Market Color | Final Flow –June 20, 2025

Markets on Edge: Geopolitical Shocks, Divergent Central Banks, and a Shifting Economic Landscape

Hello Metamacro Readers! Top of the morning

The week has been a whirlwind, leaving investors grappling with a complex tapestry of geopolitical tremors, unexpected central bank maneuvers, and a mixed bag of economic signals. From the heart of the Middle East to the quiet halls of central banks, seismic shifts are redefining the investment landscape.

Weekly Recap: Global Markets Rocked by Mideast Conflict, Trade Tensions Loom

This week saw a dramatic shift in market sentiment, with a once-robust stock rally giving way to broad declines, largely due to escalating geopolitical tensions in the Middle East. An Israeli airstrike on Iran sparked widespread risk aversion, sending investors retreating from equities and into traditional safe-haven assets like the U.S. Dollar and Treasury bonds. Crude oil prices, particularly sensitive to Middle East stability, surged over the week, reaching multi-month highs and fueling renewed inflation concerns.

Despite the flight to safety in the dollar and bonds, gold surprisingly did not show its usual safe-haven behavior, trading flat. The U.S. economic picture remained mixed, with weaker-than-expected retail sales for May (influenced by gasoline and auto declines, and possibly tariffs) contrasting with stronger core retail sales and industrial production. Meanwhile, Japan's economy faced renewed pressure as its exports experienced their first year-on-year decline since September 2024, raising recession fears.

Trade remained a key focus, with the July 9 "Liberation Day" tariff deadline approaching. President Trump indicated a flexible approach, open to extensions and expressing confidence in some deals, but also signaled a tough stance on ongoing negotiations with Japan and the EU, reiterating threats of new tariffs. In a significant corporate development, Nippon Steel secured conditional U.S. approval for its $14.1 billion acquisition of U.S. Steel, pledging substantial future investments in American operations.

Global Central Banks Diverge on Rates as US Markets Observe Juneteenth

While U.S. markets are closed in observance of Juneteenth National Independence Day, a significant federal holiday, the international central banking landscape has been buzzing with activity. Less than 24 hours after the U.S. Federal Reserve opted to keep its benchmark interest rates unchanged at 4.25%-4.50% on Wednesday, two other major central banks delivered their own distinct monetary policy signals. In a move that caught some by surprise, the Swiss National Bank (SNB) announced a 25 basis point cut to its policy rate, bringing it down to 0%. This decision, effective from today, reflects the SNB's response to easing inflationary pressures, with Swiss consumer prices even entering negative territory in May. The SNB also lowered its inflation forecasts for the coming years, suggesting that further easing might be on the horizon if current trends persist. Meanwhile, the Bank of England (BoE) voted to maintain its Bank Rate at 4.25%. This decision, while keeping rates steady, saw a split vote among the Monetary Policy Committee (MPC) members, indicating ongoing debate about the appropriate path forward amidst sustained disinflation but also lingering global uncertainties, including higher energy prices from the Middle East conflict.

Mideast Conflict Intensifies: Iranian Strikes Hit Israel, Oil Volatility Persists

Focus remained intensely on the escalating Israel-Iran conflict, particularly the potential for U.S. involvement. The situation indeed "heated up" as Iranian strikes were felt in Israel, resulting in a hospital being hit, casualties, and other destruction. While initial reactions pushed crude oil prices higher, nearing $76 a barrel, they ultimately backed off to settle around $73.85, reflecting ongoing volatility amid the heightened geopolitical tensions.

Japan's Inflationary Pressure Mounts Amidst Core CPI Surge and BOJ's Measured Stance

Recent data from Japan indicates persistent inflationary pressures, with the latest May CPI figures reinforcing the challenge for the Bank of Japan in achieving its 2% target. Headline Consumer Price Index eased slightly to 3.5% year-on-year from April's 3.6%, yet this marks the 38th consecutive month that inflation has remained above the BOJ's target. More significantly, the BOJ's preferred core inflation measure, which excludes volatile fresh food, rose for a third straight month to 3.7% year-on-year, surpassing expectations and hitting its highest level since January 2023. This surge is largely attributed to a dramatic 102% year-on-year increase in rice prices, creating significant financial strain for Japanese consumers. While services inflation also ticked up modestly to 1.4%, the dominant factor remains staple food costs.

Minutes from the BOJ's April 30–May 1 policy meeting, released today, revealed a divided but generally forward-looking board. Most members supported the idea of further rate hikes over time, aligning with the central bank's goal of normalizing policy. However, some policymakers expressed caution, advocating for a near-term pause due to uncertainties surrounding U.S. trade policy, highlighting the external factors influencing Japan's economic outlook.

Oil Jumps on Heightened Mideast Tensions, Strait of Hormuz Risks Dominant

Geopolitical instability continues to exert upward pressure on oil prices. On Thursday, Brent crude and West Texas Intermediate (WTI) futures both surged, driven by traders increasingly factoring in the risk of supply disruptions. This heightened concern stems from the potential for a blockade of the Iranian-controlled Strait of Hormuz, a critical maritime chokepoint through which about one-fifth of the world's oil trade transits. In anticipation of potential supply chain issues, Iran has reportedly been accelerating its oil exports to maintain revenue streams for the nation. While crude prices briefly touched $76, they ultimately retreated to around $73.85 by the end of the trading day.

Powell Puts Pause on Cuts: Fed Remains Data-Dependent

Following the Federal Reserve's decision on Wednesday to keep interest rates unchanged, Chair Jerome Powell underscored the central bank's cautious stance, stating that future rate adjustments will be entirely 'data-dependent' and not rushed.

Economic Calendar

Following yesterday's closure of U.S. markets for the Juneteenth holiday, attention today, Friday, June 20, 2025, pivots to a slate of crucial economic data releases. Investors will be keenly watching for the Philadelphia Fed's manufacturing survey and the Conference Board's leading economic indicators reading for May, both set to provide fresh insights into the health and direction of the U.S. economy.

These domestic reports arrive amidst a backdrop of recent, divergent monetary policy actions from major central banks globally. Yesterday, the Swiss National Bank surprised markets by cutting its policy rate to 0%, reacting to easing inflationary pressures. In contrast, the Bank of England opted to keep its rates unchanged, although a split vote among policymakers suggested ongoing debate. These moves followed closely on the heels of the U.S. Federal Reserve's decision on Wednesday to also maintain its benchmark interest rates, with Chairman Jerome Powell reiterating a "data-dependent" and patient approach to future adjustments.

Earning Calendar

Earnings report from Accenture Plc, Kroger and Darden Restaurants are expected today.

Equities Color

S&P 500 Index(SPX)

The S&P 500 closed slightly down at 5980.12, from its previous close of 5982.72. The index bounced between gains and losses throughout the day, reflecting market indecision following the Fed's announcement. Major decliners included payment card giants like Mastercard and Visa, which fell significantly due to new stablecoin regulations potentially bypassing traditional card systems.

Dow Jones Industrial Average Index(DJI)

The Dow experienced a modest decline closing at 42,161.46 down from its previous close of 42,215.80. The blue-chip index also struggled to find clear direction, influenced by the cautious stance from the Fed and broader geopolitical anxieties.

US 100 Index(NDQ)

In contrast to its peers, the tech-heavy Nasdaq Composite managed a slight gain closing at 19,544.75 from 19,521.09. The gain was primarily driven by strong performances in select tech stocks, notably Coinbase ,which soared 16% following a Senate bill for stablecoin regulation and other growth-oriented names like Intel. However, the gains were tempered by declines in other tech segments, particularly payment processors.

All major U.S. financial markets, including the New York Stock Exchange (NYSE) and the Nasdaq Stock Market (NASDAQ), were closed on Thursday, June 19, 2025, in observance of the Juneteenth National Independence Day federal holiday. Therefore, there was no trading activity or price movement for the S&P 500, Dow Jones Industrial Average, or Nasdaq Composite on Thursday. Trading for these indices will resume on Friday, June 20, 2025.

FX SNAPSHOT

The US dollar, closed mixed against the major currencies:

• EUR -0.14%

• JPY +0.22%

• GBP -0.34%

• CHF -0.33%

• CAD, +0.04%

• AUD +0.51%

• NZD +0.65%

FINAL THOUGHTS

From geopolitical flashpoints igniting oil markets to central banks navigating distinct economic currents, and critical U.S. economic data hitting the wires, this week has served as a stark reminder of the interconnectedness and inherent volatility of global finance. As we step into Friday, the market remains a high-stakes chess game where every move, be it a central bank decision or a headline from the Middle East, reverberates across portfolios.

The only certainty in this landscape of uncertainty is that vigilance remains the investor's most valuable asset.

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