Market Commentary: Wednesday 18th June

Markets continue to price in a risk premium from Middle Eastern tensions after the sixth day of exchanged fire between Israel and Iran. Trump met with his national security team yesterday, fueling speculation that the US may join the attacks. Global equities have pulled back slightly, and oil continues to edge higher, with WTI testing $75.

This morning, we have the Riksbank, where investors are expecting a 25bps cut to 2%. The main focus, however, will be on the Fed later today. The rate announcement is expected to be a non-event, with no cut anticipated, as the Fed has remained firm in its view that it needs to assess the impacts of tariffs, immigration, and tax changes before acting. Currently, a rate cut in October is expected, with a second cut likely before year-end. This evening’s commentary will be closely watched for any change in tone. Yesterday’s disappointing retail sales data and low confidence among homebuilders may start to put pressure on the Fed.

UK CPI just came in slightly higher than expected (YoY 3.4% vs. 3.3% forecast), triggering a 20-pip rally in GBP/USD. The BoE is widely expected to hold rates tomorrow. At the last meeting, expectations for rate cuts this year dropped from three to two, and today’s stickier inflation could help solidify that shift.

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