Renewed Iran War Spurs Global Inflation Fears

SPEAKER_1 (0:00)

This podcast is brought to you by ReliaQuest. Cybercriminals are constantly attacking. They want your data, they want your identity, they want your innovation. ReliaQuest fortifies your business with a gentic defense, AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest, a gentic defense for the enterprise. Learn more at reliaquest.com.

Luke Vargas (0:33)

Global markets reckon with the prospect of prolonged conflict in the Middle East and rising inflation. Plus hotel chain Melia pulls out of Cuba in a blow to the island's vital tourism sector and Europe arms up with its own homegrown defense technologies to counter US dependence.

Alistair MacDonald (0:52)

There are still some things that the US is way ahead of. And we've seen that in the clamor for Patriot Missiles. Europe's just not there. But that's also a perfect example of where it's trying. You have the European system, the SAMT, coming up with a new upgrade. And then you have numerous smaller companies who are coming up with their own systems.

Luke Vargas (1:09)

It's Friday, July 24th. I'm Luke Vargas for the Wall Street Journal. And here is the AM Edition of What's News, the top headlines and business stories moving your world today.

It's been roughly two weeks now since the reignition of the Iran War and markets aren't having it. With global stock indices already dealing with their own AI spending-related issues, oil prices have now come roaring back, returning inflation to the spotlight and stoking a government bond sell-off that sent US government borrowing costs to the highest level of Trump's second term. And those concerns are even more pronounced in Asia, where I'm joined now by journal editor Peter Landers. Peter, in the US., we've seen 10-year T-note yields moving higher. Something similar is occurring in Asia as well, where inflation worries have been more pronounced since the start of the war almost five months ago, right?

Peter Landers (2:05)

Right there. Plenty of reasons to be worried about inflation in Asia. Countries like Japan, South Korea and others import oil and natural gas from the Middle East. And so if the war is prolonged, that would bring prices up and a lot of products depend on oil. Japan has been worried about naphtha and other petrochemicals that are made ultimately from crude oil. And there was even the famous case of the potato chip bag that the company made black and white instead of color claiming that they would save a little bit of money on the material costs of producing a color potato chip bag. It just shows the way the concerns about higher costs are seeping through economies in this region. Food prices could go up if a fertilizer and fuel cost more. So it does depend on how long this goes on and also whether they're able to get alternative supplies. And we have seen some progress in that front in Japan and elsewhere.

China surprisingly reduced its oil imports from the early days of the U.S.-Iran War.

And that has helped keep oil prices somewhat under control. But I think people are going to be watching going forward whether China eventually has to increase its imports again. It maybe runs out of its stockpiles. So all of these are factors that make inflation a concern. And of course, in general, if you think inflation is going to rise in the next year, that means the bond prices will go down, bond yields will go up.

Luke Vargas (3:37)

Peter Landers is the Journal's Asia Business Finance and Economics Editor. Peter, as always, thanks so much.

Peter Landers (3:42)

You bet.

Luke Vargas (3:43)

And outside of Asia, the prospects of a prolonged war with Iran and ensuing higher inflation is starting to weigh on European consumer sentiment. That says a fresh survey of German households has identified increasing hesitancy around spending and uncertainty about future income prospects. A broader Eurozone indicator is showing a third straight month of improving sentiment, though confidence remains below pre-war levels. Yesterday, the European Central Bank held its key interest rate steady, saying that the full inflationary impact of the energy shock had yet to play out.

Effective today, Spanish hotel chain Melia is pulling out of Cuba. It's the latest blow to the island's collapsing economy, which has been hit hard by US sanctions, leading a number of international businesses like Melia to pull up their stakes, as journal reporter Yusuf Khan explains.

Yusuf Khan (4:39)

In June, it said that it was cutting 15 of those hotels in light of the energy problems and the problems associated with the sanctions in the country. Now it's extending that to all of those, so it's just over 30 hotels.