Brooks Macdonald Investment Bulletin - 23rd June 2025

What has happened

US military strikes on Iran’s nuclear facilities over the weekend are dominating investors’ attention as markets re-open today. Despite the obvious escalation (the US had previously only been engaged in defensive actions to protect Israel from Iranian missile attacks), market reaction is somewhat measured so far this morning – much depends on Iran’s reaction of course, but one view is that the US strikes appear intended to be a ‘one-and-done’, rather than the start of a long offensive. The most direct marker for Middle East geopolitical risk is the oil price, but here Brent crude oil is “only” +1.25% higher this morning at 8.02am London time, at US$77.97 per barrel. Feeding off that limited price reaction, equity markets are overall only marginally lower at time of writing.

 US Federal Reserve

The US Federal Reserve (Fed) meeting last week saw interest rates left unchanged, but otherwise there was a hawkish tilt to the narrative, as the Fed marginally lowered its economic growth outlook while marginally raising its inflation outlook for the US economy. This week sees Fed Chair Powell get another opportunity to unpack the thinking behind those moves when he speaks to members of Congress as part of his regular through-the-year updates: Powell will be giving testimony to the House of Representatives on Tuesday (House Financial Services Committee) and to the Senate on Wednesday (the Senate Banking Committee). Finally, keep in mind that the Fed will also release its annual bank stress tests report on Friday.

Inflation data

This week sees more Consumer Price Index (CPI) inflation data land (for the latest May month reading), around the world, and offering a latest snapshot as to how the on-off trade tariff volatility is impacting prices for consumers. In date order this week, we have CPI data due out from Canada (Tuesday), Australia (Wednesday), and booking the week on Friday we have Japan (Tokyo city data), France and Spain. Finally, Friday also sees US Personal Consumption Expenditure price data. While this inflation data is important, likely overriding it for now will be Middle East events and the bearing they have on the direction for the oil price, where sustained moves in the oil price can have big swing impacts for broader inflation outlooks.

What does Brooks Macdonald think

Broader global geopolitics aside, following US strikes on Iran what matters now for financial markets is how Iran responds, and whether or not Iran seeks to weaponise the oil price. The most obvious way Iran could do that would be to try to blockade the Strait of Hormuz, just 21 miles wide at its narrowest point, and through which close to 30% of the world's seaborne oil trade goes through. However, Iran faces a complex trade-off: not just the west but also China, a key Iranian ally, relies on the free-flow of crude exports out of the Middle East. That suggests a blockade would be a high-hurdle for Iran to pull the trigger on, but clearly one to watch.

Source: Brooks Macdonald

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