defence pact, fewer restrictions on British food exporters and visitors, and a contentious new fishing agreement.
Some luxury stocks declined after China's retail sales data for April missed expectations. Moncler dropped 2.2 per cent, LVMH fell 1.1 per cent, while the broader index was down 1 per cent.
Volkswagen fell 5.2 per cent to the bottom of the Stoxx 600 as it traded ex-dividend. REUTERS

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Business Times

an hour ago

• Business Times

Middle East conflict could drive up Singapore's inflation, warn economists, after core inflation dips in May

[SINGAPORE] Escalating tensions in the Middle East could spark a new wave of inflationary pressures, warned private sector economists, even as Singapore's authorities kept to their full-year inflation forecast. The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) on Monday (Jun 23) left their 2025 core inflation forecast of 0.5 to 1.5 per cent unchanged, after May's inflation readings dipped from the previous month. According to data from Department of Statistics, Singapore's core and headline inflation edged down to 0.6 per cent and 0.8 per cent respectively, in line with economists' expectations. On a month-on-month basis, core inflation was flat while headline inflation rose 0.7 per cent. Still, private-sector economists warned that the escalating conflict between Israel and Iran could bring a spike in oil and energy prices, and consequently put upward pressure on Singapore's inflation. This prompted UOB to raise its full-year core inflation forecast to 0.8 per cent, from 0.7 per cent, in 2025, and 1.6 per cent, from 1.3 per cent, in 2026, under its base case of a 'weaker pass through from higher oil prices' and a gradual de-escalation in geopolitical tensions. In the bank's worst case, core inflation could surge to 2.6 per cent in the first quarter of 2026, while moderating to 2.1 per cent in the second half of next year. Overall, core inflation could average 1.2 per cent and 2.3 per cent, respectively, in 2025 and 2026. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Its associate economist, Jester Koh, estimates that about 7.7 per cent of the overall consumer price index (CPI) basket could be directly impacted by higher oil prices, including components such as electricity, gas, petrol, point-to-point transport services, airfares, transport services of goods, as well as bus and train fares. 'Additionally, the spillover effects of higher utility, transportation and input costs on both goods and services inflation could be significant,' he added. According to UOB's estimates, year-on-year core inflation could rise by five to six basis points for every US$1 per oil barrel increase in Brent crude oil prices. Further, any supply-led spike in oil prices could filter through to Singapore's inflation 'largely within three to four months', said Koh in a research note. Meanwhile, RHB maintained its core inflation forecast of 1.1 per cent – but at the higher end of the official forecast range, the forecast factors a potential spike in oil prices driving higher global inflation. 'The recent US involvement in the Iran-Israel conflict, including strikes on Iranian territory, has driven oil prices higher over the weekend, extending a three-week rally,' said economists Barnabas Gan and Laalitha Raveenthar. 'Imported goods and services may become more expensive if global supply chains are disrupted or rerouted due to regional conflict.' Monetary policy settings MAS and MTI, however, said that the impact of the trade conflicts and higher global energy prices on Singapore is likely to be offset by the disinflationary drags exerted by weaker global demand. 'While crude oil prices have risen in recent weeks, they are for now still close to the average in 2024,' they said. Singapore's imported inflation thus should remain moderate. Agreeing, Maybank economists Chua Hak Bin and Brian Lee said imported prices should remain contained due to weak global demand and contained food commodity prices, amid abundant supply conditions. An appreciating Singapore nominal effective exchange rate (S$NEER) will also put a lid on imported costs, the economists added. Against this uncertain outlook, economists largely expect MAS to maintain its current policy stance in the upcoming July monetary policy meeting. Said Maybank's Dr Chua and Lee: 'Inflation remains contained, while growth is slowing to a more sustainable pace.' RHB's Gan and Raveenthar, however, believe rising volatility could prompt MAS to widen the S$NEER policy band, while maintaining the current appreciation slope. They also do not rule out the possibility of MAS flattening the slope of the policy band in future reviews, should trade tensions escalate again or if global demand slows more sharply than anticipated. 'While the headline and core inflation remain contained, the balance of risk has tilted towards the need to support growth, given rising external uncertainties,' said Gan and Raveenthar. The outlier was UOB's Koh, who expects MAS to flatten the S$NEER slope in the upcoming review. 'We assess that the economic outlook still warrants a further easing move,' said Koh, adding, however, that MAS may choose to delay monetary policy easing to the subsequent October policy meeting instead. 'Greater clarity could emerge with regard to tariff policy, the Middle East conflict and economic data (between July and the subsequent policy meeting in October), conferring the advantage for MAS to adjust monetary policy possibly with more comprehensive information.' Key CPI categories In May, most consumer price index (CPI) categories saw easing prices, except for accommodation and services inflation, which was unchanged from the month before. Food inflation eased to 1.1 per cent, from 1.4 per cent previously, as the prices of non-cooked food rose at a slower pace. Meanwhile, electricity and gas inflation fell further to 3.7 per cent, from a fall of 3.5 per cent, due to a larger decline in electricity prices. Retail and other goods prices continued to fall, but at a slower pace of 1 per cent, compared to a decline of 1.2 per cent previously, due to increases in the prices of household appliances, which offset a smaller decline in the cost of personal effects. Private transport inflation rose at a slower pace of 1.1 per cent, from 1.3 per cent previously, on the back of a smaller increase in car prices. Meanwhile, both services and accommodation inflation were unchanged from the previous month, at 1.1 per cent, respectively.

Business Times

an hour ago

• Business Times

Israel vs Iran: Navigating a new regime of geopolitical risk

ISRAEL'S 'pre-emptive' strikes directly against Iran on Jun 13 represents a meaningful escalation in what had been Israel's ongoing battle against primarily Iranian proxies. It now represents a direct confrontation between regional powers in the Middle East, drawing a red line which Israel has not crossed previously in its long-running conflict. Following Russia's 2022 invasion of Ukraine, we analysed geopolitical conflicts since World War II as categorised by the Glenview Trust, an investment adviser. Major power conflicts (US-Soviet primarily) and short-lived conflicts between 'mismatched adversaries' proved limited in their impact on US equity returns. In contrast, more prolonged conflicts (such as the Russia-Ukraine war that began in 2022) generated more headwinds for US equity markets in both their initial stages as well as over the year after they started. Most impactful: energy market disruptions Regional conflicts which result in energy market disruption – notably Iraq's 1990 invasion of Kuwait and Russia's 2022 invasion of Ukraine – have been among the most impactful and prolonged regional cross-border conflicts based on our analysis. Thus, while the humanitarian costs of such conflicts are paramount, for investors, the prospect of spillover to global energy flows poses the most imminent risk to global capital markets, in our view. With press reports indicating that Israel has attacked Iranian refineries and storage capacity as well as its Pars natural gas field, BCA Research suggests that these facilities are primarily for domestic Iranian use rather than for export. This is consistent with growing signs of Israel's intent to foment domestic instability and 'regime change' in Iran, rather than – for now – to disrupt Iran's energy exports and potentially roil global energy markets. Despite this and in light of the recent US strikes on Iranian nuclear sites, global energy prices have begun to factor in the prospect of more sustained disruption. Prices have increased not only in spot markets, but also in futures markets as far as 12 months out. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up In contrast, the 2019 Iranian strikes on Saudi energy infrastructure proved temporary in their impact on global oil supply. There was limited effect on six and 12-month oil futures prices in the immediate aftermath of the attacks. Admittedly, the June moves in crude prices remain short of the market pricing following both the 1990 Iraqi invasion of Kuwait as well as the 2022 Russian invasion of Ukraine, which resulted in prolonged disruption in global energy flows, leaving risk for markets should further escalation emerge. It is important to recognise that both the 1990 and 2022 energy market shocks were met by releases from the US' Strategic Petroleum Reserves that mitigated the longevity of the supply shocks. In 2022-23, the US released more than 300 million barrels of crude from its 650 million barrel stockpile, helping to bring down prices in the aftermath of the Russian invasion and ensuing sanctions. However, having only recently begun to restock and with only 400 million barrels in storage, it is unclear if the US could provide yet another comparable supply offset to a global oil supply shock, should the direct Israel-Iran conflict spur one. Risks of an oil supply shock We see two key risks to such a shock. First, should Israel's strategies evolve and it moves to strike Iran's primary energy export terminals at Kharg Island, this could directly impact Iran's 1.5 million to two million barrels of crude exports – a meaningful, but potentially a replaceable amount in the 100 million barrel per day global market. However, much like Russia's response to European efforts to limit Russian energy exports in the aftermath of Russia's 2022 Ukraine invasion, Iran may seek to weaponise global energy prices, either in response to an Israeli move against Iran's oil terminals by moving to disrupt or even close the movement of the nearly 20 million barrels of supply through the Persian Gulf bottleneck in the Straits of Hormuz. Such a volume would not be quickly replaceable globally. The second risk involves a shift in Iranian calculus. With Israel having struck Iran's nuclear facilities with more traditional 'bunker-busting' munitions, Iran has seen damage to its nuclear supply chain according to the International Atomic Energy Agency. Should Iran's leadership perceive a weakening or should the recent follow-on US strikes use more advanced munitions to further degrade the capabilities of Iranian nuclear deterrence, Iran may turn pro-actively to Russia's 2022 approach. In this instance, it would seek to impose – at a minimum – 2022-style costs on global and western economies, in the hopes that the US and European countries can rein in what appears to be currently unconstrained Israeli efforts at regime change. Economically, we estimate that the recent rises in energy prices – following the initial stages of the conflict – pose only modest risk to current global inflation trajectories. However, current levels of global crude prices means we have seen the trough in US inflation momentum – which Patrice Gautry, Union Bancaire Privee's global chief economist, had been anticipating since early 2025. Inflation catalysts Looking ahead, however, the battle against inflation globally, which many had hoped would be won in 2025, would face potentially three catalysts for higher prices: US President Donald Trump's tariffs; broadening fiscal policy stimulus in the US, Europe and potentially China; and the prospect for a global energy supply shock on the horizon. Beyond this, though the recent escalations in the Israel-Iran and US-Iran conflict are worrisome in themselves, investors should also recognise that a growing range of events – including India-Pakistan and Russia-Ukraine tension – have crossed red lines that previously constrained both sides in long-running conflicts. They likely represent a growing series of events presaging a regime of elevated geopolitical volatility. That such events are occurring with greater frequency may indicate that the global powers – US, Russia and China – are either no longer willing or, more troubling, unable to constrain their surrogates at maintaining the historical status quo in these regional conflicts. This suggests that investors should expect nations involved in such regional conflagrations to embark on new and disruptive journeys to establish new equilibria. For financial market participants, it suggests that the periodic spikes in volatility seen in equity and bond markets are part of this new equilibrium. This requires a proactive risk management approach as a core part of investors' portfolio allocations. The writer is group chief strategist at Union Bancaire Privee, a private bank and wealth management firm

Straits Times

2 hours ago

• Straits Times

Hague NATO summit aims to focus on Trump's spending goal but Iran looms large

THE HAGUE - The NATO alliance has crafted a summit in The Hague this week to shore itself up by satisfying U.S. President Donald Trump with a big new defence spending goal - but it now risks being dominated by the repercussions of his military strikes on Iran. The two-day gathering is also intended to signal to Russian President Vladimir Putin that NATO is united, despite Trump's previous criticism of the alliance, and determined to expand and upgrade its defences to deter any attack from Moscow. The summit and its final statement are meant to be short and focused on heeding Trump's call to spend 5% of GDP on defence - a big jump from the current 2% goal. It is to be achieved by investing more in both militaries and other security-related spending. Spanish Prime Minister Pedro Sanchez, however, upset NATO Secretary General Mark Rutte's preparations on Sunday as he declared Madrid did not need to meet the new spending target even as Spain approved the summit statement. Ukrainian President Volodymyr Zelenskiy has had to settle for a seat at the pre-summit dinner on Tuesday evening - rather than a formal session with the leaders when they meet on Wednesday - due to his volatile relationship with Trump. The U.S. bombing of Iranian nuclear sites at the weekend makes the summit much less predictable than Rutte - a former prime minister of the Netherlands hosting the gathering in his home city - and other NATO member countries would like. IRAN INTRODUCES UNCERTAINTY INTO SUMMIT Much will depend on the precise situation in the Middle East when the summit takes place - such as whether Iran has retaliated against the U.S. - and whether other NATO leaders address the strikes with Trump or in comments to reporters. If the meeting does not go to plan, NATO risks appearing weak and divided, just as European members confront what they see as their biggest threat since the end of the Cold War - Russia - while bracing for possible U.S. troop cuts on the continent. Under the new defence spending plan, countries would spend 3.5% of GDP on "core defence" - essentially, weapons and troops - and a further 1.5% on security-related investments such as adapting roads, ports and bridges for use by military vehicles, protecting pipelines and deterring cyber-attacks. Such an increase - to be phased in over 10 years - would mean hundreds of billions of dollars more spending on defence. Last year, alliance members collectively spent about 2.6% of NATO GDP on core defence, amounting to about $1.3 trillion, according to NATO estimates. The lion's share came from the United States, which spent almost $818 billion. US DEMANDS EUROPE SPEND MORE ON ITS OWN DEFENCE Washington has insisted it is time for Europeans to take on more of the financial and military burden of defending their continent. European leaders say they have got that message but want an orderly and gradual transition, fearful that any gaps in their defences could be exploited by Putin. They are particularly keen to stress their spending commitment as Trump has previously threatened not to protect allies that do not spend enough on defence. A prepared text summit statement agreed by NATO governments and seen by Reuters says: "We reaffirm our ironclad commitment to collective defence as enshrined in Article 5 of the Washington Treaty - that an attack on one is an attack on all." As part of their efforts to keep Trump onside, NATO officials have shunted difficult topics to the sidelines of the summit or kept them off the agenda altogether. While many European nations see Russia as an ever-growing threat, Trump has expressed a desire for better economic relations with Moscow - a prospect that Europeans think would help Russia to strengthen its military and threaten them more. Similarly, many Europeans are deeply wary of Trump's moves to lessen Russia's diplomatic isolation as part of his efforts to secure a deal to end the war in Ukraine. The brief summit statement will include just one reference to Russia as a threat to Euro-Atlantic security and another to allies' commitment to supporting Ukraine, diplomats say. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.