Good morning. Retail sales in China picked up in May, while factory output slowed, according to official government statistics. The retail numbers were particularly good — up 6.4 per cent from the year before, compared with a 5.1 per cent gain in April. This suggests that China’s trade-in and subsidy schemes are working, and perhaps that the US-China trade truce is helping Chinese households. But with moderate investment and slowing output, China still isn’t going into the next round of trade negotiations on the strongest footing. Email us: [email protected].  

Oil prices and monetary policy

Some newsletters age like half a head of lettuce. Our first piece on the Israel-Iran conflict threatens to become one of them.

Our central point — that the oil market should remain calm if the conflict stays within the borders of Iran and Israel — still holds. After a brief freakout yesterday morning, the crude price continued its steady fall from Friday. Our argument that the cental forecast was de-escalation is wilting, however. Horribly, the conflict has heated up. There have been more missile volleys from both sides, Israel now controls part of Tehran’s airspace and is calling for evacuations, and hawkish voices are calling for the US to help destroy Iran’s underground nuclear facilities. All of that seems to thicken the ugly tail of the probability distribution and increase the odds of a big jump in the oil price.