Global Markets Feel Heat from Inflation Fears and Geopolitical Tensions

Global markets are navigating a complex landscape of risk events and inflation concerns. A super El Niño combined with higher energy costs, fertiliser shortages linked to the Middle East conflict, and disruptions to grain shipments from the war in Ukraine have raised fears of food inflation.

The impact is likely to be felt most acutely across Asia and Latin America, where households spend a larger share of their income on food. The United Nations Food and Agriculture Organization has warned that the world is verging on another wave of food inflation, while JPMorgan estimates a strong El Niño could raise global food inflation by about 0.7%.

Markets will be closely watching retail earnings in the US, which are set to provide a timely check on the health of the consumer. With Walmart, Home Depot, Target, Lowe's, and Deere reporting their quarterly results, investors will be looking for signs of whether spending remains resilient across income groups and how higher energy prices and geopolitical uncertainty are affecting demand.

The Japanese economy is also in focus, with GDP expected to expand an annualised 2% in the three months through June. The Bank of Japan may lift its policy rate by 25 basis points to 1.25%, following its June hike to 1%. Rising inflation expectations and bond yields have pushed gold prices near record highs, but it has risen nearly 10% from a six-month low around $3,965.