Market Report.
📝 President Trump signed the memorandum of understanding with Iran, doing so at the Palace of Versailles following a dinner with French President Emmanuel Macron. “It’s signed,” Trump said as he departed the palace. A White House official later added that a photograph of the signed agreement has been transmitted to Iran and the mediating nations, formally putting the deal into effect.
🕊️ The 14-point agreement extends an April ceasefire by 60 days, including in Lebanon. It mandates an immediate end to hostilities on all fronts, full resumption of maritime traffic without charge in the Strait of Hormuz, lifting of the U.S. naval blockade, waiving of sanctions, unfreezing of assets, and a $300 billion investment fund for reconstruction.
💼 Points 6 and 11 of the agreement are particularly relevant. It specifies how the United States will work with regional partners to create a $300 billion plan for Iran’s reconstruction and economic development, with implementation details finalized in 60 days. The U.S. will also release Iran’s frozen funds upon agreement.
⛽ Trump admits why he had no choice but to end the war: “We would have run out of [oil] reserves in about 4 weeks.”
🏛️ Despite Trump’s earlier promises, Iran’s theocratic government remains in place, its enriched uranium stockpile has not been surrendered, its ballistic missile capabilities have not been destroyed, and it has not ended support for Hezbollah. Iran appears closer to sanctions relief than before the war.
🛰️ U.S. intelligence agencies have assessed that Iran has acquired the capability to effectively shut down the Strait of Hormuz at will—a new strategic asset gained directly as a result of the recent war, according to three sources who spoke with CNN.
⚠️ The intelligence also indicates that Iran has learned to leverage targeted strikes against Gulf energy infrastructure and could potentially deploy Houthi forces to close the Bab-el-Mandeb strait as an economic “nuclear option” if negotiations collapse, the sources said.
🗣️ Vice President JD Vance dismissed critics of the U.S.-Iran agreement, accusing them of pushing for perpetual warfare. Addressing those rallying against the deal, Vance said: “They’re proposing an endless conflict. They want this to go on until every bomb has been dropped or until every Iranian is dead. That is not what Trump wants.”
📉 President Trumps approval has collapsed among Israelis as the Iran War ends in a tactical defeat for the US and Israel. Trump sharply criticized Israel again over its military operations in Lebanon, describing the impact on civilians as deeply unfair. “Buildings are being dropped on top of them, or right alongside of them. How would you like to live there?” Trump said.
🚀 He also indicated that Iran would be allowed to keep its ballistic missile arsenal under the emerging agreement. “Missiles are not the problem. They hurt a little location but they dont blow up the planet,”, “Saudi Arabia has missiles, but they can’t have it? It doesn’t work that way”. Trump said, seemingly downplaying the threat posed by the missiles. He had previously vowed to obliterate Iran’s missile industry.
💣 Trump also threatened to resume attacks and kill Iranian officials if they violated the deal, saying the U.S. would bomb them if they did not honor their commitments.
❓ Is this the political end of Netanyahu?
🏗️ Netanyahu’s boast that Israel was changing the face of the Middle East looks increasingly empty. Netanyahu confirmed he will run again in the election that must be called by October. Opinion polls show his right-wing coalition on course to lose, though few would entirely discount him weaving together a new government. He already faced corruption allegations, domestic political controversies, and criticism over security failings in the October 7, 2023 Hamas attack.
🗳️ Opposition leader Yair Lapid said Netanyahu lost the war and collapsed at the moment of truth. Netanyahu decries such criticism as diminishing Israel’s accomplishments, warning of a potential nuclear threat from Iran and saying overwhelming force was necessary.
🤝 His close ties to the Republican party and attacks on Democrats have upset decades of bipartisan U.S. support. Backing for Israel is falling among voters of both parties. Trump, the president he has been closest to, called him “fucking crazy” during a June phone call.
📅 Elections in Israel will be held in October of this year, though they may be brought forward to September.
🎙️ Now, let’s move on to the second key topic of the day: Kevin Warsh’s speech.
📉 The Federal Reserve held rates steady at its June meeting, keeping the benchmark overnight rate in the 3.50 to 3.75 percent range, a widely anticipated move.
📈 New quarterly projections showed nine of nineteen policymakers anticipate a rate hike by the end of the year, a hawkish shift. Warsh himself did not submit a rate projection, eschewing the dot plot exercise. He cautioned against reading too much into rate projections that may themselves have a limited future.
⚖️ The statement acknowledged that inflation remains elevated relative to the two percent goal, attributing it in part to supply shocks that have driven up energy prices. It also highlighted strong productivity growth and capital investment, forces Warsh has argued could eventually allow rates to fall if companies become more efficient and energy costs ease.
🔍 Warsh announced a sweeping review covering the balance sheet, communications, data sources, productivity and jobs, and the inflation framework. The review signals an interest in returning the central bank to a leaner and possibly more opaque institution. He revamped the policy statement, describing it as shorter, simpler, and dispensing with older language. A former top Fed staffer described the approach as walking back the path and reconsidering earlier junctions.
🧭 Trump, who previously criticized the former chair for not cutting sharply, said he would be guided by what Warsh wants. Inflation projections for the end of 2026 were marked up to 3.6 percent from 2.7 percent before being seen falling to 2.3 percent next year. The unemployment rate is expected to end the year at 4.3 percent.
📌 Important points covered in the speech:
🛠️ Federal Reserve Chair signaled a firm commitment to restoring price stability without abandoning the employment mandate, stating bluntly: “We have work to do on the price stability front” and “we’ve missed the inflation goal for five years — we’re going to fix it.”
🔁 He pushed back against the notion of a painful trade-off, asserting “I don’t believe we have a cruel choice between full employment and stable prices,” while making clear the 2% target is non-negotiable: “I see no reason, until we have delivered the 2% goal, to revisit that goal.”
📊 On financial conditions, he offered a nuanced view — acknowledging that “Fed policy appears to be restrictive vis-à-vis the housing market, but not financial markets” — and cautioned against over-reading short-term market reactions: “This is a lot of change for financial markets to digest; I wouldn’t be particularly intrigued by how markets react in the first minutes or days.”
⚖️ He also outlined his broader philosophy on market efficiency, arguing that “markets perform best when reacting to incoming data” and function less well “when they are worried about how the Fed will react to the data” — a tacit call for greater Fed predictability and data-dependence going forward.
🏦 Next Central Bank Move, BoE:
🇬🇧 The Bank of England is expected to keep interest rates unchanged at 3.75 percent on Thursday. The central bank is assessing what the tentative truce in the Iran war means for inflation.
📉 Financial markets expect only one quarter-point hike, compared with expectations of two cuts before the Iran conflict and as many as four hikes soon after it began. If the Strait of Hormuz opens shortly and broader price pressures remain contained, the BoE may be able to avoid raising rates at all.
🗣️ Governor Andrew Bailey said the BoE has time to wait and is in a different position than the European Central Bank, which raised rates last week for the first time since 2023.
⚖️ External member Megan Greene is seen as the likeliest to join Chief Economist Huw Pill in voting for a quarter-point rate rise.
📈 Greene argued earlier this month that action sooner rather than later was needed to bolster public confidence that the central bank was one step ahead of price rises. BoE data showed household inflation expectations had risen to a record high.
📊 UK labour market data released Wednesday showed the unemployment rate holding steady at 4.9 percent in May, slightly better than the 5.0 percent forecast and unchanged from the previous month’s revised figure.
💴 What about BoJ?
🇯🇵 Japan’s government said it is ready to respond appropriately to exchange-rate moves at any time. Chief Cabinet Secretary Minoru Kihara made the remark as the yen’s renewed slide tests Tokyo’s resolve to prop up the currency.
📉 The yen briefly slid to 160.795 per dollar on yesterday, levels unseen in nearly two years, wiping out gains made after Tokyo’s record intervention on April 30. It stood at 160.76, motivated by a remarkably tough stance from the new Fed chief, Who reactivated the dollar. That hawkish tilt spells trouble for Japan, where a persistently weak yen is driving up import costs and intensifying price pressures.
📈 The Bank of Japan’s move to lift rates to a 31-year high of 1 percent has done little to steady the currency, with its policy rate still well below the Federal Reserve’s 3.50 to 3.75 percent range.
📅 The BOJ’s former top economist said the central bank explained its rate hike as aimed at forestalling the risk of being behind the curve on inflation, rather than the result of making progress in hitting its price target. He expects further rate hikes either in October or December.
🔮 The dollar-yen is unlikely to break much above the 160 mark, possibly temporarily dilating above 161, but the situation is seen as unsustainable and the BOJ will likely be forced to raise rates slightly earlier than anticipated.
📈 Market View.
📉 US futures got a scare from a new Federal Reserve chief who is tougher than expected. S&P 500 futures fell sharply, although they have recovered in recent hours and are trading around the 7,555-point level. Nasdaq 100 futures also fell but have stabilised again around the 30,420-point area.
💵 The US Dollar Index (DXY) surged, breaking above 100.50 points before pulling back to the current 100.30 points. This is causing turbulence in the forex markets, with EUR/USD falling below 1.14 and recovering to the current 1.1515. USD/JPY approached 161, from where it has pulled back slightly to the current 160.60.
🇪🇺 In Europe, futures are treading water, with the DAX 40 at 25,000 points and the Euro Stoxx 50 at 6,310 points.
🛢️ Crude oil continues to slide, and spot Brent has lost the $78.30 level.
🥇 Gold futures took a sharp jolt from the Fed’s statements, falling below $4,250 per ounce, but have recovered to the current $4,325 per ounce.
₿ Bitcoin pulled back towards the previous resistance zone, which is acting as support for the moment around $63,800, and is currently trading at $64,165.
