Middle East Passenger Demand Improved in May But Still Fell 28%, IATA Says — Market Talk

0954 GMT - Global air passenger demand fell 2.2% in May due to the war in the Middle East, the International Air Transport Association says. Demand was lead by Africa, and Latin America and Caribbean, where numbers grew 6.6% and 6.1% respectively as measured in revenue passenger kilometers. However, Middle East passenger demand fell 28.4% in the month but improved compared with April's 46.6% drop. Demand in Asia-Pacific was down 1.4%, but up 2.7% in Europe, the industry body says. "While the recent sharp drop in oil prices is an encouraging development, the challenges created by the war will likely persist for some time," IATA's Director General Willie Walsh says. (ian.walker@wsj.com)

0946 GMT - U.K. politics remain the biggest and most unpredictable, immediate risk to sterling, Monex Europe analysts say in a note. Andy Burnham, the frontrunner to replace U.K. Prime Minister Keir Starmer who announced his resignation last week, pledged fiscal discipline on Monday. While the comments lifted sterling, it flatters a "fragile picture," the analysts say. Replacing Starmer doesn't resolve the U.K.'s underlying fiscal challenges while Burnham's speech offered little on policy detail, they say. "We see little reason to abandon our bias toward modest sterling downside." The euro trades flat at 0.8610 pounds after reaching a near one-week low earlier, according to LSEG. Sterling falls 0.2% to $1.3235 after hitting a one-week high of $1.3262 Monday.(renae.dyer@wsj.com)

0943 GMT - Investors lower their expectations of the Bank of England increasing interest rates in 2026 as oil prices fall and inflation concerns ease. "For now, cheaper crude is a clear macro positive, easing headline inflation pressure across importers," Tickmill Group's Patrick Munnelly says in a note. Investors currently price in a total of 20 basis points of BOE rate rises in 2026, 6 basis points down from a week ago, LSEG data show. (miriam.mukuru@wsj.com)

0942 GMT - The greatest risk to global portfolios from Japan's currency crisis could be the potential for disruption in the U.S. Treasury market as Japan intervenes to prop up the yen, deVere Group's Nigel Green says in a note. If Japanese authorities are forced into sustained intervention, they may have little choice but to liquidate substantial foreign reserves, including U.S. government bonds, potentially creating fresh pressure in the world's most important debt market, the CEO says. "Everyone's focused on whether Tokyo will intervene in the currency market," he says. "The more important question is how Japan pays for that intervention." In Asian trade, the yen dropped to 162.41 per dollar, its weakest in 40 years, LSEG data show. (emese.bartha@wsj.com)

0934 GMT - The latest yen depreciation underscores just how oversold the currency is, says Stefan Angrick at Moody's Analytics. Rate spreads between Japan and the rest of the world have narrowed, oil prices have cooled and Japan's fiscal position is in its best shape in decades. "There is simply no reason for the yen to be as weak as it is, which keeps the possibility of intervention firmly on the table." If Japan does intervene, the impact of a coordinated move involving the U.S. and other Asian central banks would likely be far more durable. A joint effort would, at the very least, establish a more meaningful floor under the yen, Angrick reckons. It could also help reverse some of the extreme currency weakness seen across Asia, something Washington likely isn't too comfortable with. (fabiana.negrinochoa@wsj.com)

0930 GMT - The yen's slide to its weakest level in 39 years looks like a blunt verdict on Japan's policy mix, says Christy Tan at Franklin Templeton Institute. If Japan wants markets to believe in the yen, it must show that monetary normalization isn't optional, and that growth won't depend on permanently cheap money. For that, the Bank of Japan and the government need a more coherent message, says Tan. U.S. rates remain far above Japan's, and markets see the Fed as more likely to stay tight or hike, while interpreting Tokyo's stance as "don't hike too fast, don't choke off growth." Fresh intervention can buy time but it can't repeal arithmetic, says Tan. "As long as investors can borrow cheaply in yen and earn more in dollars, the carry trade will keep carrying the yen away." (fabiana.negrinochoa@wsj.com)

0906 GMT - The gap between U.S. and European productivity is growing, but this isn't due to a lack of innovation, says Bart Van Ark, a professor at the University of Manchester. Despite strength in scientific research, fragmented capital markets, regulatory barriers and weak coordination are limiting the scaling of new technologies, Van Ark says at the ECB Forum in Sintra. Artificial intelligence highlights this challenge. While Europe trails the U.S. in developing frontier AI, it could still capture major productivity gains through applications in manufacturing, healthcare and services, he says. But simply increasing investment won't be enough, he says. The solution is to better enhance industrial policy with competition, education and market integration, Van Ark says. (don.forbes@wsj.com)

0858 GMT - Eurozone inflation is set to remain "significantly above" the European Central Bank's 2% target, Bundesbank President Joachim Nagel says. "I think the energy price shock that started with that conflict in the Middle East is not over," he told CNBC in an interview on the sidelines of the ECB's forum in Sintra, Portugal. The bank's move to hike its key interest rate this month was "the right decision" given that the bank forecasts inflation to only return to target in 2028, he says. The fall in oil prices after the U.S.-Iran ceasefire agreement earlier this month was a surprise, though the inflation picture remains "very opaque". It remains too early to make a call about when the next rate move would be, Nagel said. (edward.frankl@wsj.com)

0857 GMT - U.K. government bonds, or gilts, stay calm as investors await news on the possible new leader of the Treasury to replace the incumbent Rachel Reeves. "Markets are looking through immediate fiscal concerns around a likely Andy Burnham premiership," Validus Risk Management's Pierre Roke says in a note. The identity of the Treasury chief could indicate the direction of fiscal and economic policies under the new government. (miriam.mukuru@wsj.com)

0852 GMT - Bitcoin could fall further as concerns about possible interest-rate rises by the U.S. Federal Reserve result in capital outflows from institutional instruments such as bitcoin, ActivTrades' Saverio Berlinzani says in a note. "Bitcoin could drop to the previous significant low of $49,443 seen in August 2024, though other analysts believe the psychological and technical support level around $60,000 might hold," Berlinzani says. Bitcoin falls 1.7% to $59,167, having reached a 21-month low of $58,075 on Thursday last week, LSEG data show. (miriam.mukuru@wsj.com)

0839 GMT - New rules on cryptocurrencies announced by the U.K.'s Financial Conduct Authority should provide stronger consumer protection and reduce scams but doesn't completely remove risks, AJ Bell's Dan Coatsworth says in a note. "Investors will still need to ensure they understand that crypto prices often exhibit wild swings and that the asset class is driven purely by speculation," he says. Crypto firms operating in the U.K. will need to undertake stress tests to prove they can withstand market shocks and hold adequate capital as a financial buffer in the case of losses as part of the FCA's new rules. (renae.dyer@wsj.com)

0827 GMT - U.S. interest-rate rise expectations make it challenging for Japanese authorities to push back against the yen's sharp fall against the dollar, MUFG Bank's Lee Hardman says in a note. "As we saw back in late April/early May, record intervention from Japan only briefly strengthened the yen but failed to reverse the weakening trend for long." Japan might therefore be more tolerant of yen weakness in the near term as long as the pace remains gradual, he says. Finance Minister Satsuki Katayama's comments that Japan will take appropriate action on currencies as needed fall short of strongly signally imminent interventions, he says. The dollar rises 0.2% to 162.25, near a 40-year low of 162.41 reached earlier, LSEG data show. (renae.dyer@wsj.com)