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18.06.202513:45 Forex Analysis & Reviews: Futures up as world on edge: Markets react to Fed cues, geopolitics

Wall Street Gears Up

U.S. stock index futures climbed on Wednesday, as investors brace for the upcoming policy announcement from the Federal Reserve. The rise comes despite escalating tensions in the Middle East, where Iran and Israel have been locked in a missile exchange for the sixth straight day.

All Eyes on the Fed — Status Quo Expected

The Fed is widely expected to hold interest rates steady at 4.25%–4.5% when it reveals its decision at 2:00 a.m. ET. However, traders will pay close attention to Fed Chair Jerome Powell's remarks for clues on how the central bank plans to navigate persistent inflation concerns.

Powell's Balancing Act

With the threat of inflation on one side and fears of economic slowdown on the other, Powell faces the delicate task of signaling a sustainable path forward. His comments could be pivotal in shaping market sentiment in the coming months.

Rate Cuts in the Forecast

Money market data indicates that investors are pricing in approximately 46 basis points of rate cuts by the end of 2025. There's also a 56% chance of a 25-basis-point cut as early as September, according to the CME Group's FedWatch tool.

Middle East Turmoil Adds to Uncertainty

Meanwhile, the geopolitical situation continues to cast a long shadow over global markets. As hostilities intensify between Israel and Iran, traders are increasingly wary of a potential U.S. military involvement, particularly given the region's critical role in global oil production.

Morning Rally: U.S. Futures Edge Higher

As global investors closely monitor escalating geopolitical risks and an imminent policy decision from the Federal Reserve, U.S. stock futures opened in the green early Wednesday. As of 5:37 a.m. ET, futures showed the following gains:

• Dow E-mini: +89 points (+0.21%);
• S&P 500 E-mini: +16.5 points (+0.28%);
• Nasdaq 100 E-mini: +75.5 points (+0.35%).

Labor Data in Focus

Markets now turn their attention to the upcoming release of initial jobless claims, scheduled for 8:30 a.m. ET. This report could serve as a fresh indicator of labor market strength and influence future monetary policy expectations.

Movers to Watch

Several key stocks stood out in early trading:

• Tesla (TSLA.O) saw a nearly 1% uptick, reflecting renewed investor interest;
• Circle Internet (CRCL.N) surged 3.1% following the U.S. Senate's approval of a bill aimed at regulating dollar-pegged digital tokens, known as stablecoins. The legislation signals a major step toward integrating crypto assets into the mainstream financial system.

Europe Turns Cautious

In contrast to Wall Street's modest optimism, European equities slipped amid mounting investor anxiety over the Fed decision and Middle East tensions:

• The STOXX 600 index dropped 0.2% to 541.02 points by 8:39 a.m. GMT — its lowest level in over three weeks.

Tensions in the Middle East Cast Long Shadow

The ongoing military confrontation between Iran and Israel entered its sixth day, prompting serious concern across global markets. The United States, bolstering its presence in the region, has reportedly deployed additional fighter jets, heightening fears of deeper involvement and raising the stakes for energy markets.

Political Headwinds Keep Traders on Edge

Investor sentiment remained fragile on Wednesday as escalating geopolitical stress compounded existing concerns over unresolved trade tensions. Markets, still haunted by erratic tariff measures from the Trump era, showed increased caution as the July 8 tariff pause deadline draws near with limited signs of a breakthrough in negotiations.

Barclays Bets on European Upside

Despite the tense backdrop, Barclays offered a bullish long-term view, projecting that the STOXX 600 index could climb to 620 points by the end of 2026. The bank attributes this outlook to Germany's fiscal stimulus efforts and the possibility of interest rate cuts across the eurozone.

Healthcare Stocks Under Pressure

Leading the broader market decline, the healthcare sector took a notable hit. The .SXDP index fell 0.9%, marking it as the weakest-performing sector of the day.

Bright Spots: Airbus and Gerresheimer Rally

• Airbus (AIR.PA) gained 3% after raising the upper limit of its dividend payout target, boosting investor confidence ahead of an expected business update;
• Gerresheimer (GXIG.DE) soared 7.3%, outperforming the STOXX 600, following reports that KPS Capital Partners remains in talks with Warburg Pincus regarding a potential joint acquisition of the medical packaging firm.

Mixed Signals Across European Markets

Regional indexes showed diverging trends. The UK's FTSE 100 (.FTSE) edged slightly higher after May inflation data met expectations, showing a slowdown. However, analysts believe this is unlikely to sway the Bank of England's upcoming rate decision set for Thursday.

Sweden Cuts Rates to Stimulate Growth

In line with market forecasts, Sweden's central bank cut its key interest rate to 2.00% from 2.25%, citing subdued inflation. The move is seen as an attempt to revive economic momentum in a sluggish environment.

Thomas Frank,
Analytical expert of InstaSpot
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