Finsphere
Issue 28 | June 2026 
Your Monthly Guide on Global and Local markets from our Business Head’s Desk. 
Geopolitical Uncertainty Keeps Global Markets on Edge.
Developments in the Middle East remain central to the outlook for energy prices, inflation trends, interest rates and global growth.
Dear Clients and Stakeholders,
May marked a notable transition in the Middle East conflict, shifting from direct military escalation to a tentative and fragile diplomatic phase. The United States and Iran alternated between military confrontations and cautious dialogue engagement in negotiations, particularly as both sides attempted to assert control over the Strait of Hormuz. Despite ongoing discussions over the past month, no decisive breakthrough has been achieved. Persistent tensions, especially those involving Iran-backed groups in Lebanon, have continued to undermine progress making it difficult to sustain meaningful diplomatic momentum.
The ongoing conflict in the Middle East has significantly disrupted energy supply chains, contributing to a sharp rise in oil prices. The associated spillover effects, most notably elevated inflation, have become a major concern for investors and policymakers, pushing Treasury yields higher. While economic growth remained resilient in several regions, particularly the United States and India, energy importing economies face mounting pressure from higher import bills, tighter financial conditions, and weakening consumer demand.
Looking ahead, the trajectory of the global economy remains closely linked to developments in the Middle East. Although negotiations between Washington and Tehran have moved closer to a framework agreement aimed at normalizing shipping through the Strait of Hormuz, repeated military incidents demonstrate that the peace process remains vulnerable. A sustained reopening of shipping routes could alleviate inflationary pressures and support global growth, while renewed escalation would risk another surge in energy prices, forcing policymakers to maintain to adopt a more hawkish stance for a prolonged period, hurting global growth.
United States
Resilient Growth Helps Combat Renewed Inflation
The US economy continued to demonstrate resilience with second estimates of GDP growth pegging economic growth at 1.6%, downward revision from 2% in the previous quarter but still up from 0.5% in the previous quarter. On the inflation front, consumer inflation accelerated to 3.8% in April, the highest level since May 2023 while producer price inflation rose to 6.0%, the strongest increase since late 2022, highlighting growing cost pressures across supply chains, transportation, and manufacturing. Meanwhile, the Federal Reserve’s preferred inflation gauge, the core PCE index, increased to 3.3%, remaining well above the central bank’s target of 2%.
Meanwhile, the labour market continued to indicate underlying strength. The economy added 172,000 jobs during May, significantly exceeding expectations, while unemployment remained stable at 4.3%. Job openings rose to their highest level since late 2024, indicating continued demand for labour despite elevated geopolitical risks.
Economic activity indicators generally remained supportive. Retail sales increased by 0.5% in April, supported by higher gasoline spending and continued consumer demand across discretionary categories. Industrial production expanded by 0.7%, marking its strongest performance in over a year as manufacturing and utilities output improved. On the trade front, the US trade deficit widened to $60.3 billion in March 2026, with imports rising 2.3% in the previous month while exports rose at 2%.
Overall, the U.S. economy remains characterized by resilient growth and labour market strength. However, accelerating inflation driven by energy prices presents an increasingly complex challenge for policymakers and raises the likelihood that interest rates remain elevated for longer than previously anticipated.
Euro Area and United Kingdom
Slowing Growth Amid Rising Cost Pressures
The Euro Area continues to face the difficult combination of slowing growth and rising inflation as higher energy prices weigh on both consumers and businesses. Economic growth moderated to 0.8% year-on-year during the first quarter of 2026, marking the weakest expansion since mid-2024. Meanwhile, inflation accelerated further to 3.2% in May, reaching its highest level since September 2023 and remaining well above the European Central Bank’s target. Energy prices recorded double-digit growth, while inflation also broadened across services and industrial goods. Consumer activity remained subdued, with retail sales contracting 0.1% in March, marking the third consecutive month of contraction, as households responded to higher living costs and reduced purchasing power. Industrial production continued to expand modestly at 0.2% month-on-month, however, weakness in energy output and non-durable consumer goods highlighted ongoing structural challenges. Labour market conditions remained relatively stable with unemployment unchanged at 6.3% as of April while youth unemployment showed modest improvement. Meanwhile, trade surplus collapsed to €7.8 billion in March 2026, down from a record €34.1 billion a year earlier, as exports fell 5.5% while imports grew 4.4%
In the United Kingdom, economic growth remained relatively resilient despite mounting external pressures. GDP expanded by 1.1% year-on-year in the first quarter of 2026, supported by stronger household consumption and government spending. Inflation moderated to 2.8%, its lowest level in over a year, largely due to the introduction of an energy price cap that helped offset the impact of higher fuel costs stemming from the Middle East conflict. Nevertheless, consumer demand showed signs of weakening, with retail sales declining 1.3% month-on-month in April, marking the sharpest monthly decline in nearly a year as cautious spending behaviour weighed on discretionary purchases. Industrial production also contracted modestly by 0.2% month-on-month in March. Meanwhile, the labour market softened slightly, with unemployment edging up to 5.0% in the three months ending in March. On the trade front, trade deficit widened significantly to £9.66 billion in March 2026 as higher imports (+5.3%) outpaced export growth (+0.2%).
Overall, Europe reflects diverging trends, with the Euro Area facing slowing growth and rising inflation, while the UK shows relatively stronger growth and moderating price pressures. Elevated energy costs continue to weigh on demand in the Euro Area, weakening consumption and trade performance. In contrast, policy support in the UK has helped cushion inflation, though signs of softening demand are emerging.
Asia
Policy Support Spurs Growth Amid Rising Inflationary Pressures
In China, policymakers continue to balance industrial resilience against weakening domestic demand amid persistent geopolitical uncertainty. Consumer inflation rose modestly to 1.2% in April, while producer price inflation accelerated sharply to 2.8% owing to the disruptions in the Middle East. Economic activity, however, showed signs of moderation. Industrial production growth slowed to its weakest pace since mid-2023 in April, expanding at 4.1%, as manufacturing and mining activity lost momentum. Consumer demand remained particularly subdued, with retail sales growing only 0.2% year-on-year in April, the slowest pace since late 2022, as households reduced spending.
In Japan, GDP expanded by 0.5% quarter-on-quarter in the first quarter of 2026, marking the strongest growth in a year and benefiting from firmer private consumption, public investment, and export demand. Labour market conditions strengthened further, with unemployment falling to 2.5% in April and employment reaching record highs, reflecting continued resilience in hiring activity. Retail sales accelerated 2.1% year-on-year in April, the fastest pace in over a year, supported by government stimulus measures and improving household spending. However, cost pressures intensified at the producer level, with producer price inflation rising to 4.9% in April, the highest since 2023, driven largely by higher energy and commodity prices. In contrast, consumer inflation in Tokyo continued to moderate and remained below the Bank of Japan’s target, as fuel subsidies and policy support helped cushion households from rising global energy costs.
Overall, Asia’s economic outlook remains uneven. China is navigating a challenging environment where industrial resilience and policy support are being offset by subdued consumer demand and slowing economic momentum. Meanwhile, Japan is benefiting from firmer domestic demand, stronger labour market conditions, and improving economic growth, although rising input costs continue to pose risks to the outlook.
India
Strong Growth Meets Inflationary Concerns
India continues to stand out among major economies due to its strong growth momentum, although rising energy costs and inflation are becoming increasingly important risks. The Indian economy expanded by 7.8% year-on-year during the March quarter, exceeding expectations and demonstrating resilience despite higher oil prices, geopolitical uncertainty, and currency pressures. For FY2026 as a whole, economic growth reached 7.7%, among the strongest performances globally. Meanwhile, industrial production increased by 4.9% in April, supported by robust manufacturing output, indicating that domestic demand and investment activity remain healthy despite external headwinds.
Inflationary pressures, however, have become more pronounced. Consumer inflation rose modestly to 3.48%, remaining within the RBI’s comfort range, but wholesale price inflation accelerated sharply to 8.3%, driven by a significant increase in fuel, transportation, and manufacturing costs. The surge in wholesale prices highlights the growing impact of higher global energy prices on domestic production costs. India’s external trade also reflected the effects of the Middle East conflict. India’s trade deficit widened to $28.4 billion in April as imports surged 10% year-on-year due to higher oil, fuel, and coal prices, although exports also benefited from rising prices, growing at 13.8% year-on-year.
Recognizing the evolving risks, the Reserve Bank of India kept the repo rate unchanged at 5.25% while lowering its FY27 growth forecast to 6.6% and raising its inflation projections to 5.1%. The central bank’s guidance reflects growing concern that persistent energy-related inflation could eventually weigh on domestic demand and macroeconomic stability. In addition, the government’s latest measure of fully exempting Foreign Portfolio Investors (FPIs) from taxes on interest and capital gains from G Secs, effective from April 1, 2026 is expected to strengthen capital inflows and support the weakening Rupee.
Overall, India continues to demonstrate strong economic resilience supported by robust domestic demand, manufacturing activity, and services growth. While inflation, higher energy costs, delayed onset of monsoon remain key risks, policymakers have responded proactively through a combination of monetary stability and measures designed to attract foreign capital
Conclusion
The global macroeconomic environment remains defined by a delicate balance between resilient growth and renewed inflationary pressures. While fears of a severe economic slowdown have eased in many regions, the persistence of elevated energy prices has complicated the outlook for inflation and monetary policy. Central banks across major economies continue to face the difficult task of preserving growth while preventing temporary energy shocks from becoming entrenched inflationary pressures.
The evolution of the Middle East conflict remains the most important risk facing the global economy. Although diplomatic efforts have made progress toward maintaining ceasefires and restoring shipping activity through the Strait of Hormuz, repeated military incidents highlight the fragility of the current environment. Energy-importing economies, particularly across Asia and Europe, remain vulnerable to any renewed disruption in oil and gas supplies.
Going forward, the pace of disinflation, the direction of monetary policy, and the sustainability of global growth will depend significantly on whether geopolitical tensions continue to ease. Until greater clarity emerges, policymakers and investors are likely to remain cautious as they navigate an environment characterized by elevated uncertainty and persistent inflation risks.
At Chola Securities, we remain steadfast in our commitment to helping you navigate these complexities with clarity and foresight. As always, we aim to align your investments with evolving opportunities while ensuring resilience against emerging headwinds.
We sincerely thank you, our valued clients and investors for your continued confidence and partnership. Together, we look forward to embracing the challenges and opportunities of the months ahead, ensuring sustained growth and success.
Warm Regards,
N Senthilkumarh
President, Chola Securities