The evolution of the conflict in the Middle East introduces uncertainty into the markets in an environment of restrictive monetary policy
July 14, 2026
By Mario Catalá
In a week marked by heightened geopolitical risk, the situation in Iran once again took center stage in financial markets, significantly influencing their performance. Against this backdrop, the US economy continues to perform well, while Europe is experiencing a slower recovery, hampered by its greater dependence on energy cost trends. Meanwhile, inflation is showing signs of moderation in Europe while remaining more persistent in the United States, influencing expectations for central bank action, where the stance remains restrictive.
Below, we review the macroeconomic developments in the major economic blocs.
United States
The US economy remains solid, despite some moderation in certain indicators and weaker-than-expected employment data. Negotiations for a final agreement to end the war in Iran have stalled yet again, although so far this has not appeared to have a significant impact on growth.
Leading indicators reflect some loss of momentum. The May manufacturing PMI came in at 53.9, down from 55.1 previously, while the services PMI showed a slight improvement in its preliminary reading to 51.3. In terms of activity, GDP growth for the first quarter of 2026 was revised to 2.1%, in line with expectations for the full year, while the Atlanta Fed’s estimate for the second quarter points to 1.2% growth, reflecting high volatility in recent readings. Consumer spending continues to be a key driver of growth, with May retail sales rising 0.9%, clearly exceeding forecasts.
Meanwhile, consumer confidence indicators showed mixed performance: the Conference Board Consumer Confidence Index fell to 91.2 in June, while the University of Michigan Consumer Sentiment Index rebounded to 49.5 from record lows.
In the labor market, the job creation data again surprised negatively, with 57,000 new hires in June compared to the 114,000 expected. However, the unemployment rate fell to 4.2%, while other indicators such as the JOLTS remained solid at 7.59 million job openings.
On the price front, the May CPI stood at 4.2%, with core inflation at 2.9%. Estimates point to a gradual moderation in the coming months, although at still high levels. This context maintains pressure on the Federal Reserve, and the possibility of further interest rate hikes remains, given an economy that continues to show strength and inflation that is slow to moderate. New Chairman Kevin Warsh chaired his first committee meeting, where there were no changes to monetary policy, although he did anticipate changes in the Fed’s approach. From now on, the message will be much more subdued, shifting investors’ focus to macroeconomic analysis when anticipating potential decisions. Furthermore, the Fed reiterated its objective of reducing its balance sheet, which will lead to less support for the markets.
Europe
The European economy remains in a transitional phase, where key macroeconomic indicators still do not fully reflect the changing energy cost landscape. However, recent inflation trends point to a possible gradual recovery in the coming months.
The June PMI indicators exceeded expectations, although they continue to offer limited visibility on the recovery. The manufacturing PMI fell to 51.4, while the services sector, despite improvement, remains in contractionary territory with a reading of 49.4. Economic growth remains weak, with the latest revision of first-quarter GDP at 0.3%, indicating no significant changes in the outlook. In contrast, sentiment indicators show some improvement, with the ZEW index rebounding to +9.5 in June, entering expansionary territory after several months in negative territory.
The labor market continues to show relative strength. The unemployment rate remains at 6.2%, with the number of unemployed falling back below 11 million.
Regarding inflation, the June CPI moderated more than expected to 2.8%, while core inflation fell to 2.4%, boosted by lower energy bills. This environment could allow for less pressure on the European Central Bank in the medium term, although at its last meeting in June, the ECB decided to begin the process of monetary tightening with a 25 basis point increase, bringing the deposit facility rate to 2.25%. Future moves will depend on the evolution of the data, although the market is pricing in further increases.
China
The Chinese economy presents a stable scenario, with no significant macroeconomic changes, although with some improvement driven by the evolution of energy costs. Leading indicators remain at neutral levels, with the manufacturing PMI at 50.3 in June and the services PMI at 50.2, both slightly above previous readings. Economic growth remains stable, with GDP projected to grow by 1.3% in the first quarter of 2026, equivalent to 5% annualized.
The external sector is showing positive performance, as evidenced by export growth in May, which reached 19.4% year-on-year, exceeding forecasts. Imports, meanwhile, remained high, increasing by 27.4%. Industrial activity also shows signs of a moderate recovery, with growth of 4.5% in May.
In the labor market, the unemployment rate fell slightly to 5.1%, while inflation remained contained, with the CPI at 1.2%.