Market drivers and catalysts
Equities: Israel-Iran conflict weighs, Trump rhetoric, energy outperforms, Fed decision eyed
Volatility: VIX above 21, short-term hedges surge, Fed/geopolitics key risks
Digital assets: Bitcoin/ETH drop, IBIT/ETHA see inflows, regulation news, market cautious
Fixed Income: US treasury yields remains mired in middle of range
Currencies: USD firms ahead of today’s FOMC meeting. Sterling sharply weaker
Commodities: Broad gains led by energy, gold, silver and grains lift sector to 2022 high
Macro events: UK May CPI, US May Housing Starts, US FOMC Meeting and Fed Chair Powell press conference
Macro data and headlines
Trump called for Iran’s “unconditional surrender” while threatening its supreme leader before meeting with his national security team to discuss the escalating Middle East conflict, fueling speculation that the US may join Israel's attack on Iran, raising concerns about supply disruption of crude from the region. Meanwhile, both Israel and Iran indicated they planned to ratchet up the conflict.
UK May CPI out at 0.2% MoM as expected and 3.4% YoY vs. 3.3% expected and 3.5% in April. The May Core CPI reading fell to 3.5% YoY from 3.8% in April as expected, while the Core Services number fell to 4.7% vs. 4.8% expected and 5.4% in April.
US retail sales fell a seasonally adjusted 0.9% month-on-month in May 2025, the largest drop in four months, following a revised 0.1% decline in April and exceeding the forecasted 0.7% fall. Consumers pulled back ahead of expected tariffs, with motor vehicle & parts dealers seeing the biggest decline.
NAHB/Wells Fargo Housing Market Index fell two points to 32 in June 2025, the lowest since December 2022 and the third lowest reading since 2012, missing expectations of a rebound to 36. This reflects high interest rates and pessimistic consumer demand amid tariffs and uncertain economic conditions raising mortgage costs.
- US industrial production fell 0.2% in May 2025, missing expectations of a 0.1% rise, after a 0.1% increase in April. Manufacturing output rose 0.1%, below the forecasted 0.2%.
- US import prices remained unchanged in May 2025, defying expectations of a 0.2% drop, following a 0.1% rise in April. Non-fuel import prices rose 0.3%, extending a 0.4% increase, the sharpest in a year, as foreign firms maintained prices despite aggressive tariffs.
Macro calendar highlights (times in GMT)
0600 – UK May CPI
0900 – Eurozone Final May CPI
1230 – US May Housing Starts and Building Permits
1230 – US Weekly Initial Jobless Claims and Continuing Claims
1430 – Weekly Crude and Fuel Stock Report
1800 – US FOMC Monetary policy statement and accompanying materials (staff projections)
1830 – US Fed Chair Powell press conference
0130 – Australia May Employment Data
Thursday: US markets closed for Juneteenth holiday
Earnings events
Friday: Accenture, Kroger, Darden Restaurants
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities
US: US stocks slid Tuesday as escalating Israel-Iran tensions and weak retail sales rattled sentiment. The S&P 500 fell 0.8%, Dow 0.7%, and Nasdaq 0.9%. President Trump’s threat to Iran added to investor caution, while May retail sales fell 0.9%, pointing to tariff effects. Energy stocks outperformed as oil surged, with ExxonMobil and Chevron gaining over 2%. Airline and consumer stocks lagged, and T-Mobile dropped after SoftBank reduced its stake. Focus now turns to the Fed’s rate decision and Chair Powell’s guidance tonight.
- Europe: European shares ended sharply lower Tuesday as Middle East tensions and Trump’s tough Iran stance drove risk-off moves. The Stoxx Europe 600 dropped 0.8%, DAX lost 1.1%, and CAC 40 fell 0.8%. Energy was the only sector in the green, lifted by oil prices. Bank and tech stocks weighed most, with SocGen, Kering, and Deutsche Telekom leading losses. Markets await key UK inflation and Sweden’s rate decision, while investors remain wary of further escalation in the region.
UK: The FTSE 100 fell 0.46% to 8,834 as global conflict and trade deal uncertainty kept investors defensive. Strength in energy was offset by declines in industrials and consumer names. Ashtead rose on results, but Unilever and Informa lagged. Fresh UK sanctions on Russia and new US-UK trade terms had little market impact. Economic growth forecasts were cut to 1.2% for 2025, underscoring a cautious outlook. Traders now await the Bank of England policy update.
Asia: Asian markets diverged as tech and crypto optimism offset regional uncertainty. South Korea’s KOSPI rose 0.7% on AI and chip sector gains, while China and Hong Kong dipped as policy forums offered few surprises. Renewed trade talks between Korea and the US lifted sentiment, but the ongoing Israel-Iran conflict capped risk appetite. In China, lack of policy support and pressure on Hong Kong EV stocks drove declines, while currency and bond markets remained stable.
Volatility
Volatility climbed Tuesday as war headlines and Fed nerves unsettled investors. The VIX jumped 13% to 21.60, with one-day and nine-day VIX gauges also spiking to 21+. Option volumes surged as hedging demand increased. Futures suggest choppiness will linger, though not escalate much further. For long-term investors, recent swings have brought volatility back to average 3-month levels—not panic territory, but a reminder to stay alert as the Fed meeting and geopolitical risk loom large.
Digital Assets
Crypto markets mirrored equities, softening after Monday’s rebound. Bitcoin fell 1.6% to $105.4K, and Ether slipped to $2,535. Both IBIT (-3.7%) and ETHA (-5%) tracked the drop, despite strong institutional inflows earlier in the week. Altcoins and crypto-exposed stocks were mixed. The US Senate’s passage of the GENIUS Act (stablecoin regulation) marked a step forward but didn’t lift sentiment as geopolitical fears kept risk appetite low. Still, ongoing ETF inflows highlight persistent institutional adoption even during consolidation.
Fixed Income
US Treasury yields remain stuck midrange all along the yield curve after a soft US May Retail Sales report yesterday and ahead of weekly jobless claims data today and the FOMC meeting today, with housing starts data also potentially garnering more attention than usual on signs of a weakening US housing market. The 2-year US treasury benchmark trades this morning near 3.95% as the market will watch for any clues in the FOMC meeting and ensuing Fed Chair Powell press conference whether the Fed is tilting more dovish and opening up the possibility of a July rate cut (currently, odds are only at about 15% for a July cut and only a bit over 55% for a single cut through the mid-September FOMC meeting.
- US high yield credit spreads widened slightly amidst a bout of weaker risk sentiment yesterday, driven at least in part by the spike in crude oil prices over the ongoing Iran-Israel confrontation. The Bloomberg measure of high yield credit spreads to US treasuries we track widened from a multi-month low on Monday at 297 basis points to close yesterday up 7 basis points to 304 basis points.
Commodities
Broad gains in the past week have lifted the Bloomberg Commodity Total Return Index to a September 2022 high. The Index, which tracks a basket of 24 major futures contracts, is up 3.7% in the past week, lifting the year-to-date gain to 10.4%, with recent gainers including crude oil, fuel products, gold, silver, soybeans, and wheat.
Crude oil rallied again amid worries the US may take more direct involvement in the attacks on Tehran, raising concerns over a Middle East escalation and potential supply disruptions of crude—with a blockage of the Strait of Hormuz the worst-case scenario. Oil options are now more bullish - calls being priced higher than puts - than after Russia’s invasion of Ukraine in 2022, showing a global market that’s on edge.
Silver reached a fresh 13-year high above USD 37, while gold remains stuck below USD 3,400—highlighting a yellow metal that continues to consolidate, leaving it rangebound for now. Focus remains on the Middle East, US economic data, and the timing of the next US interest rate cut.
Grains: strength in energy markets supported corn and soybeans, given the crops' role in the production of biofuels, while CBOT wheat hit a one-week high as a slow start to the US winter wheat harvest helped trigger short covering from speculators, who have held a net short position continuously for the past three years amid ample supply.
Currencies
The US dollar firmed yesterday despite a soft US May Retail sales report, perhaps driven by squaring of heavy short USD positioning at the margin ahead of tonight’s FOMC meeting. Still, it is difficult to conjure a hawkish scenario on tonight’s FOMC meeting, given that expectations for a rate cut in July are quite low, as noted above in the Fixed Income section. The market could be far more sensitive to the weekly jobless claims data today after three consecutive slightly elevated readings.
EURUSD has challenged below key local support just below 1.1500, but arguably would need to capitulate through the 1.1450-1.1400 to suggest a more profound reversal – awaiting the post-FOMC price action for a status.
The yen firmed a bit yesterday on weak global risk sentiment, curbing enthusiasm for carry trades, with GBPJPY seeing the most significant reversal lower after it teased the top of the multi-month range. USDJPY resistance around 145.00 held again, as a squeeze as high as 145.44 overnight yielded to a push back toward the round level once again in late Asian trading.
Sterling weakened sharply yesterday across the board, as the currency is perhaps sensitive to risk sentiment. GBPUSD fell as far as 1.3422 overnight after trading as high as 1.3591 yesterday and EURGBP rallied above 0.8550 for the first time since April.
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