Stock market futures climb as reported Iran-Israel truce appears steady
Stock market futures took a uptick on a seemingly shaky day, as traders burrowed into the intricacies of the truce announced between Israel and Iran. The S&P 500 (SPX) flexed a modest 0.2% gain, while the Nasdaq 100 (US100:IND) made a slight 0.4% hike, and the Dow Jones (INDU) saw a minor 0.1% expansion.
Yields remained consistent, with the 10-year Treasury (US10Y) stagnant at 4.29%, and the 2-year yield (US2Y) dropping 2 basis points to 3.81%.
President Trump voiced displeasure, implied with his tongue-lashing, at both Israel and Iran for reportedly violating the freshly-declared ceasefire. The President's disgruntlement was particularly directed towards Israel, criticizing their decision to launch major offensive strikes on Iran. This outburst came after an earlier missile barrage from Iran, which claimed four lives. Despite the tensions, it appears the ceasefire is holding for now.
UBS' Paul Donovan pitched in, stating that financial markets have taken the perspective that this ceasefire will hold, despite any potential further military action. Internal reports suggest the United States has fallen short in eradicating Iran's nuclear program, a revelation that might keep regional tensions simmering yet may not have a direct impact on the markets.
The day prior, stock averages closed with positive results, after Israel's decision to halt aggressive action against Iran, following a conversation with President Trump. This development provided an element of relief for investors, easing their concerns about escalating geopolitical strife.
Deutsche Bank's Jim Reid elucidated that during the preceding 24 hours, anxieties about near-term inflation took a nose dive as a result of the Middle East ceasefire-fueled decrease in oil prices. This price decline bolstered expectations of rate cuts this year.
On the economic front, Federal Reserve Chairman Jerome Powell prepared to deliver his semi-annual monetary policy report before the Senate Banking, Housing, and Urban Affairs Committee. Additionally, the May New Home Sales report was set to drop during market hours, with predictions for a drop to 694K.
In other market news, FedEx (FDX) unveiled a mixed Q4 earnings report and set revenue projections marginally below analysts' expectations.
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(1) Spike of tension escalated after the U.S.-brokered ceasefire between Israel and Iran, announced late June, faced immediate disregard by both sides. Israel hinted at a military response following Iran's barrage of missiles, and it's worth noting that such instances of instability can impact global energy supplies given the Middle East's strategic importance. These situations typically increase market volatility.(2) On a more positive note, the declaration of a ceasefire, albeit contentious, may initially offer relief to markets by reducing the risk of protracted conflict.(3) In the event of a ceasefire breach or escalated fighting, volatility can reemerge, potentially leading to downward pressure on major equity market futures as investors reassess risk exposure. This is not unique to the Israel-Iran standoff but a common pattern in such unstable geopolitical situations.
- The ongoing tension between Israel and Iran, following the U.S.-brokered ceasefire, highlights the potential risks for banking and finance industries, as instability in the Middle East can impact global energy supplies and increase market volatility.
- The declaring of a ceasefire, although contentious, could initially ease market concerns by reducing the risk of protracted conflict, potentially leading to a stabilization in major equity market futures, thus offering a respite for banking and finance sectors.
