Against the backdrop of rising global geopolitical tensions and growing economic uncertainty, the European Central Bank (ECB) is intensifying its vigilance against possible risks to the eurozone’s financial system.

ECB supervisors have sharpened their focus on emerging risks such as tariffs and cyberattacks and a potential global shortage of dollars, five senior central bank officials said to Reuters.

This is a change of tone and orientation as the institution readies banks to contend with a fast-changing risk landscape.

The effort is being made as the ECB prepares for the next bank stress test in 2024, which will focus on lenders’ abilities to withstand geopolitical shocks.

In an era of higher inflation, which is further worsened by the war in Ukraine, the growing Russian threat, and trade fragmentation fears, the central bank has demanded that banks assess the economic fallout from global crisis shocks.

Stress testing geopolitical scenarios

Claudia Buch, chief ECB banking supervisor, revealed that the central bank will require banks to simulate geopolitical scenarios capable of drastically reducing their capital reserves for 2026.

These simulations are part of an effort to identify institutions that may be vulnerable to large-scale external shocks and ensure banks take preemptive steps.

The next stress tests come after months of increased surveillance from ECB supervisors.

According to some participants in the process, these worries are not new.

Since late 2024, the ECB has included geopolitical risks in its routine monitoring operations, assessing both banks’ exposure to conflict-affected regions and their operational presence abroad.

Banks have been advised to closely analyse their cross-border exposures, which include overseas operations and funding of international trade enterprises.

Regulators are particularly concerned about the possible impact of sanctions, trade tariffs, or unexpected changes in foreign policy on credit quality and capital buffers.

Cybersecurity risks in focus

At the same time, the ECB is attaching greater weight to cyber threats on its supervisory agenda, alongside geopolitical assessments.

Officials point to increasing concern over the risk of attacks from cybercriminals, with the Baltic states particularly affected by Russian-linked hacking groups in the past.

The ECB is carefully keeping an eye on the Bank as well as these high-risk locations are boosting digital defences and making plans for service disturbances.

Although no particular threats have been made public, ECB supervisors have urged institutions to ensure they have adequate incident response frameworks and be able to survive long-term outages.

While the bank is not yet mandating specific cybersecurity measures, it is signalling that cyber resilience has become an integral part of prudential supervision.

Prepare for a dollar liquidity crunch

Another big fear that has emerged is the possibility of a shortage of US dollars, which are critical for many European banks’ foreign transactions and financing operations.

The ECB has asked banks to assess how they would react if access to dollar finance were substantially restricted, for example, if the US Federal Reserve unwinds emergency liquidity arrangements.

As previously reported, the central bank highlighted the issue with banks as part of a broader assessment of liquidity issues.

Supervisors encourage institutions to consider contingency financing plans and alternate sources of liquidity, but they do not advocate any rapid changes in strategy or funding mix.

Focus on internal risk controls

However, ECB supervisors would not at this stage be demanding banks to cut their exposures or reshuffle their portfolios. Instead, it is about being prepared and managing risks within.

This is to push banks to reinforce their oversight systems and do strong scenario planning.

Two of the main regulatory processes where this risk-centric approach is being integrated are the SREP, Supervisory Review and Evaluation Process (done on an annual basis), and the ILAAP, Internal Liquidity Adequacy Assessment Process.

Combined, these assessments enable supervisors to assess the extent to which banks understand their risk profiles and their preparedness to manage funding and capital disruption.

The ECB’s increased vigilance reflects a growing realisation that today’s financial system is inextricably linked to global political and technical trends.

The vulnerabilities that Europe’s banks face have expanded beyond typical credit and market problems to include currency imbalances and cyber warfare.

As banks prepare for an increasingly unpredictable and volatile global environment, the ECB sends a clear message: risk awareness and readiness are no longer optional—they are now critical pillars of financial stability.

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UBS expects the US economy to slow significantly in 2025, projecting real GDP growth to fall to around 1%.

In a note to clients issued Tuesday, the bank pointed to a combination of fading fiscal support, elevated interest rates, and persistent inflation as key drivers of the expected deceleration.

“We see a further slowing in US economic growth to ~1% in 2025,” the note stated.

UBS also warned that the unemployment rate will increase to 4.6% by the end of 2025.

The outlook is shaped by emerging signs of weakness in employment data, particularly a softening in private payrolls and a decline in job listings within the services sector.

UBS’s analysis points to several specific factors that could exacerbate the slowdown in the second half of 2025.

First, the ‘fiscal fade’ refers to the expiration or reduction of government support programs that previously bolstered household incomes and corporate balance sheets.

Without this safety net, consumer confidence and spending, the key drivers of US GDP, are likely to weaken.

Tariffs and inflation add to pressure

UBS analysts highlighted the recent spike in tariff rates as a major headwind.

The average effective tariff rate has risen to approximately 16%, up from around 2% in 2024.

These elevated tariffs are expected to weigh on consumer purchasing power and input costs, with the firm forecasting core personal consumption expenditures (PCE) inflation to reach about 3.4% by the end of 2025.

This inflationary pressure, combined with slower wage growth, is projected to hinder real disposable income, which UBS notes is already lagging behind personal consumption expenditures.

In the latest inflation data, core CPI rose 0.2% month on month.

While the “Big Beautiful Bill” is expected to introduce supportive fiscal measures, UBS does not anticipate those benefits materializing until the first half of 2026.

“We see tariff impacts in 2H 2025,” the note said, pointing to a difficult period for households and businesses ahead.

Credit markets signal rising stress

In addition to macroeconomic and inflationary concerns, UBS is also closely monitoring credit markets for signs of strain.

The firm’s proprietary credit-based recession indicator now places the probability of a downturn through the first quarter of 2026 at 47%.

Rising delinquency rates—particularly in student and mortgage loans—are contributing to concerns about the resilience of household finances.

UBS analysts also cited broader signs of stress in both consumer and corporate credit markets.

Despite the weakening outlook, UBS noted that certain offsets may cushion the blow.

Upper-income households continue to exhibit solid spending trends, and increased credit usage may temporarily support consumption.

However, the firm remains defensively positioned in its credit strategy, favoring high-quality assets and consumer non-cyclical sectors due to tighter credit spreads compared to 2022 levels.

UBS’s cautious tone reflects growing concern that the US economy may face multiple headwinds converging in the latter half of 2025.

As inflationary and credit-related pressures mount, the bank advises a risk-aware approach moving forward.

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BHP, a major mining company, has stated that establishing a “green iron” industry in Australia is cost-prohibitive, Reuters said in a report. 

BHP’s declaration comes after Australia and China reached an agreement this week to collaborate on decarbonising the steel supply chain, which accounts for nearly 10% of global emissions.

Geraldine Slattery, BHP Australia’s chief, participated in business roundtables this week in China with Australian and Chinese industry leaders. She stated that the production costs for low-carbon steel are not viable.

Slattery said in a social media post late on Tuesday;

Even with generous policy support, the cost of production (in Australia) would be double that of the Middle East and China – and customers many thousands of kilometres away.

Mining CEOs, including Slattery, joined Australian Prime Minister Anthony Albanese on a recent trip to China. During this visit, Albanese advocated for increased collaboration between Australia and China in the development of green steel. 

The initiative highlights a growing international focus on sustainable industrial practices and the potential for partnerships to drive innovation in the mining and steel sectors, aiming to reduce environmental impact.

Lack of interest

BHP, the world’s largest mining company, expressed a lack of interest in directly producing “green iron ore or steel,” stating that it was not part of its strategy. 

This stance served as a reality check for Australia’s aspirations in the sustainable steel industry, highlighting the significant challenge of gaining full commitment from major global players in transitioning to greener production methods. 

It also underscores the complexity and differing priorities within the industry regarding environmental initiatives.

Australia provides a substantial 60% of China’s iron ore, crucial for its steel industry. 

However, a significant challenge arises from the ore’s low-grade quality. This inherent characteristic means it cannot be directly processed into steel using renewable energy sources. 

Instead, an additional processing step becomes necessary to upgrade the ore, incurring extra costs and resource consumption. 

Green iron, a low-carbon foundation for producing green steel, is created when hydrogen from renewable energy sources or biomass replaces coal in this additional process. 

Widespread commercial adoption of these methods is anticipated no sooner than the next decade.

This dependency on Australian supply, coupled with the need for further refinement, highlights a complex interplay between resource acquisition and sustainable manufacturing practices for China.

Minerals processing industry

Australia aims to establish a robust minerals processing industry, moving beyond its current reliance on raw material exports, which generate approximately A$370 billion ($242 billion) annually. 

This strategic shift seeks to diversify its economy and add value to its abundant mineral resources. 

However, this ambition is significantly challenged by the country’s high power prices and substantial labour costs, which impede the competitiveness and profitability of such an industry. 

Addressing these economic hurdles is crucial for Australia to successfully develop its processing capabilities and enhance its global trade position.

The government committed A$1 billion in February to bolster the manufacturing of green iron and its associated supply chains.

In December, BHP, Rio Tinto, and Bluescope Steel reached an agreement to collaborate on a pilot plant project. 

This plant aims to produce low-carbon iron utilizing renewable energy and direct reduced iron technology within an electric smelting furnace (ESF). The potential operational start date for this initiative is 2028.

A pilot plant for Fortescue is scheduled to produce green iron this year, marking a significant step in their green iron project.

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UK inflation rate jumped more than expected in June, with the Consumer Price Index (CPI) rising to 3.6% from 3.4% the month before, new figures from the Office for National Statistics show.

It’s the highest level seen since January 2024 and caught many economists off guard, as most had predicted the rate would hold steady.

The latest figures highlight ongoing cost pressures across the UK economy and have reignited fresh debate over where the Bank of England might go next with interest rates.

What are the main drivers of UK inflation?

The rise in inflation last month was mainly due to transport. Fuel prices ticked up, and so did the cost of flying and train travel.

These increases more than made up for the slower price growth in areas like housing and utilities. Petrol, for instance, didn’t fall the way it did around this time last year.

On top of that, car upkeep, things like repairs and servicing, got more expensive, nudging the transport index higher.

Transport costs overall jumped 1.7% in June, compared to a smaller 0.7% rise in May.

Food prices also moved up, climbing to 4.5%, the highest we’ve seen since February 2024. Cakes and cheese were among the biggest movers there.

Meanwhile, after falling earlier, clothing and footwear prices turned around and rose by 0.5%, adding even more pressure to the headline figure.

Bank of England’s next move in question

Core inflation, which strips out volatile items like energy, food, alcohol, and tobacco, also picked up speed, rising to 3.7% in June from 3.5% the month before.

At the same time, inflation in the services sector stayed stuck at a high 4.7%, despite expectations that it would ease a little.

That’s worth noting, since the Bank of England keeps a close eye on service prices as a key signal of inflation coming from inside the economy.

June’s inflation figures have thrown the Bank of England’s next move into question.

Policymakers had been hoping for a steady glide back toward the 2% target, but the latest spike could put rate cuts on hold or even reopen talks about tightening policy again.

Since August last year, the BoE has lowered rates four times by a quarter point, and many analysts still think there’s room for two more cuts before 2025 wraps up.

But with inflation proving sticky, particularly in the services sector, the central bank might find itself in a tough spot.

Some officials are already voicing concern that a tight labor market could keep wages and prices climbing, complicating the path forward.

Even with inflation ticking up, other parts of the economy are showing signs of strain. Growth remains sluggish, and the job market is starting to lose steam.

The Bank of England has signaled that it’s still leaning toward lowering rates as long as wage growth and pricing pressures cool down. But that path might not be so straightforward.

Ongoing skills shortages and lingering supply chain problems could slow the journey back to the 2% target.

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Shares in Renault plunged over 16% on Wednesday after the French carmaker slashed its 2025 financial guidance and named finance chief Duncan Minto as interim chief executive.

The sharp decline in investor confidence came as the company blamed a worsening auto market, rising competition, and weaker-than-expected first-half results for the revised outlook.

Renault share price was trading at 34.31 euros on Wednesday open.

Operating margin and cash flow forecasts lowered

Renault now expects to achieve a full-year operating margin of around 6.5%, down from a previous target of at least 7%.

The company also reduced its free cash flow forecast for 2025 to a range of 1 billion to 1.5 billion euros ($1.17 billion to $1.75 billion), down from earlier guidance of more than 2 billion euros.

Preliminary first-half figures revealed that Renault’s operating profit margin stood at 6%, while free cash flow came in at just 47 million euros—far below the consensus estimate of 645 million euros.

Group revenue grew 2.5% year-over-year to 27.6 billion euros, broadly in line with expectations.

Analysts slash estimates amid profit miss

Analysts reacted swiftly to Renault’s revised guidance.

Deutsche Bank’s Christoph Laskawi and Nicolai Kempf noted that while the new margin outlook remains competitive relative to peers, the warning represents “an obvious additional hit on sentiment for shares.”

The bank lowered its 2025 forecasts and cut its target price to 47 euros from 55 euros.

Berenberg analyst Romain Gourvil said the downgraded guidance implied an 8% to 10% cut to Renault’s 2025 operating profit, adding that the timing of the profit warning—just weeks after CEO Luca de Meo announced his resignation—was “clearly unhelpful.”

Berenberg also reduced its price target to 48 euros.

Citi analysts said the profit downgrade followed signs of weakness in retail activity in June and ongoing softness in light commercial vehicle volumes.

While first-half revenue was on target, the 6% operating margin was the key disappointment.

The firm noted that Renault doesn’t expect commercial conditions to improve significantly in the second half but is counting on new product launches, better vehicle availability, and tighter cost controls to lift performance.

Leadership transition amid market headwinds

The board has elevated Duncan Minto to the role of interim CEO, effective immediately.

Minto will oversee day-to-day operations alongside Jean-Dominique Senard, who will chair Renault’s operating board while a search for a permanent chief executive continues.

Minto, who joined Renault in 1997, has held several key financial roles across the group in France, Portugal, and with the Alpine brand.

He became Renault Group’s CFO in March 2025 and is seen as a steady hand during a period of mounting pressure on the company’s fundamentals.

The appointment follows former CEO Luca de Meo’s decision to leave Renault in September to take over as CEO of luxury conglomerate Kering, which owns brands such as Gucci and Balenciaga.

Reasons behind downgrade

Renault cited multiple headwinds driving the downgrade, including an increasingly competitive European market and ongoing trade tensions.

European automakers are under growing pressure from Chinese rivals, whose aggressive expansion and lower-priced electric vehicle offerings are squeezing margins across the continent.

In addition, the global auto industry is adjusting to the impact of President Donald Trump’s 25% tariffs on finished foreign-made vehicles, which took effect in early April.

While the administration has taken steps to prevent tariff stacking, uncertainty around the evolving trade environment remains a drag on sentiment and pricing power.

Renault said it is accelerating cost-cutting measures to support its balance sheet, with a renewed focus on manufacturing and R&D efficiencies. More details are expected when the company releases its full first-half earnings on July 31.

Weakened market but potential for recovery

Despite the weak near-term outlook, Renault said it is banking on an improved second half, with new model launches, increased availability of light commercial vehicles, and tight inventory control expected to support performance.

Executives remain hopeful that cost optimizations and volume gains can offset pricing pressures and macroeconomic uncertainty.

Still, the dual blow of a profit warning and leadership change has rattled investors already wary of the automaker’s ability to maintain momentum amid shifting global dynamics.

The next few quarters will be critical as Renault works to rebuild confidence and navigate one of the most challenging operating environments in the European auto industry in recent years.

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