US stock futures rebounded strongly overnight after initially falling as much as 1% to 5,970 after the weekend escalation in the Iran-Israeli war where the US bombed three key nuclear facilities in Iran, to eventually rise as much as 0.3% before fading again as US traders came to their desks, while Europe traded near session lows. As of 8:00am ET, S&P futures are down 0.1% while Nasdaq 100 futures drop 0.3% with Mag 7 names mixed, as TSLA outperforms (+1.5% after the Robotaxi launch), META (+0.4%) and GOOG/L (+0.4%). Bond yields reversed an earlier rise, only to slump sharply just before 8am ET, the US dollar surges as the world remembers just what the flight to safety currency is (the basket case of a currency that is the Japanese yen tumbled to 148, the lowest in almost two months). Commodities are largely flat; Brent crude pared an advance of as much as 5.7% to about 1.2%, trading below $78 a barrel as the market took Iran's lack of immediate retaliation as signs of capitulation. US economic data slate includes June manufacturing and services PMI (9:45am) and May existing home sales (10am). Powell testifies in the House of Representatives Tuesday, Senate Wednesday
In premarket trading, Mag7 stocks are mixed (Tesla +0.5%, Meta -0.2%, Alphabet -0.2%, Amazon -0.3%, Microsoft -0.3%, Apple -0.3%, Nvidia -0.9%). US energy and defense stocks are higher in premarket trading with markets awaiting Iran’s reaction to US strikes on its nuclear facilities and if it is going to disrupt oil supplies. Shares of airlines and cruise operators edged lower. Here are some other notable premarket movers:
US equity futures staged a powerful rebound from overnight lows but remained on edge even as brent crude pared an advance of as much as 5.7% to about 1.2%, trading below $78 a barrel. The dollar strengthened 0.5% against a basket of currencies, advancing against all Group-of-10 peers as traders hedged against the risk of further oil price gains.
Oil, which has risen more than 12% since the onset of the Israel-Iran conflict, remained the central focus as any interruption to traffic through the Strait of Hormuz raises the specter of a spike in energy prices and higher inflation. While Iran’s Foreign Minister Abbas Araghchi said the country reserved all options for a response, there haven’t yet been any signs of disruption to physical flows.
“Markets are judging that the response may not be quite as dramatic, because Iran would risk antagonizing others who are not yet pulled in,” John Bilton, head of multi-asset strategy at JPMorgan Asset Management, told Bloomberg TV. The market is “absorbing a geopolitical event that is going on and judging that this does not, on face value, change the direction of travel.”
Sure enough, the market agrees and its reaction has been generally muted since Israel’s initial assault on Iran this month. Even after falling for the past two weeks, the S&P 500 is only about 3% below its all-time high from February. Additional losses may be contained, as some investors had already positioned for an escalation in the conflict. Equity exposure among fund managers has been trimmed while stocks are no longer in overbought territory.
The market’s sanguine reaction offers investors an opportunity to reduce their risk exposure, noted Mohit Kumar, chief European strategist at Jefferies International.
"We don’t see a closure of the Hormuz strait but see possibility of disruption,” Kumar said. “Our base case would be a period of uncertainty lasting a few weeks, but without a sharp escalation.”
Yet while the market reaction to the US strike on Iranian nuclear facilities is muted so far, a lot could happen from here. For traders, all eyes are on oil prices and whether shipping through the key Strait of Hormuz will be disrupted. If Iran was to close the Strait of Hormuz, “a stagflation scenario with lower growth and higher inflation due to elevated oil prices is the main risk for markets,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “It would also curb the abilities of central banks to support markets.”
In Europe, the Stoxx 600 also tried to stage a recovery, and failed trading down almost 1% last at its worst levels. Tech, construction and energy are among the few rising sectors while industrial goods and services and chemicals are the worst performers. Here are some of the biggest movers on Monday:
Earlier in the session, Asian equities fell to a three-week low, led by technology shares, as US strikes on three Iranian nuclear sites dented risk appetite. The MSCI Asia Pacific Index declined as much as 1.3% to the lowest since June 3, with TSMC, Sony and Samsung Electronics contributing the most to the drop. Share indexes in Taiwan, Philippines and Indonesia retreated more than 1% each. Stocks in Asia have recently lost momentum after a strong start to June, as investors scale back their risk exposure amid rising tensions in the Middle East. Market participants are closely watching for Iran’s response after it warned of retaliation while Israel showed no signs of easing its offensive. “Obviously concern levels are heightened but we are unlikely to get huge disruptions from the weekend’s events on financial markets barring new entrants into the conflict,” said Matthew Haupt, portfolio manager at Wilson Asset Management. “I think markets are awaiting further developments in the Middle East and very much on the sell track before this unresolved risk.”
In FX, the Bloomberg Dollar Spot Index extends its climb to 0.5%. The Japanese yen and kiwi dollar are the weakest of the G-10 currencies, falling 1.2% each. The Swiss franc has been the most resilient against the greenback with only a 0.1% decline.
In rates, treasuries are reversed their earlier drop, with US 10-year yields dropping 2 bps to 4.35%. Bunds are a touch lower, but underperforming their UK counterparts. Both showed little reaction to regional PMI data — euro-area composite PMI came in slightly below the median estimate while the UK reading was slightly ahead of the consensus. Ahead this week are 2-, 5- and 7-year note auctions beginning Tuesday and Fed Chair Powell’s semiannual congressional testimony, also Tuesday.
In commodities, WTI crude oil futures gapped 4.6% higher at the open in anticipation of Iran’s response, rising to $78 the highest since January, but have pared the gain to about 1%. Spot gold is little changed near $3,368/oz.
Looking at today's calendar, US economic data slate includes June manufacturing and services PMI (9:45am) and May existing home sales (10am).Fed speakers include Governor Bowman (10am), Chicago’s Goolsbee (1:10pm), New York’s Williams and Governor Kugler (2:30pm). Powell testifies in the House of Representatives Tuesday, Senate Wednesday
Market Snapshot
Top Overnight News
Israel/Iran
Trade/Tariffs
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded lower with sentiment hit after weekend developments which saw the US carry out missile strikes against Iranian nuclear facilities in a surprise move. ASX 200 declined 0.8% in tandem with broader sentiment, with participants overlooking the improvement in Flash PMIs. Nikkei 225 fell 0.5%, though losses were somewhat cushioned by a weaker JPY on account of the stronger USD, with regional Flash PMIs largely shrugged off. Hang Seng and Shanghai Comp conformed to broader regional losses, with the focus largely on geopolitics. Chinese sentiment was further hampered by Friday's WSJ report that the US is reportedly preparing action targeting allies' chip plants in China.
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European bourses (STOXX 600 +0.1%) opened lower across the board, as traders react to the surprise US attack on Iran. Although, it is worth noting that stocks have traded with an upward bias throughout the morning, with a handful of indices managing to climb into the positive territory. European sectors hold a negative bias, with only a handful of industries managing to hold afloat. Construction & Materials tops the pile, joined closely by Tech and then Energy; the latter of course buoyed by the upside in oil prices, sparked by the latest geopolitical flare ups.
Top European News
FX
Fixed Income
Commodities
Geopolitics: Israel-Iran
US Strike Operations
Damage Assessment & Nuclear Risk
Strait of Hormuz & Oil Flow Threat
Iranian Military Response
Iranian Messaging
International Reactions
US Political & Legal Fallout
Trump on Truth Social
US Homeland Security & Domestic Threats
Regional Axis Responses/Headlines
US Event Calendar
DB's Jim Reid concludes the overnight wrap
"Within the next two weeks" became within two days as the US launched air strikes on Iran nuclear sites over the weekend. As we write this morning Brent crude is trading +1.92% higher at $78.49/bbl, having been as high as $81.40 at the Asia open, the USD is +0.32%, and S&P (-0.30%) and Nasdaq (-0.39%) futures are modestly lower. 10yr USTs are +1.6bps with the inflationary impact of higher oil outweighing safe haven demand for now. So overall a pretty muted response from markets so far.
In terms of what this all means for markets going forward, its really all about whether the Iranian regime weaponises oil, and in particular whether they seek to close the Strait of Hormuz where over 20% of the world's oil flows daily. Last Monday we highlighted DB Michael Hsueh's work (link here) calculating that such a closure could see a spike up in Oil to around $120/bbl. For what it's worth, Polymarket puts the odds of closure before July at 32% at the moment, up from around 10% on Friday but well below the 52% yesterday afternoon London time. Having been around $68/bbl before concerns over potential Israel’s strikes against Iran emerged, around a third probability puts oil at around $85/bbl. So perhaps financial markets are pricing in a lower probability of a closure. All very back of the envelope of course.
In terms of the economic impact, the US has turned into a net energy exporter in the last few years so any negative impact would be through deteriorating financial conditions or through higher for longer rates as the Fed have another reason to delay cuts. For Europe though, the impact is potentially more serious. Every $10/bbl increase in oil has the potential to add a quarter of a percent to HICP within a quarter and if sustained 0.4pp within a year. Growth could be lowered by around 0.25pp if such an increase was sustained. See our European economists' chart of the week here from Friday looking at which countries would be most exposed.
Aside from closing the Strait of Hormuz, Iran could target other energy infrastructure in the Middle East or strike US assets, which could then lead to further escalation, including if Israel or US were to target Iran’s oil export facilities. So far Iranian comments have been ambiguous on the nature of any retaliation, with Iran’s President saying the US “must receive response for their aggression” and its UN envoy speaking of a “proportionate response". US officials yesterday mostly sought to portray the strikes as one-off aimed at ending Iran’s nuclear progamme, with Secretary of State Rubio saying that the US was ready to meet with Iran. However, last night Trump alluded to the possibility of regime change, posting: “It’s not politically correct to use the term, “Regime Change,” but if the current Iranian Regime is unable to MAKE IRAN GREAT AGAIN, why wouldn’t there be a Regime change???”
Rounding out Asian markets, the Nikkei (-0.14%) has recovered from nearly a percent down near the open, helped by stronger-than-expected manufacturing PMI data (details below). The S&P/ASX 200 (-0.49%) is also declining, despite slightly positive PMI data for June. The KOSPI (-0.52%) is also a bit lower along with the Hang Seng (-0.17%). The Shanghai Composite (+0.15%) is bucking the regional trend.
The Japanese au Jibun manufacturing PMI increased to 50.4 in the first three weeks of June, on track to record its first positive month since May 2024, and showing a significant rise from the 49.4 recorded in May. The au Jibun services PMI rose to 51.5 in June from 51.0 in the previous month, and the composite PMI improved from 50.2 to 51.4, marking the highest reading since February.
The Australian S&P Global PMI composite increased from 50.5 to 51.2. The PMI Services rose from 50.6 to 51.3, while PMI manufacturing remained stable at 51.0.
There’s a lot going on this week but the latest developments in the Israel-Iran conflict will clearly dominate, especially now the US is involved. However against this backdrop, the NATO summit will be held in The Hague tomorrow and Wednesday. It seems all members will agree to a 5% of GDP defence spending plan apart from Spain who will get an exemption. The latest draft appears to be delaying the full spending spree until 2035 rather than the initial 2032 that Secretary General Rutte was aiming towards. Note 3.5% would be core military spending, and 1.5% would be defence related areas such as infrastructure and cybersecurity.
Elsewhere Fed's Chair Powell's semi-annual testimonies to Congress on Tuesday and Wednesday are usually key events but note that this comes shortly after last week’s FOMC so maybe they’ll be less additive information this time. There is also lots of Fedspeak this week that will be in the day-by-day calendar but Waller speaking again today will be of note given his dovish speech on Friday where he all but confirmed that he was one of the two members who have three cuts this year in the dots. He didn’t rule out a July cut and markets are trying to handicap what it would mean if he became the next Fed chair.
Staying in the US, the Senate will continue its mark-up of the “One Big Beautiful Bill Act” (OBBBA) with potential for a vote by the end of the week. However, several substantial policy debates remain – namely, Medicaid, SALT cap reform and repeal of clean energy tax credits. Though many details remain in flux, from what our economists know at present, their expectations for 6.5 – 7.0% deficits as a share of GDP over the next three years has remained largely unchanged (see “US Economic Perspectives: US outlook: Easy come, easy go, little high, little low“).
Outside of the big NATO meeting, China will hold its NPC Standing Committee meeting from tomorrow through to Friday. There will also be an EU-Canada summit today, with Canada's Prime Minister Carney attending. Finally, EU leaders will hold a summit in Brussels on Thursday/Friday.
In terms of the other highlights we have preliminary June PMIs, US existing home sales and Lagarde speaking today; US consumer confidence, the German Ifo and Canadian CPI tomorrow; US new home sales, Japanese PPI, Australia CPI and a 5yr UST auction on Wednesday; final US Q1 GDP, US durable goods, the Chicago Fed, the US trade balance, jobless claims, and a 7 yr UST auction on Thursday; and core US PCE, US personal spending/income, Chinese Industrial profits, Tokyo CPI, and French and Spanish CPI. There are more in the calendar at the end but of these the core US PCE is the most interesting.
Recapping last week now and the main story was the Israel-Iran conflict and the lingering threat of US strikes. This meant that Brent crude saw a weekly rise of +3.75% to $77.01/bbl, though it did ease (-2.33% Friday) after hitting a four-month high of $79.04/bbl at its intraday peak on Thursday. The dollar index (+0.53%) rose last week, as geopolitical volatility in the Middle East unlocked the dollar’s safe haven role. Gold actually struggled, sinking -1.86% over the week (-0.07% on Friday) to $3,368/oz, but our commodities analyst suggests that based on historical experience, gold will likely be able to rebuild some of its risk premium before the conflict is resolved.
With the constant newsflow around whether Trump would strike Iran, markets fluctuated over the course of the week with the S&P 500 ultimately closing marginally in the red (-0.15%, -0.22% on Friday), while the NASDAQ (+0.21%, -0.51% on Friday) posted a narrow gain. Friday’s underperformance in tech stocks came amid news that the US may potentially revoke waivers for allies with semiconductor plants in China, with the Mag 7 falling -0.98% (-0.38% on the week). European markets struggled more amid the backdrop of higher oil prices, with STOXX 600 (-1.54%, +0.13% Friday), CAC 40 (-1.24%, +0.48% on Friday) and DAX (-0.70%, +1.27% Friday) all lower on the week despite a partial recovery on Friday as prospects for imminent US strikes against Iran declined.
Also, notable last week was the flurry of central bank decisions, with the Fed and BOE holding, whilst the Riksbank, Norges Bank and Swiss Bank each cut. In European sovereign bonds, yields on 10Y Bunds (-2.2bps), Gilts (-1.5bps) and OATs (-1.1bps) moved lower over the week.
The Fed press conference last Wednesday saw Chair Powell highlight the risks that the impact of tariffs on inflation could be more persistent, and that the Fed was “well positioned to wait to learn more.” That left investors with a sense that the Fed was in no hurry to rush rate cuts over the summer, with 20bps of cuts now priced in by the September meeting and 51bps by December. The 10yr Treasury yield ended the week -2.3bps lower at 4.38% (-1.5bps), with the modest rally supported by a flight to safe haven assets. Waller’s dovish remarks on Friday also helped a little.