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Daily Economic Update
25.06.2025US: Powell reiterates his cautious stance citing unclear price outlook but other Fed governors are more dovish. Fed Chair Powell, in his semi-annual testimony before the House Financial Services Committee, reiterated that the bank doesn’t need to be in a rush to cut interest rates given uncertainty about the size of the tariff effects on consumer prices. He emphasized that the impact could start to show up in the June/July inflation prints. He also mentioned that if “inflation pressures do remain contained” the bank may cut rates sooner rather than later but cautioned that “the economy is still solid” and he would wait to assess the price and overall economic outlook, and therefore, steered clear of providing any timeline. He stated that any weakening in employment data may also warrant adjustments to the current monetary stance. Despite Powell largely rehashing his earlier messages, markets took his comments as more dovish than last week’s post FOMC meeting conference, with equity markets rising (S&P500 +1.1% d/d) and UST 10Y yields giving back their prior intraday gains yesterday. We note that two important FOMC voters, Governor Waller and Governor Bowman, recently indicated that they would favor a rate cut as early as July if the inflation data remains in check by then. Meanwhile, the Conference Board consumer confidence index in June unexpectedly deteriorated to 93 from May’s 98.4 as consumers were concerned about tariffs and an expected weakening in job market conditions. Previously, consumer confidence in May had improved from April’s five-year low of 85.7 following some progress on trade deals. Finally, as per S&P Case Shiller data (20-City composite), US existing home price rises moderated to 3.4% y/y in April from 4.1% in March, the softest annual increase since August 2023. On a monthly basis, prices dropped for a second straight month, by 0.3% m/m after a decline of 0.2% in March.
Oil: Prices retreat as Iran-Israel ceasefire tentatively holds. Oil prices plunged on Tuesday, following the announcement by US President Trump of a ceasefire between Iran and Israel that looked to be holding despite a shaky start and his comment that “China can now continue to purchase oil from Iran”. This statement, later in the day on his Truth Social account, appeared to give the green light to the Islamic Republic to resume unfettered oil exports, undermining the US’s own energy sanctions on the regime. Brent shed 6% d/d to close at $67.1/bbl (-12.2% w/w), extending losses to almost 16% in total over three consecutive trading days. Prices are now back to where they were before Israel’s strike on Iran, signaling that markets assess the direct threat to regional oil supplies from an escalation in this conflict as fading and manageable amid ample spare global capacity, most of which, though, is situated in the region. As some of the dust clears on this latest round of hostilities, some critical questions remain unanswered that could shape the future trajectory of this conflict and by extension the impact on the oil market: to what extent has Iran’s nuclear enrichment program been destroyed or set back, and if not, will Israel and the US feel compelled to ‘finish the job’ in the near future; (ii) will these strikes convince Iran to accelerate and redouble efforts to covertly obtain a nuclear deterrent; and (iii) would confirmation of the destruction of this enrichment program finally bring an end to US energy sanctions and allow Iran to begin selling its oil more freely. Markets will be keenly looking for answers to these and other questions over the next few weeks and months.
Japan: Ministry of finance to cut super-long bond issuance amid market volatility. The ministry of finance has announced a significant change in its issuance strategy starting July — its first mid-year revision for non-budgetary reasons since 2009 — in a move to try to stabilize long-term bond yields, which rose to a historical peak in mid-May 2025. Under the approved plan, the ministry will reduce annual issuance of super-long government bonds with maturities of 40, 30, and 20-year bonds by a combined JPY3.2 trillion through March 2026. To offset the reduced long-term funding, issuance of shorter maturities (6-months, 1 and 2-year bonds) will be increased by a total of JPY2.7 trillion. As a result, total market issuance via auctions will decline modestly by JPY500 billion to JPY171.8 trillion for FY2025. This move came following the Bank of Japan (BoJ) decision to reduce the monthly outright purchases of Japanese government bonds (JGBs) to JPY2.0 trillion in January-March 2027 with the amount being cut down by JPY400 billion each calendar quarter until January-March 2026. The main aim of these changes is to rebalance the bond market, following the subdued BoJ and life insurers demand in the wake of significant unrealized losses seen in the previous fiscal year. The latest 20-year JGBs sale of JPY759 billion on Tuesday saw a slightly stronger bid-to-cover ratio at 3.11, though yields climbed by 2bps to 2.36%. The pro-active adjustment was largely welcomed by market participants, though concerns remain that shifting supply toward shorter maturities could generate new distortions amid evolving geopolitical and inflationary risks.
UAE: Domestic credit growth softened in March on slower credit to GREs. Domestic credit growth eased to 5.2% y/y in March, slightly lower from February’s 5.3%. Slower growth came mainly due to the steeper decline in public sector credit (government plus GREs) (-2.2% y/y versus -1.7% in February), while growth in private sector credit, which constitutes around 70% of total domestic credit, remained relatively stable at 8.2% in March with its two main components, business credit and personal loans growth unchanged at 3.5% and 17.5%, respectively. On the other hand, resident deposit growth saw a marginal pickup (10.3% versus 10.2%) due to stronger growth in private sector deposits (15.0% versus 13.9%) and a rebound in GRE deposits (10.1% versus -2.3%), while government deposits saw a sharper fall of -8.0%. Overall solid credit growth continues to provide underlying support to our forecast of non-oil economic growth of 4.1% for 2025.