Global Economy & Markets, Weekly Roundup 24/06/25
The situation in the Middle East remains fluid, with brent crude prices fluctuating sharply
The Iran-Israel conflict restricted risk appetite in the past week (MSCI ACWI: -0.4% wow). The S&P500 was slightly down by -0.2% wow. Government bond yields declined by circa 5 bps, with the decisions from major central banks being anticipated (US 10-Year Treasury yield: 4.38%, German 10-Year Bund yield: 2.49%). On Monday June 23rd though, equity markets rose (S&P500: +1.0%), on the back of a ceasefire, while European equity markets opened on a positive note on Tuesday 24th.
Recall that during the past weekend, the US had a direct involvement in the conflict via airstrikes on Iranian nuclear sites. Iran retaliated, targeting a US base in neighboring Qatar via missiles. The latter though were intercepted, with the US President Trump saying that a prior notice was provided by Iran. Announcements from involved parties followed soon after, that a ceasefire is now in effect. However, mistrust remains high, with Israel accusing Iran of violating the ceasefire.
Following the ceasefire, oil prices fell sharply, with the Brent crude price declining by -7.2% on Monday June 23rd and recording further losses on Tuesday, to return roughly to the levels of June 12th ($69/barrel or -15% year-over-year on average) just before Israel launched strikes against Iran.
The ongoing NATO Summit (24 – 25 June) is monitored, albeit discussions are expected to focus on members increasing their defense spending to 5% of GDP (2.6% on average in 2024).
Natural gas prices were also posting a sharp fall after the ceasefire, on easing concerns for supply disruptions, with the European “spot” TTF entering Tuesday with losses of c. -11% (to €36/MWh). Note that Iran represents c. 3% of global crude oil production and c. 6% of natural gas production.
Meanwhile, a plethora of central banks met in the past week, with decisions from the major ones being as expected, having a minimal impact on financial assets’ prices.
The Federal Reserve (“Fed”) remained on hold, as expected, with the policy rate at a target range of 4.25% - 4.50%, in view of elevated US economic policy uncertainty. At these levels, the Fed considers itself “well positioned” to timely respond to the various possible scenarios, while waiting for the time being, for more clarity regarding policies and their respective economic effects.
At the same time, the median of FOMC members’ assumptions for the appropriate path of monetary policy (updated on a quarterly basis), continued to call for a Federal Funds Rate (FFR) of 3.75% - 4.00% at end-2025, implying two cuts of -25 bps each by then.
Market implied expectations, according to FFR futures pricing, continue to lean towards cumulative rate cuts of -50 bps in the second half of 2025. Nevertheless, the latest downward move in oil prices, combined with comments from two FOMC members (Bowman, Waller) which appeared open to a possible cut in the July 30th meeting, led to a partly stronger possibility of -75 bps being priced.
Finally, euro area PMIs continue to point to an anemic momentum for business activity. Indeed, the composite index was stable at 50.2 in June, roughly in line with the expansion/contraction threshold and somewhat below consensus estimates for a modest improvement to 50.7 (manufacturing sector output: 51.0, services 50.0).
The Iran-Israel conflict restricted risk appetite in the past week (MSCI ACWI: -0.4% wow). The S&P500 was slightly down by -0.2% wow. Government bond yields declined by circa 5 bps, with the decisions from major central banks being anticipated (US 10-Year Treasury yield: 4.38%, German 10-Year Bund yield: 2.49%). On Monday June 23rd though, equity markets rose (S&P500: +1.0%), on the back of a ceasefire, while European equity markets opened on a positive note on Tuesday 24th.
Recall that during the past weekend, the US had a direct involvement in the conflict via airstrikes on Iranian nuclear sites. Iran retaliated, targeting a US base in neighboring Qatar via missiles. The latter though were intercepted, with the US President Trump saying that a prior notice was provided by Iran. Announcements from involved parties followed soon after, that a ceasefire is now in effect. However, mistrust remains high, with Israel accusing Iran of violating the ceasefire.
Following the ceasefire, oil prices fell sharply, with the Brent crude price declining by -7.2% on Monday June 23rd and recording further losses on Tuesday, to return roughly to the levels of June 12th ($69/barrel or -15% year-over-year on average) just before Israel launched strikes against Iran.
The ongoing NATO Summit (24 – 25 June) is monitored, albeit discussions are expected to focus on members increasing their defense spending to 5% of GDP (2.6% on average in 2024).
Natural gas prices were also posting a sharp fall after the ceasefire, on easing concerns for supply disruptions, with the European “spot” TTF entering Tuesday with losses of c. -11% (to €36/MWh). Note that Iran represents c. 3% of global crude oil production and c. 6% of natural gas production.
Meanwhile, a plethora of central banks met in the past week, with decisions from the major ones being as expected, having a minimal impact on financial assets’ prices.
The Federal Reserve (“Fed”) remained on hold, as expected, with the policy rate at a target range of 4.25% - 4.50%, in view of elevated US economic policy uncertainty. At these levels, the Fed considers itself “well positioned” to timely respond to the various possible scenarios, while waiting for the time being, for more clarity regarding policies and their respective economic effects.
At the same time, the median of FOMC members’ assumptions for the appropriate path of monetary policy (updated on a quarterly basis), continued to call for a Federal Funds Rate (FFR) of 3.75% - 4.00% at end-2025, implying two cuts of -25 bps each by then.
Market implied expectations, according to FFR futures pricing, continue to lean towards cumulative rate cuts of -50 bps in the second half of 2025. Nevertheless, the latest downward move in oil prices, combined with comments from two FOMC members (Bowman, Waller) which appeared open to a possible cut in the July 30th meeting, led to a partly stronger possibility of -75 bps being priced.
Finally, euro area PMIs continue to point to an anemic momentum for business activity. Indeed, the composite index was stable at 50.2 in June, roughly in line with the expansion/contraction threshold and somewhat below consensus estimates for a modest improvement to 50.7 (manufacturing sector output: 51.0, services 50.0).