Middle East – Rapid Escalation
Last Friday, Israel launched “Operation Rising Lion,” deploying around 200 jets to target Iranian strategic and nuclear sites. Iran retaliated with approximately 100 drones, most of which were intercepted. Oil futures spiked by 12%, and safe-haven assets rallied. Despite this, the U.S. dollar strengthened—even though its behaviour throughout the week did not align with that of a typical safe-haven asset. Washington denied any involvement, and the UN has urged de-escalation. The Israeli campaign appears far from over, with escalation reaching unprecedented levels and markets bracing for a broader Middle East conflict.
US CPI and Fed Preview
Last Wednesday, May’s Consumer Price Index (CPI) surprised to the downside across all metrics. Treasuries rallied, and the yield curve steepened by about 5 basis points as inflation fears temporarily eased. On Thursday, Producer Price Index (PPI) data confirmed the same trend. Core inflation is now running closer to 2%, and the Federal Reserve is expected to keep rates on hold at this week’s FOMC meeting. Markets will likely have to wait until September for rate cuts. The impact of tariffs on prices has yet to materialize, and the Fed is in no rush to act.
Poland – Tusk survives confidence vote
Poland’s pro-EU cabinet, led by Prime Minister Donald Tusk, survived a confidence vote on June 11, 2025, as expected—winning by a margin of 243 to 210. The vote followed the presidential election victory of nationalist Karol Nawrocki. Momentum has now shifted back to the ruling government, but challenges remain. A reshuffle in the government is likely. The coalition must now deliver on reforms and fiscal consolidation. However, the path forward is clearer, and cooperation with the EU is expected to be smoother.
Algebris Investments’ Global Credit Team
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