Michael Reinking:

Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. Every week we are here to keep you up to date on the key trends and events driving global markets. Despite being a holiday shortened week, there is a lot to talk about. So let's dive into this week's Market Storylines. Now, heading into last weekend, geopolitics moved back into the forefront with Israel and Iran exchanging missile attacks, which was clearly different than the largely symbolic tit-for-tat exchanges at the end of last year. Now last Friday, much of the typical conflict playbook was enacted within financial markets with equities falling while golden oil prices moved higher with ICE Brent ending the week up over 10%. Now however, the typical safe haven flows into the U.S. dollar and treasuries were much more muted than we've seen in the past with yields actually moving higher on concerns that the rise in oil would complicate the inflation backdrop.

Now, the overall pullback in equities wasn't too dramatic either with U.S. indices falling about 1%. Now as we've discussed in the past, these types of geopolitical events typically have a limited lasting impact on financial markets with investors looking at the prospect of the conflict spreading and whether there could be prolonged disruptions in commodity markets. Now, Iran makes up about two to 3% of global crude production, and there are always concerns about the Strait of Hormuz being cut off, which much of the world's oil and LNG ships through. Now with those risks elevated, investors were on edge heading into the weekend. Now the conflict continued to escalate over the weekend with both sides stepping up strikes and hitting some energy infrastructure. However, that was focused on domestic consumption and the conflict didn't spread further, which helped markets bounce back modestly to start the week. Now, oil prices have continued to move a bit higher throughout this week as markets wait to see whether the U.S. gets more deeply involved with President Trump suggesting he could make a decision in the next couple of weeks.

Now, outside of the Middle East, the focus this week was on the Federal Reserve rate decision and the update to their summary of economic projections, which hadn't been updated since March before Liberation Days. Now, as widely expected rates were left unchanged, but the committee modestly downgraded expectations for GDP, the unemployment rate ticked up to 4.5% while projections for inflation moved up to 3.1% for core PCE before falling back to 2.4% in 2026. Now, there had been some concern that officials would ship their previous call for two cuts this year to only one, which did not come to fruition, but the dots did evolve in a somewhat hawkish way with seven of the 19 committee members now seeing no cuts this year up from four previously, showing there is some varying opinions on the committee. Now, chair Powell's commentary was very similar to what we've heard recently, that the economy continues to remain resilient and as long as that is the case, he is comfortable with the current monetary policy stance waiting to see the impact of tariffs on inflation.

Now, he did acknowledge that that recent inflation data was positive, but that it was still too early to see any tariff impact and said it would likely be at least a couple of months before the committee would be in a place to react, maintaining optionality. Now, his commentary about inflation was pretty sanguine, suggesting that the cost of tariffs would be split up amongst multiple constituents, so they might not have a large lasting impact on prices, which I think assumes the ultimate tariff rate doesn't return back to the levels introduced in the Rose Garden. Now in addition, he noted that the labor market was largely in balance and even noted that the recent Middle East conflict would likely not have long-lasting impacts. Now, the market response told you everything you needed to know with very little volatility in equity markets and treasury yields ending the day unchanged just as the Fed would like it.

We get to do this song and dance all over again at the end of July, but hopefully we'll know where tariff rates end up by then with the July 9th deadline looming. Now speaking of, the G7 took place this week where President Trump was expected to meet with multiple high-level government officials. However, he left those meetings early to deal with the Middle East situation, so this could impact the timing of those negotiations. Now, as we're recording on midday, midday on Friday, U.S. markets are kind of hovering around unchanged with the S&P at 500, continuing to hover right around 6,000, but there's still a big liquidity event at the close as today's trip of which expiration, the simultaneous expiration of stock options and index futures and options. Now, the closing auctions associated with this event have consistently exceeded a billion shares. Now, some of the hedging activity associated with options expiration may have also helped to suppress the volatility this week, so will be interesting to see if we start to see an expansion of the recent tight ranges next week as those positions roll off.

Now, as we look ahead to the first week of summer, the key economic data will be the global flash PMIs on Monday and PCE later in the week. Now, chair Powell will be testifying before Congress on Tuesday and Wednesday and Fed officials will surely be coming out of the woodwork. We'll also start to get some of the very early cycle earnings, including FedEx, Nike, and Micron, and next Friday is also the Russell Reconstitution, another big liquidity event. Well, that's going to do it for this week. Thanks for spending some time with us. If you like today's episode, please tell a friend or leave a comment wherever you listen to your podcasts. I'm Michael Reinking. Thanks for joining me. I'll talk to you again next week.

Speaker 2:

That's our conversation for this week. Remember to rate, review and subscribe wherever you listen and follow us on X, at ICE House Podcast. From the New York Stock Exchange, we'll talk to you again next week inside the ICE House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content here in all of which is presented solely for informational and educational purposes. Nothing here in constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of [inaudible 00:06:36].