Market Report.
📰 Last night, Iranian state television announced: ‘There will be a surprise tonight that the world will remember for centuries.’ Fortunately, however, the conflict does not appear to have escalated.
📈 Thanks to this, we can now focus on the Fed’s interest rate decision.
💡 In our view, there are factors both in favour of and against rate cuts.
📉 Three factors that could prompt the Federal Reserve (Fed) to begin cutting interest rates: Slowing US growth rate and cooling labour market: An economic slowdown might lead the Fed to consider lowering rates to stimulate activity. Lower-than-expected inflation, even amid Trump’s tariff war tensions: A lower-than-anticipated inflation rate would provide the Fed with room to cut rates. Need for a weaker dollar to gain competitiveness in the context of the trade war: Lower rates could weaken the dollar.
📊 Two factors that would keep rates unchanged: Trump’s tax reform and increased public spending: These measures would exert upward pressure on inflation, limiting rate cuts. Worsening geopolitical tension between Israel and Iran: Potential disruptions in crude oil supply (Strait of Hormuz) could drive inflation higher, hindering rate cuts.
⚖️ The Fed will need to carefully balance these opposing factors when determining its monetary policy in the coming months, and may tweak its statement to say uncertainty “remains elevated” rather than has “increased further” given that trade tensions have subsided somewhat since the last meeting.
💬 Meanwhile, Donald Trump is putting a new spin on his long-standing call for the Federal Reserve to lower interest rates, arguing it is important for bringing down the cost of government debt. The U.S. government has seen a 7% increase in interest costs on the federal debt over the past eight months, which now well outstrips the amount spent on defense. Trump argues that 2 percentage points of Fed rate cuts could save $600 billion a year in interest cost. The administration claims “unsustainable” interest payment levels are a product of Biden administration policies, and that Trump’s policies of tax cuts and deregulation are already helping normalize rates.
💱 In parallel with this, based on Bloomberg reports, US importers are increasingly hearing from their foreign counterparties that they no longer want to be paid in US dollars. Instead, they are requesting settlement in euros, Chinese renminbi, Mexican pesos, and Canadian dollars to limit their exposure to fluctuations in the greenback. A growing number of exporters in regions from East Asia to Latin America are opting to denominate contracts in other currencies. While the US dollar still dominates export invoicing, especially in the Americas, the trend towards greater use of other currencies could speak to the dollar’s “reputation” and diminishing dominance in global trade.
📉 Bloomberg believes that the decline in the value of the US dollar under the Trump administration is a clear barometer of global investors’ repudiation of his policies. The dollar has lost over 10% of its value against major currencies since Trump took office. The Trump team appears indifferent to the dollar’s plunge, and there is speculation they may even want to keep the dollar devalued to boost US manufacturing, though the administration has denied having such a policy. The dollar’s decline is concerning as it increases the costs for the US government to finance its growing debt, which has reached nearly 100% of GDP. This could trigger a vicious cycle of further dollar declines and rising borrowing costs, since foreign investors will demand higher returns to maintain their investments in US Treasury bonds.
📰 Now, these are the latest updates on the conflict in the Middle East that all traders are watching.
🕊️ The likelihood of a swift truce between Israel and Iran diminished following remarks from U.S. President Donald Trump on social media. As he abruptly left the Group of Seven summit, Trump asserted that his departure was unrelated to ceasefire negotiations, claiming he was focused on a matter “significantly larger in scope.”
❓ What could exceed the scope of a ceasefire? Potentially a surge in hostilities if the U.S. were to become involved in Middle East conflicts. On his Truth Social platform, Trump directly challenged Iranian leader Ayatollah Ali Khamenei, labeling him a “vulnerable adversary” and He posted in capital letters on Truth Social: ‘UNCONDITIONAL SURRENDER!’
⚠️ The leaders of TotalEnergies, Shell, and EnQuest cautioned during a CNBC interview that renewed assaults on key energy facilities in Iran could disrupt global oil markets, triggering volatility in supply and prices. Concurrently, maritime companies are increasingly avoiding the crucial shipping conduit of the Strait of Hormuz, as reported by the shipping industry’s leading association—a move underscoring mounting anxiety over the escalating Israel-Iran tensions. The Baltic Dry Index, which measures the cost of shipping, has risen 170% since the beginning of the year.
🌍 In previous reports, we discussed the reactions of countries such as China and Russia, condemning Israel’s attacks on Iran on 13 December. Trump was quick to say that the US was not involved. Today, we bring you new reactions from other countries.
🇫🇷 French President Macron warns that the biggest error today would be to try to change the regime in Iran by military means. US Congressman Thomas Massie introduces ‘Iran War Powers Resolution’ to prohibit US involvement in the Israel-Iran war. “This is not our war. Even if it were, Congress must decide such matters according to our Constitution.”
🇩🇪 However, Germany’s controversial new Chancellor Merz says “Israel is doing the dirty work for all of us.” This is coupled with other reactions, such as significantly increasing Germany’s involvement in the conflict in Ukraine, a red line that his predecessor did not want to cross.
🇹🇷 The President of Turkey, Erdogan described Netanyahu as ‘the greatest threat to regional stability’ and said that ‘he must be stopped.’
🚢 One of the events in recent hours that has caught our attention the most is that the US government has reportedly sent its old aircraft carrier USS Nimitz to the Middle East. According to reports, this aircraft carrier was scheduled to be decommissioned in May 2026. Ray McGovern, a former CIA analyst, has posted on social media the idea that it could be used to create a casus belli in the war against Iran: “CAPTAIN of the USS Nimitz, prepare to be attacked as you approach the Middle East, NOT by Iran, but by Israel in a false flag attack, blaming Iran. Honour your oath to the Constitution: do not cover it up, as the US Navy did when Israel attacked the USS Liberty.”
⚓ On 8 June 1967, during the Six-Day War, the USS Liberty, a United States Navy intelligence ship, was attacked by Israel while sailing in international waters near the Sinai Peninsula. The attack resulted in the deaths of American soldiers. Israel claimed that the attack was a mistake.
🕵️ Senior U.S. intelligence and Navy officials, including Secretary of State Dean Rusk and NSA Director Marshall Carter, expressed skepticism about the Israeli explanation, believing the attack was intentional. Some analysts suggested that the attack was deliberate and may have been designed to blame Egypt and provoking the United States into entering the war on Israel’s side against Egypt.
🇺🇸 The US stance on this conflict is causing significant divisions in the country, not only in the media, among journalists and analysts, not only at the political level, among congressmen for and against, but now also at the military level. The U.S. officially removes Colonel Nathan McCormack from his position at the Joint Chiefs of Staff for posts calling Israel a death cult and saying America is acting as Israel’s proxy.
🛡️ Israel is running low on Arrow interceptors used to counter Iranian missiles, according to the WSJ. The Israeli government has banned the retransmission of images of the attacks on Israel, and several videos have been reported by users showing the ‘Iron Dome’ appearing to malfunction, with defensive missiles returning and hitting Israeli soil. The question some military analysts are asking is whether this is due to defensive system failures or deliberate hacking by the enemy.
📊 Market View:
📈 Financial markets withstand tension in the Middle East. It appears that Trump is torn between intervening in the conflict to protect Israel or maintaining a neutral stance to safeguard Wall Street.
📉 The Mini S&P 500 futures remain stable, currently trading around 6,050 points. Nasdaq 100 futures are also steady, holding above 22,000 points.
📉 In Europe, however, the market struggles to regain momentum. DAX 40 futures are above 23,300 points, 200 points below the highs reached earlier this month. The Euro Stoxx 50 manages to stay above 5,250 points but has yet to recover last week’s pace and levels, currently trading near 5,290 points.
💵 The dollar index showed some recovery during yesterday’s session; however, it is weakening again and is now around 98.60 points. Consequently, the EUR/USD pair, which recently surpassed 1.16, is now near 1.15, awaiting the Federal Reserve’s interest rate announcement today.
🛢️ Volatility persists in the crude oil market, with Brent crude rising overnight towards the $77 per barrel mark, a level reached following last week’s Israeli attacks.
🪙 Gold, however, remains calm, with futures trading around $3,400 in a lateral range since the beginning of the week.
₿ Finally, Bitcoin resists falling and stays above $104,000, currently trading at $105,150.
