Double Whammy of Iran War Stalemate and Evidence of Ensuing Higher Inflation
May 12, 2026
Ten-year sovereign debt yields have climbed further so far this Tuesday by a dozen basis points in Great Britain, nine bps in Italy, eight bps in France and Germany, seven bps in Spain, five bps in Switzerland, and four bps in the U.S., Japan and Australia.
West Texas Intermediate crude oil is back above the $100 per barrel threshold, with no reopening of the Strait of Hormuz in sight. Prices for crypto and precious metals, on the other hand, are lower.
Equity markets dropped 2.3% in South Korea, 2.0% in India, 1.0% in New Zealand but only 0.4% in Australia and 0.3% in China. Those in Japan and Taiwan actually closed slightly higher, but equity selling pressure heated up in Europe and North America. U.S. losses so far are led by a 1.3% drop in the Russell 2000, followed by 0.8% in the Nasdaq. All four major stock markets in Euroland have sunk at least 1.0% so far today.
In geopolitical news, the stalemate of angry words between the U.S. and Iran goes on, with shipping traffic nil in the Strait of Hormuz. This seems likely to give China a strategic advantage as President Trump heads their for the delayed talks with President Xi. Trump will be accompanied by an entourage of business leaders. It seems that the focus of the gathering has shifted to commercial deals from the major geopolitical tensions between the two superpowers. After a poor showing in last week’s local British elections by the ruling Labour Party, resignation calls directed at Prime Minister Starmer rose.
Wearing its refuge currency hat, the dollar today has appreciated thus far by 1.1% against the South Korean won, 0.7% vis-a-vis sterling, 0.5% versus the euro and Swissy, 0.4% on a weighted basis, 0.4% as well against the Mexican peso, and 0.3% against the loonie and yen.
U.S. consumer price changes in April head a list of price data releases this Tuesday. Although close to expectations, the increase in the U.S. CPI of 0.6% from March and by a 35-month high 3.8% in year-on-year terms was accompanied by a higher-than-forecast 2.8% 7-month rise in the core index that excludes food and energy. That’s the most in 7 months. Food price inflation of 3.2% was the most in 8 months, while energy costs accelerated to a 43-month high of 17.9%.
A separate U.S. release of small business sentiment recovered only 0.1 index point above March’s 11-month low of 95.8 and was well below the 105.1 level back in December 2024 when small outfits were eagerly looking forward to deregulatory relief by the election of Mr. Trump.
Brazilian consumer price inflation of 4.4% last month represents a 3-month high.
Indian CPI inflation of 3.5% in April rose to a 14-month high.
German CPI inflation last month was reconfirmed at the flash estimate of 2.9%, a 27-month high.
Serbian CPI inflation climbed a half percentage point to 3.3% in April, but in Latvia CPI inflation fell 0.5 percentage point to 2.9%. Czech consumer price inflation rose to a 6-month high of 2.5% from 1.9% in the prior month.
The combined producer price and import price Swiss measure posted a less deflationary 2.0% year-on-year decline April versus -2.7% in March. And in Lithuania, producer price inflation leaped to 13.6% in April, most in 38 months, after an 8.0% advance in March.
A 3.4% 12-month decline in U.K. same-store sales during April was the most in 17 months.
Business confidence in Australia during April reversed 0.2 index points of a 2.6-point deterioration in the prior month, but the index measuring current business conditions was halved to a reading of +3, one of its worst results since the pandemic.
Ireland’s construction sector purchasing managers index tumbled from a 10-month high of 53.2 in March to a 5-month low of 47.1 in April.
In Japan, household spending sank 1.3% on month and 2.9% on year in April. International reserves rose $8.25 billion last month and seemingly failed to capture the bulk of the intervention done to support the yen on the final day of the period. Japan’s index of leading economic indicators rose to a 47-month high in March, while the index of coincident economic indicators, a 2-month high, beat expectations.
Investor sentiment toward Germany and the whole euro area, according to the monthly ZEW Institute surveys, printed at 2-month highs. In the German case, last month had seen confidence sink to a 40-month low.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: CPI inflation in Brazil and India, German and Euroland investor sentiment, U.S. CPI
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