Futures Slide, Oil Rises As Mideast Tensions Build

June 17, 2025

US stock futures and global markets are broadly lower on escalation/contagion worries in the Middle East after Trump called for the evacuation of Tehran and cut short his G-7 visit, and yet, as BBG notes, traders don’t seem too perturbed, with futures remaining solidly above last week’s lows, when the conflict between Israel and Iran started. As of 8:00am, S&P 500 futures fell 0.6% at 5:25 am in New York, with Nasdaq 100 contracts -0.6% as all Mag7/Semis are weaker. In main overnight news, Trump left the G-7 in Canada early and later told reporters on Air Force One that he is “not too much in the mood to negotiate” with Iran, and wants a deal that is better than a ceasefire. A draft of the Senate’s version of the budget/tax bill drawing complaints from fiscal hawks and Section 899 features sees its first ex-US backlash with one money manager freezing all long-term investments in the US, per BBG. Elsewhere, the USD is stronger, Treasury yields are lower and commodity prices are higher. WTI crude rose, partially erasing Monday’s loss, while gold stayed near a record high. The Energy complex continues its gains and both Base and Precious have a bid. Retail Sales is the key macro data print today where consensus sees the the ex auto print up 0.3%, an increase from the previous month but the latest BofA card data suggests a miss is on deck.

In premarket trading, Mag 7stocks are mostly lower (Microsoft -0.9%, Tesla -0.6%, Alphabet -0.7%, Amazon -0.7%, Apple -0.4%, Meta -0.3%, Nvidia +0.8%). Here are the other notable premarket movers:

Solar stocks tumble after Senate Republicans released a bill that would end tax credits for wind and solar earlier than for other sources. Sunrun (RUN) -32%, Enphase (ENPH) -18%
Digital Turbine (DYN) climbs 9% after the provider of software used in mobile phones reported fourth-quarter adjusted earnings per share above what analysts expected.
Dyne Therapeutics (DYN) drops 24% after announcing an updated plan for obtaining US accelerated approval for DYNE-101 for the treatment of myotonic dystrophy type 1 following a meeting with the FDA and analysis of new long-term functional data.
Immuneering (IMRX) jumps 10% after the drug developer gave data from a mid-stage trial of its investigative combination therapy to treat pancreatic cancer patients.
Lennar (LEN) rises about 2% after a miss on the homebuilder’s new orders outlook was tempered by better-than-expected gross margins, which RBC Capital Markets said should reassure investors.
Navitas Semiconductor (NVTS) slips 2% after Deutsche Bank downgrades the stock to hold from buy, noting the share rally that followed news the company will collaborate with Nvidia on data-center power infrastructure.
Redwire Corp. (RDW) falls 13% after the aerospace and defense technology firm said it was offering $200 million of shares. The overnight share sale was priced at $16.75 to $17.75 per share, according to deal terms seen by Bloomberg News.
Verve Therapeutics (VERV) soars 75% after Eli Lilly & Co. agreed to buy the company for as much as $1.3 billion.

Sentiment shifted on Tuesday as investors reacted to fast-moving developments in the Middle East and their potential impact on global markets. While traders had earlier shown confidence the conflict would be contained, oil remains in focus, with a commodity that had hovered near pandemic-era lows emerging as an unexpected source of inflation. As Israel and Iran continued to trade attacks, Trump left the Group of Seven leaders’ meeting in Canada early to deal with the crisis. Though he hasn’t outlined what comes next, Trump told reporters aboard Air Force One he was looking for “a real end, not a ceasefire” to the conflict.

“Today’s downward movement, triggered by Trump, could actually last for a few days or even a few weeks,” said Alexandre Baradez, chief market analyst at IG in Paris. “There’s been little progress on trade negotiations and now there’s an added geopolitical risk. I don’t see a selloff but the VIX could certainly move higher.”

The risk of oil-driven price pressures adds to the uncertainty facing central banks. Fed officials have signaled a prolonged pause in interest rates, and investors will be watching Chair Jerome Powell’s remarks on Wednesday for clues about what could eventually prompt a policy move, and when.

Oil prices could spike to $120 a barrel if attacks by Iran halts traffic in the Strait of Hormuz, according to Jim Reid, global head of macro research and thematic strategy at Deutsche Bank, who agreed with an identical assessment from JPMorgan last week. “The Fed has got so many conflicting forces at the moment,” Reid told Bloomberg TV. “Tomorrow the Fed is just going to stay put and not give too much away. The oil price would give them another reason just to sit and wait.”

Even as the S&P 500 Index rose Monday on hopes the conflict between Iran and Israel won’t spill over into a broader war, the trading desk at JPMorgan’s markets desk shifted away from its tactically bullish view on US stocks, citing growing risks and the greater likelihood of a retreat. “While there has been a strong buy-the-dip mentality with investors having been rewarded for fading negative news this year, we think it’s best to pull back on risk,” said JPM head of market intel, Andrew Tyler; he previously correctly predicted a multi-week stock rally back in April through this point as well as the previous market high. “Positioning indicates that irrespective of Israel-Iran, the market was setting up for a pullback,” he told clients early Monday.

On the home front, Senate Republicans proposed a tax plan that would reduce taxes for households and businesses, but also cut Medicaid benefits and add to US deficits. The bill would also end tax credits for wind and solar earlier than for other sources of power, sending solar stocks lower in premarket trading.

As Bloomberg adds, evidence is emerging that the risk-on momentum that has propelled the S&P 500 to a 21% gain from its April trough is hitting a rough patch. The gauge has been sitting near the 6,000 level for a month, while the stock market’s so-called fear index, or VIX, has climbed back above 20, showing continued investor angst over geopolitical developments and other risks.

Elsewhere, BofA’s fund manager survey showed investors are the most underweight on the US dollar in 20 years. “The biggest summer pain trade is long the buck,” Michael Hartnett wrote. And Amundi expects US economic growth to slow sharply to 1.6% in 2025-2026 and equity rotation to Europe and emerging markets to continue. The BofA survey also showed that investor sentiment is back to the “Goldilocks bull” levels seen before Trump’s April tariffs. The most crowded trades are long gold (41%), long Mag 7 (23%) and short US dollar (20%). Citi, meanwhile, forecast that gold will sink back below $3,000 an ounce on weaker investment demand, improving global growth forecasts and Fed rate cuts.

In Europe, the Stoxx 600 dropped 0.7% on drags from German, French, Italian and Spanish equities. Health care stocks extend their decline after President Donald Trump said tariffs on the sector are coming. The UK’s FTSE 100 relatively outperforms with a 0.5% drop, offset by gains for oil majors BP and Shell. Here are the biggest movers Tuesday:

Energy stocks extend gains, bucking losses across the broader European market, as the Israel-Iran conflict fanned fears of crude supply disruptions, lifting oil prices
FDJ United advances as much as 4.6%, to touch the highest in more than three months, as JPMorgan says the French lottery and sports betting company sits at an attractive entry point and starts coverage with an overweight recommendation
Rusta rises as much as 13%, the most since March 2024, following fourth-quarter results from the department store owner which showed growth in sales and better profitability
Renishaw shares rise as much as 2.8% after the precision measurement and calibration equipment maker said it plans to cut £20 million in yearly labor costs and introduce a new reporting structure ahead of its capital markets day in Wales
ITM Power shares rise as much as 12% after the company was selected for two new projects in the UK, including a sizable hydrogen project
RWS Holdings gains as much as 9.2% after delivering a trading update on Tuesday, with Berenberg describing the translation services firm’s new go-to-market strategy as “compelling”
Clean energy stocks including Vestas and Orsted fall in Europe after US Senate Republicans released a bill that would end tax credits for wind and solar earlier than for other sources, and make only modest changes to most other incentives
Ashtead shares give up initial gains to trade as much as 2.2% lower after the equipment rental specialist’s subdued guidance for this year was seen leading to consensus cuts
Lenzing slides as much as 12%, the most in five months, as Oddo BHF downgrades the stock to underperform from neutral, noting that the textile producer is “still not out of the woods” in terms of its debt burden
Deutsche Telekom shares drop as much as 3% after Softbank Group offloaded shares in T-Mobile US, in which the German firm is the biggest investor, at a discount

Earlier in the session, Asian equities traded in a narrow range, as concerns over the Israel-Iran conflict countered gains in technology shares on optimism over artificial intelligence. The MSCI Asia Pacific Index swung between a gain of as much as 0.3% and loss of 0.2%. A sub-gauge of technology shares extended its recent outperformance, with chipmakers TSMC and Samsung among the biggest boosts Tuesday. Stocks rose in Taiwan, South Korea and Japan while Chinese shares drifted lower. In key regional news, the Bank of Japan maintained its benchmark interest rate at 0.5%, as expected. It also confirmed it will taper its bond purchases at a slower pace starting next April.

Overnight the Bank of Japan (BOJ) has left short-term interest rates at 0.5% as widely expected in a unanimous vote after a two-day policy meeting. More importantly, it announced that it intends to slow the rate at which it reduces its bond purchases next year. Beginning in April 2026, it will decrease its bond purchases by approximately 200 billion yen per quarter, down from the current rate of 400 billion yen per quarter. This action is likely aimed at minimizing market disruptions while still providing adequate support for the Japanese economy amidst economic uncertainty arising from US trade policies. Furthermore, the BOJ indicated that it will perform an interim assessment of the plan to reduce bond purchasing in June 2026. Looking ahead, attention is now directed towards BOJ Governor Kazuo Ueda post meeting comments. 5-year and 10-year Japanese Government Bonds (JGB) have increased by +4.3bps and +5.5bps respectively split before and after the meeting.

In FX, the Bloomberg Dollar Spot Index is little changed, though all G-10 peers are lower versus the US currency. Yen weakens to 144.89/USD after the Bank of Japan kept rates at 0.5% and said it will step back from the bond market at a slower pace from next year as expected.

In rates, treasuries yields are lower across maturities, outperforming European bonds after US President Trump played down the likelihood of a ceasefire in Israel’s war with Iran. S&P 500 futures are falling, adding to downside pressure on yields. Treasury yields are lower by 2bp-3bp with curve spreads little changed; 10-year is down about 3bp at 4.42%, outperforming bunds and gilts in the sector by 3bp-4bp. Money markets continue to price in less than two quarter-point Fed cuts by the end of the year. US session includes retail sales data and supply, particularly Hyundai Capital America 7-part bond offering and Treasury’s 5-year TIPS reopening.

In commodities, brent crude gained 1.8%, extending oil’s advance since hostilities started to more than 7% as traders parsed comments from President Trump on the Israel-Iran conflict and remain on edge about potential supply disruptions. Spot gold falls roughly $5 to trade near $3,380/oz.

Looking at today’s calendar, US economic data slate includes May retail sales and import/export price indexes and June New York Fed services business activity (8:30am), May industrial production (9:15am), and April business inventories and June NAHB housing market index (10am).

Market Snapshot

S&P 500 mini -0.6%
Nasdaq 100 mini -0.6%
Russell 2000 mini -0.9%
Stoxx Europe 600 -0.8%
DAX -1.3%, CAC 40 -0.9%
10-year Treasury yield -2 basis points at 4.43%
VIX +1.5 points at 20.63
Bloomberg Dollar Index little changed at 1203.26
euro little changed at $1.1555
WTI crude +1.4% at $72.79/barrel

Top Overnight News

Donald Trump left the G-7 leaders meeting a day early but denied it was to work on a ceasefire between Israel and Iran, adding later he was looking for something “better.” The president earlier called for the evacuation of Tehran. BBG
The Senate’s draft tax bill calls for increasing an investment credit for semiconductor manufacturers, a potential boon for chipmakers that the Trump administration is urging to increase the size of their US projects. The measure would increase the tax credit to 30% of investments in plants, up from 25%. BBG
The US and Japan failed to reach an agreement on a trade package on the sidelines of the G7 summit, an outcome that leaves the Asian nation inching closer to a possible recession as the pain of US tariffs hits its economy. BBG
OpenAI and Microsoft tensions are reaching a boiling point: “The startup, growing frustrated with its partner, has discussed making antitrust complaints to regulators”. OpenAI seeks new financial concessions from Microsoft (MSFT), according to The Information. OpenAI wants to modify existing clauses in the contract with Microsoft that give the Co. exclusive rights to host OpenAI models in its cloud. OpenAI wants Microsoft to have a roughly 33% stake in reshaped units in exchange for foregoing its rights to future profits: WSJ
Final Senate passage vote on the GENIUS Act scheduled for Tuesday at 16:30 EDT.
China’s auto OEMs plan to begin utilizing 100% domestic chips as soon as 2026 as the gov’t proceeds with a plan to reduce the country’s reliance on Western technology. Nikkei
China is set to see its oil consumption peak in 2027 following a surge in EV sales and the continued deployment of high-speed rail and trucks running on natural gas. IEA
The BOJ will cut its bond purchases by ¥200 billion ($1.34 billion) per quarter starting next year, versus the current reduction of ¥400 billion per quarter. It stood pat on rates, as expected. JGB futures slid and the yen erased losses. BBG
White House has proposed a meeting this week between Iran’s foreign minister and Steve Witkoff as Trump looks to a diplomatic solution to ending the war. FT
UK Chancellor Rachel Reeves is considering reversing a decision to charge inheritance tax on non-domiciled residents’ overseas assets in a bid to stem the current wealth exodus. FT
Eli Lilly is buying gene-editing startup Verve Therapeutics for up to ~$1.3 billion (Deal Terms: $10.50/SHR + $3 CVR). Verve shares soared as much as 112% premarket. BBG

Tariffs/Trade

US President Trump said he signed a document finalising a trade deal with Britain (as expected). US President Trump said the UK is protected (regarding tariffs) because he likes the UK. US tariff on UK steel to remain at 25% for now, according to Bloomberg citing a UK official. Imports of automobiles within tariff-rate quota that would otherwise be subject to a 25% tariff shall instead be subject to a combined tariff of 10%. The US and UK committed to strengthening aerospace and aircraft manufacturing supply chains by establishing tariff-free bilateral trade in certain aerospace products. The US intends to promptly construct a quota at most-favoured-nation rates for steel and aluminium articles and certain derivative steel and aluminium articles that are products of the UK. The US and UK committed to negotiate significantly preferential treatment outcomes on pharmaceuticals and ingredients of the UK, contingent on findings of an investigation. The US intends to create an annual quota of 100,000 vehicles for United Kingdom automotive imports at a 10 per cent tariff rate.
US President Trump says the EU is not yet offering a fair deal, there is a chance of a deal with Japan but they are “tough”. Could do a separate deal with Canada on the Golden Dome. Pharma tariffs are coming “very soon”.
US President Trump met with European Commission President von der Leyen per her request, according to CBS’ Jacobs.
EU and US leaders reportedly instructed teams to accelerate work on trade, according to Bloomberg citing European Commission President von der Leyen
Canadian PM Carney and US President Trump agreed to pursue negotiations toward a new economic and security relationship within the coming 30 days, according to the Canadian PM’s office.
Japanese PM Ishiba and US President Trump did not reach a tariff agreement; but confirmed they are to continue tariff talks, according to Fuji TV. Japan Finance Minister Kato said no fixed plan right now to hold further talks with US Treasury Secretary Bessent.
White House said, concerning steel and aluminium, Secretary Lutnick will determine the quota of products that can enter the US without being subject to 25% Section 232 tariffs, according to Reuters.
FBN’s Gasparino posted ““As of today Xi and Trump have not talked about the fate of TikTok US. It’s last on the list. Most likely get punted for another 75 days on June 19th. The AI chip sales to China are emerging as a much bigger issue”.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed/mostly lower with the region failing to coattail on Wall Street’s gains, as geopolitical angst kept risk subdued, namely after US President Trump posted that “Everyone should immediately evacuate Tehran!” before cutting his G7 trip short, stoking fears of a US military offensive. Sentiment later stabilised after CBS reported that the US is not joining Israel offensively in its military operations against Iran, with US officials also backing a defensive stance amid assets in the region. ASX 200 traded slightly softer and in a narrow range, with upside in gold miners cushioning losses for the index. Nikkei 225 was kept afloat amid the softer JPY after the US and Japan failed to reach an agreement. The index saw a modest hawkish reaction to the BoJ decision which reduced the pace of JGB purchases as telegraphed. Hang Seng and Shanghai Comp opened flat before tilting lower in overall uneventful trade across the Chinese bourses amid the cautious risk tone with the immediate focus largely on geopolitics.

Top Asian News

PBoC injected CNY 197.3bln via 7-day reverse repos with the rate maintained at 1.40%.

BOJ Announcement

BoJ maintained its interest rate at 0.5% as expected through a unanimous vote. The Bank has also decided to reduce the amount of its monthly JGB purchases by about JPY 200bln each quarter starting from April 2026, in line with source reports.
The decision on the bond taper plan was made with an 8-1 vote, with Board member Tamura dissenting. Tamura dissented, arguing that the Bank should allow long-term interest rates to be determined by the market and its participants. He proposed that the Bank reduce its monthly outright purchases of JGBs by about 400bln yen each calendar quarter until January-March 2027 in principle, but this proposal was defeated by a majority vote.
As part of the taper plan, Japan will continue to reduce JGB purchases by JPY 400bln per month until March 2026. From April 2026 onwards, the amount of monthly JGB purchases will be reduced by about JPY 200bln per quarter, with the total monthly purchases expected to be around JPY 2tln by January-March 2027. An interim assessment of the bond taper plan for the period starting in April 2026 will take place at the June 2026 policy meeting, and Japan is prepared to amend the taper plan at future policy meetings if necessary. The BoJ’s holdings of JGBs are expected to decrease by roughly 16-17% by March 2027 compared to June 2024 levels.
BoJ said the frequency of auctions will be changed from four times a month to three times a month in principle for JGBs with shorter maturities; the frequency of auctions for JGBs with longer maturities has been maintained.
Regarding economic conditions, Japan has maintained its economic assessment, noting that the economy has recovered moderately despite some areas of weakness. However, uncertainty remains high, particularly over the impact of trade policies, which are a key focus. The BoJ emphasised the necessity of paying attention to the potential effects of trade policies on financial and foreign exchange markets. Inflation expectations have risen moderately, but it remains extremely uncertain how global trade policies will evolve and how overseas economic activities will respond.

BOJ – Ueda conference

BoJ Governor Ueda says it is too quick tapering of bonds could result in unexpected effects in the market. Do not see much negative impact of reducing tapering on the economy. Judged that downside risks are bigger for the economy and prices. Inflation expectations are still not anchored to 2% in Japan. Expects the impact of trade policies to become more evident. Will not rule out any tools, when questioned on YCC

European bourses (STOXX 600 -0.8%) opened lower across the board and sentiment continued to wane as the morning progressed; the complex currently just off worst levels. Sentiment today has been hit amid the currently tumultuous geopolitical environment in the Middle East. Iran and Israel have continued to strike each other overnight and US President Trump said “Everyone should immediately evacuate Tehran!”, while also cutting his G7 trip short. European sectors hold a strong negative bias with only handful of sectors in positive territory. Unsurprisingly, Energy takes the top spot with the complex boosted by the ongoing strength in oil prices amid geopolitical uncertainty in the Middle East. Banks sit at the foot of the pile, joined closely by Telecoms and then Media.

Top European News

ECB President Lagarde, in an FT Opinion piece, said Europe faces structural challenges. Its growth remains persistently low.
ECB Stournaras says the ECB has reached a “first point of equilibrium” and any further rate cuts depend on data, speaking to Greek media.
EU has refused to hold a flagship economic meeting with Beijing ahead of a leaders’ summit next month, according to FT.
UK Chancellor Reeves is exploring reversing a decision to charge UK inheritance tax on the global assets of non-doms, according to FT.

DXY is flat and trading in a tight 98.06-98.21 range. The news cycle remains fixated on the ongoing conflict between Iran-Israel. However, the latest reporting suggests that the US is looking to make a deal with Iran and will not be joining the Israeli offensive. Those hoping for a breakthrough on trade at the G7 summit have been left disappointed after Trump cut his visit short to head back to Washington. Albeit, Treasury Secretary Bessent is staying behind at the summit. Now focus turns to US Retail Sales later.
EUR is flat vs. the USD as the pair struggles to hold above the 1.16 mark. In terms of recent newsflow, traders await any progress on the trade front between the EU and US after reports that leaders instructed teams to accelerate work on trade. However, in recent trade, US President Trump has stated that the EU is not yet offering a fair deal.
USD/JPY was initially lifted during APAC trade with haven flows from geopolitics short-lived as Japanese PM Ishiba and US President Trump failed to reach a tariff agreement. Additionally, Japanese Finance Minister Kato added that there is no fixed plan right now to hold further talks with US Treasury Secretary Bessent. Thereafter, the pair saw downticks on the BoJ decision which saw the Bank stand pat on policy (as expected) and announce a reduction in the amount of monthly JGB purchases by about JPY 200bln each quarter from April 2026 onward. Some drew attention to the hawkish dissent from Tamura as well as a near-term increase in the taper of short-term JGBs. During Ueda’s press conference, JPY strength faded with the CB head stating that the Bank judged that downside risks are bigger for the economy and prices. USD/JPY currently sits towards the middle of its 144.41-145.11 range.
GBP is fractionally softer vs. the USD and EUR after seeing some choppy price action following the US and the UK formally signing their trade agreement. The details of which mean that the US tariff on UK steel is to remain at 25%, for now. Inflation data for May hits on Wednesday and is expected to show headline Y/Y CPI hold steady at 3.5%, with the services component set to decline to 5.0% from 5.4%. GBP/USD is currently contained within Monday’s 1.3535-1.3622 range.
Fell overnight on the BoJ which was largely as expected, with rates left unchanged and the taper pace trimmed to JPY 200bln a quarter (currently JPY 400bln) from April 2026 onwards. and at the top of the G10 leaderboard in an extension of the price action with both risk-sensitive currencies overlooking the downside in stocks.
PBoC set USD/CNY mid-point at 7.1746 vs exp. 7.1820 (prev. 7.1789); strongest CNY fix since March 19.

Fixed Income

JGBs fell overnight on the BoJ which was largely as expected, with rates left unchanged and the taper pace trimmed to JPY 200bln a quarter (currently JPY 400bln) from April 2026 onwards. The hawkish impulse came from Tamura’s dissent, who favoured maintaining the old pace of tapering until end-Q1 2027.
USTs are firmer, but only modestly so. In a relatively thin 110-15+ to 110-23 band. Overnight, the 20yr auction was better than the prior, but roughly in-line with the six auction average. More recently, USTs saw some modest movements alongside JGBs. Overall, the benchmark is awaiting US data and clarity on a number of moving parts.
Bunds are also contained, but with a modest bearish bias in play. A bias which potentially comes ahead of supply, though the German outing today is small and size and thus shouldn’t be exerting too much influence. Initially saw some pressure on the lack of EU-US progress at the G7. However, the subsequent meeting between Trump and Commission President von der Leyen, and then von der Leyen posting that on trade they “instructed the teams to accelerate their work to strike a good and fair deal.”, offset some pressure.
Gilts are trading in tandem with Bunds, but with the benchmark under slightly more pressure. But, as above, today’s range is limited and Gilts have been a little choppy within it, though the bias is more bearish than peers. A direction potentially exacerbated by the morning’s supply as the DMO is set to sell GBP 4.5bln 4.375% 2030 Gilt. The auction was well received, featuring a better b/c and smaller tails than the prior, but failed to spur any upside.
Saudi National Bank is “teeing” up a USD-denominated debt sale, according to Bloomberg; said to be a 10yr with IPTs circa 235bps over USTs.
UK sells GBP 4.5bln 4.375% 2030 Gilt: b/c 3.26x (prev. 3.23x), average yield 4.06% (prev. 3.977%) & tail 0.2bps (prev. 0.4bps).
Germany sells EUR 0.988bln vs exp. EUR 1.0bln 2.10% 2029 and EUR 0.497bln vs exp. EUR 0.5bln 2.30% 2033 Green Bund.

Commodities

Crude is higher by around USD 1.10/bbl with the complex continuing to remain bid given the continued Iran-Israel strikes and hawkish comments via US President Trump. Most pertinently, he posted that “Everyone should immediately evacuate Tehran!” – later he posted that he has “not reached out to Iran for ‘Peace Talks’ in any way, shape, or form”. Brent Sep’25 currently trades around USD 74.50/bbl.
Spot gold is flat on the day, with Trump’s Tehran warning and the CBS interview failing to boost haven demand, and amid a flat Dollar.
Copper trades indecisively amid the broader cautious risk tone following Israel-Iran updates.
Russia’s Novak, on the need to change OPEC+ decision on oil production increase, says the world needs new volumes, but OPEC+ is ready to be flexible, via RIA. Global oil prices are not appropriate for most of the key oil producers.
IEA OMR: World Oil Supply to rise by 1.8mln bpd in 2025 (prev. forecast rise of 1.6mln bpd); 2025 oil demand growth forecast to 720k bpd (prev. forecast 740k)

Geopolitics: Latest

CBS’s Jacobs writes US President Trump said “I didn’t say I was looking for a ceasefire,” he said on AF1. He said he wants “a real end,” with Iran “giving up entirely” on nukes.” On any threat to US interests, he said Iran knows not to touch our troops. US would “come down so hard if they do anything to our people,” he said. Asked his thinking on calling for Tehran to evacuate, he told me he wants “people to be safe.” Asked if US involvement would destroy Iran nuclear program, hope their program “is wiped out long before that.” Trump sounded undecided about sending Witkoff and/or VP Vance to meet with Iran. “I may,” he said. But “it depends what happens when I get back,” he said. Trump declined to say if the chairman of joint chiefs and SecDef have provided him with planning options should Iran attack U.S. bases in Middle East. “I can’t tell you that,” he told me. The Israelis aren’t slowing up their barrage on Iran, he predicted. “You’re going to find out over the next two days. You’re going to find out. Nobody’s slowed up so far.”
Israeli officials tell Axios that regime change isn’t an official war aim, discussions about it are getting louder and more overt, via Axios.
Politico Reports: US President Trump will convene his closest military advisers in the Situation Room this morning, where he weighs “whether to join Israel’s bombardment of Iran”.
US President Trump says he is “looking for better than a ceasefire in Iran”, “not too much in the mood to negotiate with Iran”.
US President Trump says he has “not reached out to Iran for ‘Peace Talks’ in any way, shape, or form”.
Senior Iranian Army Commander says attacks against Israel will intensify in the next hours, new wave of drones will hit Israel, via IRNA.
CNN, citing sources, reports that Iran was up to three years away from being able to produce a nuclear bomb, via Sky News Arabia; US official cited adds that they believe recent Israeli strikes have pushed this back by only a few months.

Geopolitics: Strikes

Iranian ballistic missiles reported over Tel Aviv, via Fox correspondent.
Iranian media reported several explosions and heavy air defence fire in the capital Tehran; Several explosions east of Tehran amid air defence fire, according to Fars.
Reports of multiple explosions in Ahvaz – in the oil-rich province of Khuzestan in southwest Iran, according to Iran International.
Unconfirmed reports noted that three ships are on fire in the Gulf of Oman near the Strait of Hormuz, according to several social media accounts. Ambrey later said it is aware of an incident 22 nautical miles east of Khor Fakkan in UAE (close to the Strait of Hormuz). Incident in Khor Fakkan near the Strait of Hormuz seemingly was caused by two vessels colliding, according to Kpler’s Bakr citing their terminal
IAEA Director Grossi said the damage recorded at Fordow was very limited, underground spaces at the Isfahan facility do not appear to have been affected.

Geopolitics: Diplomacy

US President Trump directed members of his team to attempt a meeting with Iranian officials as quickly as possible, according to CNN sources.
Trump team proposes Iran talks this week on nuclear deal and ceasefire, according to Axios. The White House is discussing with Iran the possibility of a meeting this week between U.S. envoy Steve Witkoff and Iranian Foreign Minister Abbas Araghchi, according to four sources briefed on the issue.
Israeli media reports that Trump is preparing to make a ‘final offer’ to Iran in the coming days, according to Spectator Index.
US President Trump said Iran should have signed the deal, Iran wants to make a deal, according to Reuters.
French President Macron said Americans have made an offer to meet with Iranians, now will see what happens. Macron said European partners are ready to take part in serious Iran nuclear negotiations if a ceasefire is reached. Macron said Trump told G7 leaders there were discussions to obtain a ceasefire between Israel and Iran.

Geopolitics: Trump

US President Trump posted “Iran should have signed the “deal,” I told them to sign…IRAN CAN NOT HAVE A NUCLEAR WEAPON… Everyone should immediately evacuate Tehran!”
US President Trump posted “AMERICA FIRST means many GREAT things, including the fact that IRAN CAN NOT HAVE A NUCLEAR WEAPON. MAKE AMERICA GREAT AGAIN!!!”
“President Trump is leaving the G7 summit EARLY and will return to DC tonight.”, according to CNN reporter; Bloomberg suggests due to the Middle East crisis.
US President Trump requested the National Security Council be prepared in the Situation Room, according to reports citing Fox.
“US is NOT joining Israel offensively in its military operation, per US officials. Despite reports that President Trump asked the NSC and Situation Room to be readied,” according to CBS’ Jacobs.
CBS’ Jacobs posted “Trump isn’t leaving [right now] because of discussions for a ceasefire between Israel and Iran, I’m told…He is leaving G7 halfway through. Not entirely clear why”.
US President Trump posts that his return to Washington had nothing to do with a ceasefire.

Geopolitics: Allies

Trump admin reportedly told several Middle Eastern allies on Sunday that it doesn’t plan to get actively involved in the war between Israel and Iran unless Iran targets Americans, according to Axios sources
US is sending another aircraft carrier, and more warships to the Middle East, according to NBC.
US Defense Secretary Hegseth said over the weekend he directed the deployment of additional capabilities to the US CENTCOM; additional deployments are intended to enhance the defensive posture in the region, according to Reuters.
US Defense Secretary Hegseth said US President Trump still aims for a nuclear deal with Iran, via Fox News; assets in the region will be defended.
White House aide said it is not true that the US is attacking Iran; says American forces are maintaining their defensive posture.
“This may really be the last chance for the Iranians before the US actively joins”, according to journalist Stein citing a US source.

US Event Calendar

8:30 am: May Retail Sales Advance MoM, est. -0.6%, prior 0.1%
8:30 am: May Retail Sales Ex Auto and Gas, est. 0.3%, prior 0.2%
8:30 am: May Retail Sales Ex Auto MoM, est. 0.2%, prior 0.1%
8:30 am: May Import Price Index MoM, est. -0.2%, prior 0.1%
8:30 am: May Import Price Index YoY, est. 0.04%, prior 0.1%
9:15 am: May Industrial Production MoM, est. 0%, prior 0%
9:15 am: May Capacity Utilization, est. 77.7%, prior 77.7%
10:00 am: Apr Business Inventories, est. 0%, prior 0.1%
10:00 am: Jun NAHB Housing Market Index, est. 36, prior 34

DB’s Jim Reid concldues the overnight wrap

After a weekend during which Israel and Iran continued to trade strikes, it was noticeable that Israel hadn’t directly targeted oil production and transportation facilities, and Iran showed little sign that it was considering closing the Strait of Hormuz or targeting US interests in the region. So it felt yesterday that to get an additional and notable risk-off we needed further escalations.

As such, yesterday became steadily more risk-on with extra momentum from a WSJ report, just under 90 minutes after the US open, which said that Iran was signalling it wanted to end hostilities and restart nuclear talks. So that led to a significant easing of the broad market stress, with the S&P 500 (+0.94%) recovering the vast majority of Friday’s -1.13% decline. Similarly, gold fell -1.37%, reversing the spike that saw it post a new record high on Friday. And in line with that theme, some of the assets most affected by the conflict did very well, with the Israeli shekel seeing its biggest daily gain against the US Dollar (+3.49%) since 1998, with Israel’s TA-35 index (+1.82%) closing at an all-time high.

However, just as markets were getting more comfortable, we’ve seen a bit of a reversal overnight after Trump left the G7 meeting a day early with reports that he has requested the National Security Council to convene on his return to Washington. He posted that “Everyone should immediately evacuate Tehran!” There was no extra context. In fact, as DB‘s Michael Hsueh has pointed out, the G7 leaders’ statement was only 121 words, compared with June 2024’s statement of 19,834 words, and Dec 2023’s statement of 5,108 words. It also only discussed the Israel/Iran conflict whereas normally a whole host of topics are covered.

So we’re all in a bit of a limbo in terms of whether anything substantive came out of the summit and whether Trump was alluding to new information with his post and his early G7 meeting departure. Before his post, that WSJ headline was backed up elsewhere. For instance, Reuters reported shortly afterwards that Iran had asked Qatar, Saudi Arabia and Oman to ask President Trump to get Israel to agree to a ceasefire, in return for more flexibility from Iran in the nuclear talks. And Trump himself later said at the G7 summit that Iran would “like to talk, but they should have done that before”.

There are still big questions as to whether Israel would be receptive to a ceasefire, given that it is seeking to destroy Iran’s nuclear program. Moreover, the public rhetoric hasn’t leant that way either, and Iran’s Mehr News Agency cited a senior security official saying that it is prepared to deliver a “major blow” to Israel after its strikes. So there is maybe diplomatic movement behind the scenes but not yet in the open.

Indeed, there have been no signs of de-escalation in the aerial war, with reports of explosions against in Tehran overnight, while Iran launched more missiles into Israel. Oil is back up around half a percent this morning after closing at $73.23/bbl, down -1.35% on the day and nearly -7% from the intraday peak of $78.50/bbl on Friday after the initial attacks. It is still around +7.7% higher since renewed fears of escalation emerged last Wednesday.

Amidst all the news, global equities put in a solid session yesterday, with the S&P 500 (+0.94%) advancing, whilst the STOXX 600 (+0.36%) finally ended a run of 5 consecutive declines. In both cases, it was the more cyclical sectors that led the advance, and every one of the Magnificent 7 (+1.57%) advanced on the day as well. Other signs of market stress eased too, with the VIX index down -1.71pts to 19.11pts, whilst US HY spreads tightened -11bps. S&P (-0.41%) and Nasdaq (-0.47%) futures are lower this morning though.

We have still seen only a minimal reaction in equities so far and perhaps that’s because absent a serious escalation, markets are aware of the historical playbook around geopolitical shocks. I looked at this in my chart of the day yesterday (link here), which shows how the usual pattern is for a short, sharp shock that then reverses. Moreover, this time our strategists have argued the bar for a significant sell-off was higher, since equity positioning was already quite light. If you look at the geopolitical shocks that have had a bigger and more sustained market impact, it’s generally the stagflation shocks that cause a simultaneous inflation spike alongside a hit to growth. Henry took a look at those in a piece yesterday (link here), with the biggest impacts coming from the oil shocks of the 1970s, the Gulf War in 1990, and Russia’s invasion of Ukraine in 2022. Those cases all led to a huge oil price spike, whereas today’s move still leaves prices beneath their 2024 average.

In other news, Senate Republicans released their version of the budget bill last night. Compared with the bill passed in the House last month, the Senate version makes permanent three business tax breaks and scales back a proposed tax on university endowments. It also includes a placeholder $10k cap on the state and local tax deduction ($40k in the House version), as Republicans remain divided over the level of this tax break.

Back to markets and the renewed focus on US fiscal coupled with still elevated oil prices but a reduction in flight to quality, put pressure on Treasuries yesterday, with 10yr Treasury yields rising +4.7bps on the day to 4.45%, while 30yr yields (+6.1bps to 4.96%) moved back to within touching distance of 5%. Much of that rise in yields played out in the latter part of the US session, and in Europe yields on 10yr bunds (-0.9bps), OATs (-1.9bps) and BTPs (-3.0bps) had all closed lower.

In Asian equity markets, the Hang Seng (-0.12%), the CSI (-0.15%), the Shanghai Composite (-0.18%), and the S&P/ASX 200 (-0.15%) are all experiencing slight declines. Conversely, the Nikkei (+0.55%) and the KOSPI (+0.30%) are stronger.

Elsewhere, there was very little data of note yesterday. One release was the Empire State manufacturing survey for June, which unexpectedly fell to -16.0 (vs. -6.0 expected), beneath every economist’s expectation on Bloomberg. However, there was a bit more optimism on the forward-looking indicators, and the expectations component for general business conditions moved up to a 4-month high of 21.2.

To the day ahead now, and data releases include US retail sales, industrial production and capacity utilisation for May, the NAHB’s housing market index for June, as well as Germany’s ZEW survey for June. Otherwise, central bank speakers include the ECB’s Villeroy and Centeno.

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