The International Monetary Fund has revised its global inflation forecast, predicting a rise from 4.1% in 2025 to 4.7% this year due to conflict in the Middle East. The IMF's World Economic Outlook also projects a slowdown in global growth from 3.5% in 2025 to 3% this year, with a rebound to 3.4% in 2027. The IMF notes that the global economy has managed the Middle East conflict better than expected, but new hostilities could drive up commodity prices, disrupt supply chains and create financial market volatility.

US Treasury yields have climbed amid a global bond sell-off driven by rising oil prices, which have sparked renewed inflation concerns. The two-year yield reached 4.23%, nearing its June peak, while the 10-year yield hit 4.59%. The market now expects the Federal Reserve to increase interest rates by October to curb inflation, reflecting a shift in monetary policy under Chairman Kevin Warsh.

Japan's 10-year government bond yield rose to 2.9%, its highest level since 1996, as renewed Middle East tensions and fiscal concerns kept pressure on longer-dated debt. The sell-off extended despite firm demand at a five-year auction, with investors favoring shorter maturities as inflation risks and uncertainty over BOJ policy weighed on the curve.

Spain is pushing for the European Commission to borrow an extra €850 billion a year on behalf of EU countries, arguing joint borrowing would make interest repayments cheaper. The proposal could save countries up to €5 billion per year, but faces resistance from Northern countries including Germany and the Netherlands who oppose increased spending.

China's central bank said it will maintain a moderately loose monetary policy while taking a more forward-looking and targeted approach as the economy shows uneven momentum. The PBOC flagged structural divergence for the first time, with AI-linked sectors, high-tech manufacturing and exports outperforming weak consumption and private investment.

South Korea's rallying stock market and capital reforms have not been enough to secure MSCI developed-market status, with the index provider still citing barriers such as the lack of offshore won trading. The hesitation reflects lingering concerns from the 1997 Asian financial crisis, as policymakers weigh global investor access against fears of currency instability.

The European Union's Markets Integration and Supervision Package aims to boost the competitiveness of European stock markets by expanding the supervisory remit of the European Securities and Markets Authority and introducing wider market reforms for systematic internalisers, but industry participants fear these changes could reduce liquidity and make equity dealing unviable. "The risk is an overall loss of liquidity for European markets, which is completely misaligned with the objective of growing our markets and making them more globally competitive," says Peter Tomlinson of the Association for Financial Markets in Europe.

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