Market drivers and catalysts
Equities: US, Europe rebound; tech, banks strong; oil/energy lag
Volatility: VIX down, but risk remains above normal; hedging costlier
Digital assets: BTC steady, ETH eyes breakout; IBIT/ETHA ETF flows strong
Fixed Income: US yields showed little movement ahead of FOMC tomorrow
Currencies: Japanese yen firms after BoJ announces slower QE taper
Commodities: Crude prices ebb and flow with news from the Middle East
Macro events: Bank of Japan press conference, Germany Jun. ZEW Survey, US May Retail Sales
Macro data and headlines
US President Trump left early from the G-7 summit in Toronto, skipping a series of meetings scheduled for today, purportedly to deal with the Iran-Israel crisis, as Trump told Iran to evacuate Tehran and met with his national security advisers.
G7 leaders agreed Monday to move forward with a draft statement aiming outlining a strategy to protect the supply of rare-earth minerals that have critical industrial applications after China’s recent move to restrain its dominant supply of these minerals and key components containing them, especially magnets, to the world.
- The US Empire State Manufacturing Index dropped to -16 in June 2025 from -9.2 in May, below the expected -5.5, signalling worsening business conditions. It marked the weakest reading since March's -20, with declines in new orders, shipments, worsened supply availability, and unchanged delivery times.
The Bank of Japan left it benchmark interest rate unchanged, as expected, while saying it will east the pace of monthly bond purchases to quarterly reductions of JPY 200 billion from the current JPY 400 billion, starting from next year.
Equities
US: US equities rebounded sharply on Monday, with the S&P 500 up 0.9%, Nasdaq 1.5%, and Dow 0.8%, recovering from Friday’s losses. Hopes for Israel-Iran de-escalation and renewed nuclear talks supported risk appetite, with tech and consumer stocks leading gains—Meta (+2.9%), Palantir (+3%), Tesla (+1.2%). US Steel jumped 5.1% on Trump’s approval of Nippon Steel’s acquisition, and AMD rallied 9% on a bullish analyst upgrade. Energy stocks lagged as oil prices fell nearly 2%. Investors are now focusing on today’s retail sales data and tomorrow’s Fed decision, both likely to guide short-term direction.
Europe: European stocks closed higher, snapping a five-day losing streak as DAX (+0.8%), Stoxx 600 (+0.4%), and CAC 40 (+0.8%) responded to easing Middle East fears and Iran’s willingness to resume nuclear talks. Banks and tech led the rally, with Santander (+3.9%) and Adyen (+2%). Notable gainers included Siemens Energy (+4.6%), Sartorius (+4.1%), and Kering (+12.9%). Market attention shifts to this week’s key central bank meetings, especially the Fed and Bank of England, which may shape policy outlooks.
UK: The FTSE 100 rose 0.3% to near record highs, underperforming Europe as losses in energy and mining were offset by a surge in Entain (+11%). Trade headlines drove attention as the US and UK signed a deal to scrap tariffs on aerospace and cut those on autos, though steel and pharma tariffs remain unresolved. UK investors are awaiting inflation data, the Bank of England’s policy update, and retail sales—all due this week.
Asia: Asian markets traded mixed as Trump’s Tehran evacuation warning weighed on sentiment, offsetting Monday’s Wall Street rebound. Japan’s Nikkei (+0.6%) gained after the Bank of Japan kept rates unchanged and outlined a gradual reduction in bond purchases. China and Hong Kong indices slipped slightly amid geopolitical tension and mixed economic data. South Korea’s KOSPI hit a multi-year high, driven by optimism over new trade task forces and tech sector strength.
Volatility
Volatility eased but remains above normal levels. The VIX dropped to 19.1, down from Friday’s 20.8 spike, but still above its typical 15–18 “calm” range. While recent geopolitical shocks and tariff risks have kept implied volatility elevated, markets remain orderly and hedging costs only modestly higher. Analysts warn that volatility gauges may be underestimating the potential for sudden market swings given ongoing uncertainty.
Digital Assets
Crypto markets continue to grind higher as ETF demand drives flows. Bitcoin trades near $107,100 (+0.3%), Ether at $2,579 (+1.4%), with Ethereum’s spot ETFs seeing steady inflows—iShares’ new ETHA ETF jumped 5.3% to $20.16. BlackRock’s IBIT ETF gained 3.5%, as assets approach $70bn after strong recent inflows. Investors are treating digital assets more as diversifiers and partial hedges, reflecting cautious optimism even as macro risks persist.
Fixed Income
US Treasury yields traded sideways after the further rebound in yields early yesterday, with the further yesterday, with the 10-year benchmark near 4.43% in the middle of range established more than a month ago. The same goes for 2-year treasury yields, which hover a few basis points below 4.00% as the market anticipates tomorrow’s FOMC meeting and whether the Fed is willing to offer any new directional hints.
Japanese 10-year government bond yields rose four basis points after the Bank of Japan announced a plan to delay its slowing of JGB purchases, a move many anticipated. That took the 10-year JGB Yield benchmark ot 1.48%, but at the longer end of the curve, yields rose less – for example the 30-year benchmark up a sinle basis point late in the session at 2.92% ahead of BoJ Governor Ueda’s press conference this morning.
Commodities
Crude prices gave back most of the Israel/Iran war spike amid peace deal optimism, only to rally again after Trump called for the evacuation of Tehran. Without a disruption to supply, Brent would likely trade back below USD 70, while the opposite could see it trade above USD 80, highlighting a market where volatility remains firmly in the driving seat.
Gold surrendered most of its safe haven bid to trade back below USD 3,400 on Middle East optimism, before climbing again overnight. This time, however, with less urgency, highlighting a market that continues to consolidate, leaving it rangebound for now. Focus on the Middle East, US economic data, and the timing of the next US interest rate cut.
Currencies
The US dollar was mixed, rebounding slightly versus the Euro after EURUSD failed to sustain a rally above 1.1600 for the third day yesterday, trading 1.1567 this morning as of this writing.
- USDJPY firmed after broad JPY weakness ahead of the Bank of Japan meeting overnight took USDJPY briefly back above 145.00. This after the Bank of Japan announced that it would slow its JGB purchases by JPY 200 billion per month starting next financial year in Japan next April, versus the current schedule of JPY 400 billion per month. The market reaction suggests this was widely expected. Relative to GDP, the JGB’s balance sheet continues to shrink slowly as Japan’s nominal economy grows, so that the BoJ balance ended Q1 at 118 percent of GDP versus the peak in early 2024 of 133% of GDP. Bank of Japan Governor Ueda hosts a press conference at 0630 GMT this morning.
