Optimism about easing geopolitical tensions boosted investor sentiment

At the end of Monday, the Dow Jones Industrial Average (US30) Index rose by 0.75%. The S&P 500 (US500) Index rose by 0.94%. The Nasdaq (US100) Technology Index closed higher by 1.42%. The US stocks rose on Monday as optimism about easing geopolitical tensions boosted investor sentiment, while attention shifted to the Federal Reserve’s decision on Wednesday, with markets widely expecting rates to remain unchanged. These reports reinforced hopes for an end to the Iran-Israel conflict, which led to lower oil prices and triggered a rise in risk appetite.

The US Federal Reserve will begin a two-day meeting on Tuesday, and interest rates are expected to remain unchanged at around 4.5% following the meeting on Wednesday. However, the main focus will be on whether the Central Bank will signal future rate cuts, especially given falling inflation in the US and signs of an economic slowdown. Until now, the Central Bank has largely maintained that interest rates will remain unchanged in the near term. However, weak inflation data in recent months, combined with signs of a cooling labor market and slowing economic growth, have fueled bets that the Fed may change its tone in the coming months.

The Mexican peso (MXN) strengthened to 18.90 per US dollar, its strongest level since August, amid a broad sell-off of the dollar and hawkish expectations regarding the Bank of Mexico. Domestically, an unexpected rise in core inflation to 4.42% in May prompted Bank of Mexico policymakers to advocate for a pause in the easing cycle, contingent on data, which bolstered support for the peso’s yield.

In June, the Canadian dollar (CAD) strengthened to 1.35 per US dollar, its strongest level in eight months, as a broad sell-off in the US dollar coincided with rising crude oil prices. The rise in oil prices directly increased Canada’s energy export revenues, which provided strong support for the loonie. Investors are also paying attention to the G7 summit, where coordinated measures will be taken to resolve global issues, from the Middle East and Ukraine to trade frictions, as well as a tense week of decisions by central banks.

European stock markets were mostly up on Monday. The German DAX (DE40) rose by 0.78%, the French CAC 40 (FR40) closed up 0.75%, the Spanish IBEX35 (ES35) jumped 1.44%, and the British FTSE 100 (UK100) closed positive 0.28%. European stocks closed with solid gains yesterday, ending five consecutive sessions of losses, as easing concerns that military action between Israel and Iran could disrupt the global economy lifted stocks around the world. Reports indicated that Tehran was ready to resume nuclear talks with the United States to demonstrate its willingness to de-escalate the exchange of blows with Israel, raising hopes that the conflict would not hamper global economic activity and energy prices. Markets also positioned themselves in anticipation of important monetary policy decisions this week, chief among them those of the Bank of England, the SNB, the Riksbank, Norges Bank, as well as the Fed and the Bank of Japan outside Europe.

On Monday, the Swiss government lowered its growth expectations for 2025 and 2026 as the export-oriented economy braces for the fallout from the global trade war. The Swiss economy, traditionally one of the most stable in Europe, is expected to grow by 1.3% in 2025, down from the government’s March expectations of 1.4%.

WTI oil prices fell by 1.7% to $71.80 per barrel on Monday, pausing a sharp 7% rise on Friday as reports emerged that Iran was seeking to ease tensions with Israel and resume nuclear talks. The decline followed an overnight surge to $77.49 after Israeli strikes on Iran’s South Pars gas field and an oil storage facility near Tehran. Despite the flare-up, market sentiment improved on hopes that the conflict would be contained and not cause significant damage to energy infrastructure or key shipping routes. Traffic through the Strait of Hormuz declined only slightly: 111 ships passed through on June 15, compared with 116 on June 12, indicating minimal disruption to oil supplies. Analysts expect the conflict to be short-lived and to help prevent further price spikes.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) rose by 1.26%, the Chinese FTSE China A50 (CHA50) gained 0.23%, the Hong Kong Hang Seng (HK50) added 0.70%, and the Australian ASX 200 (AU200) showed a positive result of 0.01%.

At its June meeting, the Bank of Japan left its key short-term interest rate unchanged at 0.5%, keeping it at its highest level since 2008, in line with market expectations. The unanimous decision underscored the Central Bank’s cautious stance amid escalating geopolitical risks and ongoing uncertainty over US tariff policy, which continues to pose a threat to global economic growth. Meanwhile, as part of its gradual policy normalization, the Bank of Japan confirmed its plan to reduce purchases of Japanese government bonds by 400 billion yen each quarter until March 2026.