Even though U.S. markets were closed for the Juneteenth holiday on Thursday, Wall St futures fell sharply during the day as tensions over the Israel-Iran war boiled.
But those losses were mostly reversed before the market re-opened on Friday after Trump gave Tehran a fortnight to come up with a compromise before he decides whether to add U.S. firepower to Israel's air attacks on Iranian nuclear installations. Drone and missile attacks between the two warring sides continue however.
As is always the case with Middle East conflicts, the price of oil is the lodestar. Iran is OPEC's third-largest producer.
U.S. crude came within a whisker of five-month highs on Thursday before falling back today to just over $75 per barrel. While a major concern, the rise in energy prices is still shy of a 'shock', with crude prices down 7% year-on-year despite the tense situation.
Foreign ministers from Britain, France and Germany along with the European Union's foreign policy chief were due to meet their Iranian counterpart Abbas Araqchi in Geneva on Friday to try to de-escalate the conflict.
If Trump goes to the wire with his decision about direct U.S. involvement in the war, this will coincide with the expiration of his 90-day pause on 'reciprocal' tariff hikes across the world, further fogging up the windscreen for world markets.
Treasury yields were steady going into Friday's open, as investors juggled the energy picture and this week's relatively hawkish Federal Reserve meeting. The dollar fell back from Thursday's highs.
While the median forecast from Fed policymakers is still two interest rate cuts over the rest of the year, inflation forecasts were nudged higher and 7 of the 19 central bankers now expect no further easing in 2025.
But confident forecasting is next to impossible now for the major central banks as they try to balance edgy oil prices, uncertain tariff hikes and multiple geopolitical risks. The Bank of England and Bank of Japan also left their key policy rates unchanged this week, largely for those reasons.
Two rate cuts did emerge this week however.
Swiss interest rates returned to zero as expected as the Swiss National Bank battles the deflationary effects of currency strength, largely due to the franc's 'safe haven' appeal. Norway surprised with a quarter point cut as well, taking the heat out of an oil-driven crown that had hit two-year highs this week.
Stock markets around the world rallied on Friday as the oil price fell back, with Japan's Nikkei bucking that trend and ending slightly in the red again.
A relatively thin trading session is expected on Wall Street later following the holiday on Thursday, though unfolding events in the Middle East will continue to create considerable trepidation before the close. The Philadelphia Fed's June business survey tops the data diary.
Next week's events are led by Fed boss Jerome Powell's semi-annual congressional testimony on Tuesday and Wednesday and the release of the Fed's favored inflation gauge - the personal consumption expenditures measure - on Friday. A NATO summit in The Hague on Wednesday adds to the geopolitical focus.
Elsewhere, sterling was firmer in the wake of the BOE decision, even with a surprisingly poor UK retail sales readout for May.
There was some marginally better news from UK public borrowing numbers. While slightly above forecasts for May, the government has borrowed 37.7 billion pounds over the first two months of fiscal 2025/26 year, less than the 40.7 billion pounds the Office for Budget Responsibility had predicted.
In China, foreign direct investment from January to May fell 13.2% from the same period last year, more than had been forecast.
And the European Union said it will bar Chinese companies from participating in EU public tenders for medical devices worth 60 billion euros or more ($68.9 billion) per year after concluding that EU companies are not given fair access in China.
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