This Week’s Key Focus- Geopolitical Tensions Drive Risk-Off Sentiment and Oil Rally; Markets Eye Fed Speakers and Key Economic Data

Over the weekend, a U.S. military strike on Iranian nuclear facilities heightened geopolitical tensions in the Middle East, prompting a surge in market risk aversion. U.S. crude oil jumped at Monday’s open, briefly hitting $78.40 per barrel — the highest level since January 20. Markets are now closely watching whether Iran’s potential retaliation will include a full closure of the Strait of Hormuz.

This week, at least 15 Federal Reserve officials are scheduled to speak. Fed Chair Jerome Powell will testify before Congress over two days, with discussions expected to cover U.S. trade policy and the recent military action against Iran.

Key economic releases this week include U.S. core inflation, weekly jobless claims, and preliminary data on manufacturing activity for June across major global economies.

Last Week’s Key Economic Data & News Recap

U.S. May Retail Sales Post Largest Decline in Over Two Years

On June 17, data from the U.S. Department of Commerce showed that retail sales in May fell 0.9% month-over-month, worse than the expected -0.6%. This marks the largest drop since March 2023, primarily due to a decline in auto purchases. The previous reading was revised from +0.1% to -0.1%.

Excluding autos, retail sales fell 0.3%, also missing expectations of a 0.2% increase. The data suggests that the previous surge in consumer buying—driven by fears of potential tariff-related price increases—has faded. However, strong wage growth continues to provide some support to consumer spending.

U.S. Regulators Plan Capital Rule Easing to Boost Treasury Market Liquidity

On June 18, reports indicated that the Federal Reserve, FDIC, and OCC are working on adjustments to the Enhanced Supplementary Leverage Ratio (eSLR) — a capital rule affecting the largest U.S. banks, including JPMorgan Chase, Goldman Sachs, and Morgan Stanley.

The proposed changes would lower the capital requirement for bank holding companies under the eSLR from 5% to a range of 3.5% to 4.5%. Bank subsidiaries may see a similar adjustment from the current 6% threshold. The goal is to encourage increased holdings of U.S. Treasuries and enhance market liquidity by easing capital constraints.

U.S. Homebuilder Confidence Falls to Lowest Level Since Late 2022 Amid High Rates and Economic Concerns

On June 17, U.S. homebuilder confidence fell in June to its lowest level since December 2022, as high mortgage rates and concerns over tariffs and the economy discouraged potential buyers. The overall market sentiment index, jointly released by the National Association of Home Builders (NAHB) and Wells Fargo, dropped 2 points to 32. Economists had expected a reading of 36. All three components of the overall index declined, with the current sales index falling to its lowest level since 2012. Indicators for prospective buyer traffic and expectations for sales over the next six months both hit their lowest levels in over a year.

Fed Holds Rates Steady, Says Uncertainty Has Lessened but Remains High, Still Expects Two Rate Cuts This Year, Signaling Rising Stagflation Risks

On Wednesday, June 18 (ET), the Federal Reserve announced after the FOMC meeting that the target range for the federal funds rate remains at 4.25% to 4.5%. This marks the fourth consecutive FOMC meeting with no policy change.

This Fed statement largely mirrored the one issued after the May FOMC meeting. It no longer stated that economic uncertainty is increasing, but rather that it has lessened but remains high. References to increased risks in unemployment and inflation were removed. The statement reiterated that while net export fluctuations affect data, the economy continues to expand steadily.

The updated rate path dot plot suggests that two rate cuts remain possible by the end of 2025. However, the committee reduced expectations for one rate cut each in 2026 and 2027, bringing the total number of expected future rate cuts to four (a cumulative reduction of 1 percentage point). Among the 19 monetary policy decision-makers, 7 indicated that there should be no rate cuts this year, up from 4 in March. The dot plot shows that Fed officials remain divided on the interest rate outlook, with the median forecast for the federal funds rate in 2027 at approximately 3.4%.

Economic projections from meeting participants suggest growing stagflation pressure, with GDP growth for 2024 expected at only 1.4% and inflation projected at 3%. Compared to the March forecast, GDP growth was revised down by 0.3 percentage points, and the year-over-year increase in the Personal Consumption Expenditures (PCE) price index was revised up by the same amount. Core PCE, which excludes food and energy prices, is now projected at 3.1%, also revised up by 0.3 percentage points. The unemployment rate forecast was slightly adjusted to 4.5%, up 0.1 percentage points from the March forecast and 0.3 percentage points higher than the current level.

Swiss Central Bank Cuts Rates to Zero, Signals Further Easing to Curb Capital Inflows

The Swiss National Bank (SNB) announced a 25 basis point rate cut last Thursday, bringing its key interest rate down to 0%, marking its sixth consecutive rate cut. SNB Vice President Martin Schlegel said the move is aimed at combating “declining inflationary pressures” and emphasized that the central bank “will continue to closely monitor developments and adjust monetary policy if necessary.”

This cut to zero officially ends Switzerland’s two-and-a-half-year stretch of positive interest rates and sets the lowest policy rate among major central banks. While most economists had anticipated the move, a minority had expected a more aggressive 50 basis point cut. The SNB also hinted that it stands ready to take further action if necessary to counter continued appreciation of the Swiss franc.

Bank of Japan Holds Rates Steady, Plans to Slow Balance Sheet Reduction Starting Next Fiscal Year

On Tuesday, June 17, the Bank of Japan (BOJ) unanimously voted 9-0 to keep its policy interest rate at 0.5%, in line with market expectations. The BOJ also announced that starting in April 2026, it will reduce the pace of its bond sales from ¥400 billion per month to ¥200 billion per quarter, returning to the pre-2013 level before the introduction of ultra-loose monetary policy.

U.S. Airstrikes on Iranian Nuclear Facilities Push Oil Prices Higher

On Saturday, the U.S. launched surprise strikes on Iran’s nuclear facilities in Fordow, Isfahan, and Natanz, catching investors off guard. Following the attacks, former President Donald Trump gave a speech at the White House, stating: “Iran will either choose peace or face disasters far worse than the past eight days.”

Traders are now bracing for potential Iranian retaliation, though analysts expect Iran to avoid options that could provoke broader conflict or regime change.

Retaliation may involve targeting U.S. military personnel in nearby bases or blocking the Strait of Hormuz—a move that would severely disrupt global oil shipments. A prolonged closure of the Strait could push oil prices above $100 per barrel. On Sunday, U.S. Secretary of State Marco Rubio called on foreign governments to step in and prevent Iran from shutting down this critical trade route during an interview on Fox News.

U.S. Weekly Jobless Claims Dip Slightly, Remain Near Eight-Month High

For the week ending June 14, initial jobless claims decreased by 5,000 to 245,000, matching the median forecast of surveyed economists. According to data released by the Department of Labor on Wednesday, continuing claims for the week ending June 7 also saw a modest drop, settling at 1.95 million.