Over in Iran, what started as anger over the sharp collapse of the Iranian rial has broadened into a wave of dissatisfaction with the country’s leadership more generally, with protests and fatalities characterising the past few weeks. Over the weekend, international leaders have weighed in. President Trump has suggested the United States is weighing very forceful responses to the situation, even suggesting that military action is among the possibilities. Meanwhile, German Chancellor Merz remarked that any government relying solely on violence to survive is already finished, adding that he believes we may now be witnessing the final phase of this regime.
While it seems that there has been little reaction to this from traders (who instead seem to be focusing on monetary policy related data) Iran’s importance in global energy markets makes the unrest particularly significant. As a major oil producer within OPEC, any threat to its output has raised concern about supply disruptions, which has overshadowed optimism that Venezuelan production might rise following the departure of President Maduro and sent oil prices higher this week. Trump also announced that the U.S. intends to impose a 25% tariff on any country doing business with Tehran. However, the statement lacked detail on how such measures would be enforced, which is notable given Iran’s extensive trade ties with Iraq, the UAE, Turkey, India, and China – the last of which only recently stabilised relations with Trump on the tariff front.
In December, overall consumer prices in the United States climbed 0.3% from the previous month and were 2.7% higher than a year earlier, with food and housing costs doing much of the lifting. That still leaves inflation some distance above the Federal Reserve’s 2% goal, making it difficult to view the latest figures as the clear-cut success President Trump celebrated on Truth Social. Even so, the trend suggests inflation is easing. Price pressures on goods appeared largely subdued, reinforcing the idea that tariffs have not fuelled inflation in the way many analysts initially feared, and that companies may instead be absorbing some of the strain through thinner profit margins. With inflation cooling gradually and unemployment remaining low, investors generally expect the Federal Reserve to keep rates steady when policymakers gather in January.
Greenland’s prime minister was unequivocal this week, saying that if the country were forced to choose today, its people would stand with Denmark rather than the United States. President Trump has argued that the U.S. needs to bring Greenland under its control to counter Russia and China’s influence in the Arctic, but that message has largely been rejected by international leaders – prompting Trump to insist that NATO should recognize the strategic necessity of his stance. For now, however, financial markets at least have taken the developments largely in stride, with little noticeable reaction.
Finally, data showed that China’s trade surplus reached about $114 billion in December, underscoring how its gradual diversification of export markets helped buffer the impact of tariffs imposed last year.
Still to come this week we have U.S. PPI, retail sales, and UK GDP.
Nicola Tune, Portfolio Specialist
