Dear Reader,
The world’s holding its breath, wondering if the US will wade into a war against Iran. Reports suggest Trump’s willing to give diplomacy a chance—for now—lifting markets with a flicker of hope. But let’s not kid ourselves: his track record on promises is rather shaky, to say the least, and whispers of regime change in Iran, backed by Israel and the US, are doing the rounds.
There is a cruel irony here. As Mark Twain allegedly said, “History doesn’t repeat itself, but it often rhymes.” Back in 1953, the US and the UK orchestrated a coup to topple Iran’s elected government after Prime Minister Mossadegh dared to nationalise the oil industry. The Shah was propped up, splitting oil riches with Western firms. Fast-forward to 1979, a revolution booted him out, ushering in the Islamists. Barely had they settled when Saddam Hussein’s Iraq, with a Western nod, attacked, sparking an eight-year war that left countless dead.
Here’s another irony: Iran’s nuclear ambitions, now a justification for war for Israel with US backing, were born under the Shah, with America’s blessing no less, via a 1957 nuclear co-operation deal. The 1970s saw grand plans for nuclear power plants with Western tech—until the Islamists took over, and Israel decided it didn’t fancy a nuclear rival in the neighbourhood. So, if you’re framing this as a clash of democracy versus autocracy, take a cue from Hamlet: “There are more things in Heaven and Earth, Horatio, than are dreamt of in your philosophy.” We said it less poetically when we noted how oil, trade, and US strategy have long fuelled this mess.
Yet, markets are oddly calm, treating geopolitical flare-ups as the new normal. The big questions—how long will this war drag on, and will the US jump in?—loom large. As Vijay Bhambwani puts it, “The Israel-Iran hostility is nothing but a trigger for a highly nervous, overleveraged retail trader.” Markets are betting on resilience, or maybe just denial.
The Bank of America’s June survey of global fund managers, taken post the Trump-Xi phone call but pre-Israel’s Iran strike, shows an optimistic shift: two-thirds expect a soft landing for the global economy in the next 12 months, the rosiest outlook since last October. That’s a sharp pivot from April’s gloom, when a net 42 percent feared a recession, to June’s net 36 percent dismissing it outright. But the tension’s still there. “Long gold” is the hottest trade, and “trade war triggering a recession” tops the tail-risk list. Gold’s allure suggests caution.
The S&P 500’s barely flinched since the survey, shrugging off both the Israel-Iran clash and the Fed’s dour forecast of slower growth and stickier inflation. But here’s the rub: expensive oil could amplify the Fed’s stagflation nightmare, forcing a grim choice between propping up growth or taming prices. The Fed’s recent pause isn’t confidence — It’s a nod to an impossible bind. As we explored in ‘How to navigate markets amid Fed’s pause and stagflation risks’, central banks are stuck in a classic stagflation trap, where old-school monetary tools may not work.
Central banks are quietly screaming this truth through their actions. ‘Why gold is fast becoming the asset of choice for central bankers’ lays it bare: they’re hoarding gold and planning more buys, while trimming US dollar reserves. That’s not a trend; it’s distrust in the dollar’s dominance. It ties neatly to our piece on ‘The curious case of the US dollar in the time of the Israel-Iran conflict’. Even tensions that once boosted the dollar now barely nudge it—Central banks have already started diversifying.
India, meanwhile, is playing its own game. FY25 corporate data shows robust financials, though capex is treading cautiously. Growth in deposits outpacing loans suggests banks can finally ease up on chasing depositors. Indian bond markets are holding steady, and consumption growth is at a turning point. But it’s not all rosy: cracks in residential real estate and cement price worries linger, and exports are feeling the global trade tantrums. Enter Sanjay Malhotra, the RBI’s new hero, slashing rates and flooding markets with liquidity, leaning hard into growth.
This tangled web of war, oil, and gold feels like a geopolitical soap opera, and markets are binge-watching it with popcorn. India’s economy, with its steady financials and cautious optimism, stands as a relative oasis, but global risks—stagflation, trade wars, and actual wars—cast long shadows. For now, India’s resilience and Malhotra’s growth-first moves offer a buffer, but navigating this storm requires keeping one eye on geopolitics and another on the fine print of economic data. Markets may shrug, but complacency isn’t a strategy.
The most appropriate song for the week is perhaps Bob Dylan’s ‘Masters of War’. Here is its first stanza:
‘Come you masters of war
You that build the big guns
You that build the death planes
You that build all the bombs
You that hide behind walls
You that hide behind desks
I just want you to know
I can see through your masks.’
Cheers,
Manas Chakravarty
In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:
Stocks
How is the health of this healthcare stock? Weekly Tactical Pick: This power company offers a good blend of earnings, valuations, Why this mid-sized old private bank is a candidate for long-term portfolio, Is the cigarette major still a value play? Data Patterns, Dodla Dairy, Tata Motors, Shivalik Bimetal Controls, Thangamayil Jewellery, Control Print, Escorts Kubota, Carysil
Markets
Can retail investment through GIFT City pick up?
F&O expiry days: What does it mean for traders as NSE gets Tuesday and BSE settles with Thursday?
The wide gap between SMID valuations and earnings
Why the Fed’s meeting this week is more about guidance than action
Mutual funds increase exposure to US tech giants in May; value of foreign stock holdings rise 10%
Financial Times
Who are the companies hoarding Bitcoin
Should we worry about Trump undermining the dollar?
Ruchir Sharma: The myth of the suppressed Chinese consumer
Critical minerals constraints are a wake-up call on energy security
Why Big Tech cannot agree on artificial general intelligence
Companies & Sectors
Will Nippon Steel regret the many concessions it made to acquire US Steel?
How Sun Pharma outperformed Indian market under the incoming MD
Growth in deposits outpaces loans; can banks relax their pursuit of depositors?
LTV Boost for Gold Loans: A shot in the arm for NBFCs, but risks loom large
Banks need innovative hacks to bring young savers back into the fold
Economy & Policy
IEA report: Is the oil industry in a crisis?
India is pushing for rare earth elements — an opportunity for investors too?
How Fed rate policy shaped RBI’s response over the last decade
Is declining fertility rate a risk for India’s economic ambitions?
Pro Economic Tracker
Geopolitics & Geoeconomics
ASEAN is emerging as a vital cog in the global economy amid US-China rivalry
How far will India gain from Modi’s latest G7 outing?
Tech & Startups
The SEO is dead; Long Live the SEO
Why India should consider appointing a Chief AI Minister
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
