Morning Bid: Oil ebbs again as Fed meets
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The alarming Israel-Iran war is keeping world oil prices volatile, but crude moves have not yet hit red-alert territory, and markets are now turning their attention to Wednesday's Federal Reserve policy decision.
I'll discuss this and all of the market news below. Be sure to check out today's column, where I explain why the dollar's decline may persist despite signs that 'short dollar' is already a crowded trade.
Today's Market Minute
* Thousands of people were fleeing Tehran on Wednesday after U.S. President Donald Trump said they should leave the capital, while a source said Trump was considering options that include joining Israel in attacking Iranian nuclear sites.
* Oil prices eased in Asian trade on Wednesday, after a gain of 4% in the previous session, as markets weighed the chance of supply disruptions from the Iran-Israel conflict against a U.S. Federal Reserve rates decision that could impact oil demand.
* While global energy markets are not yet pricing in worst-case scenarios for the Israel-Iran war, oil tanker rates are providing a good real-time gauge of the escalating risks, writes ROI columnist Ron Bousso.
* Energy equity investors are adjusting their positions in an attempt to pick winners and cut losers as President Donald Trump's tax-and-spending bill makes its way through the U.S. Congress. Read the analysis from ROI energy transition columnist Gavin Maguire.
* As debate rages around 'de-dollarization' and the world's appetite for dollar-denominated assets, one major cohort of overseas investors appears to be quietly backing away from U.S. securities: central banks. Check out the latest from ROI markets columnist Jamie McGeever.
Oil ebbs again as Fed meets
The intensity of the Middle East conflict went up several more notches overnight amid speculation the U.S. military would join the attacks on Iran.
The central question now is whether the U.S. air force would be involved in any attempt to take out Iran's underground nuclear enrichment facilities, particularly the Fordow plant.
An Israeli military strike on Iran's nuclear complex at Natanz directly hit the underground uranium enrichment operation there, the U.N. nuclear watchdog said on Tuesday, after initially reporting only indirect damage.
Markets have to calculate whether we're apt to see a long drawn-out war and related energy disruptions or a shorter and more decisive outcome that could limit any hit to Iranian crude supply.
Back home in the U.S., any energy shock would be economically and politically sensitive. And it's unclear how much public support there would be for involvement in the sort of foreign wars Trump campaigned to keep America out of.
So far, U.S. crude prices remain relatively contained despite the war, slipping back slightly again on Wednesday to just under $75 per barrel.
Even though spot prices have risen about 14% since the start of last week, they have not breached intraday highs set last Friday nor the $80-plus peak hit in January, and they also remain down 7% year on year. What's more, crude prices remain below the average of the past two years since the latest wave of Middle East conflict was triggered by Hamas's Oct 7, 2023 attack on Israel.
Gold price moves have also been moderate over the past week, as the prices of the safe haven have failed to hit new records set in April and slipped on Wednesday. The dollar (.DXY), opens new tab and Swiss franc both edged lower again too today, the latter impacted by a likely interest rate cut to zero from the Swiss National Bank tomorrow.
U.S. stock futures were higher ahead of the open after a near 1% drop in the S&P 500 index on Tuesday.
The Fed decision, press conference and new economic projections later today will keep many markets in check, however, not least as they come before the U.S. 'Juneteenth' public holiday and market closures on Thursday.
No change in the Fed policy rate is expected, especially now that the edgy energy outlook is adding to the already uncertain U.S. import tariff picture. But the Fed's nods and winks about its future course will be crucial as always, not least its 'dot plot' of policymakers' expectations on future rate moves.
The most recent set of quarterly projections penciled in two more rate cuts by year-end, but there's some speculation that may be reduced to one in today's update. As of Wednesday, futures markets were pricing in 45 basis points of easing by December.
Treasury yields fell back ahead of the meeting, following a series of soft U.S. economic readings for May on retail, industrial activity and housing.
Treasuries got an additional lift as the Fed announced a board meeting for June 25 to consider plans to ease leverage requirements on larger banks, kicking off what is expected to be a broad effort to reconsider bank rules.
Changes to the so-called "supplementary leverage ratio," which requires banks to set aside capital against assets regardless of their risk, could enable banks to hold more Treasuries.
Elsewhere, stocks were mixed to higher around the world, with Hong Kong (.HSI), opens new tab underperforming and European defense stocks (.SXPARO), opens new tab a big gainer.
Sweden's crown weakened after the Riksbank cut its key interest rate to 2.0% from 2.25% as expected on Wednesday, saying it may ease further before the end of the year.
And Bitcoin remained relatively subdued even after the U.S. Senate on Tuesday passed a bill to create a regulatory framework for dollar-pegged cryptocurrency tokens known as stablecoins, seen by some as a watershed moment for digital assets.
In today's deep dive, I look at whether the dollar's steep losses this year may already have run their course or whether this is longer-term exit from the currency.
Chart of the day
Much like world oil prices, freight rates out of the Persian Gulf have jumped sharply since the start of the Israel-Iran war on June 13. But also like crude prices, these shipping rates have so far failed to even hit their highest points for the year to date, never mind longer-term historical highs. Concerns about shipping disruption and energy supplies have clearly risen, but with too many contrasting scenarios for the conflict's outcome still in play, traders may be wary of betting one way or the other.
Today's events to watch
* U.S. May housing starts, weekly jobless claims (8:30 AM EDT), April TIC data on foreign holdings of Treasury securities (4:00 PM EDT)
* Federal Reserve's Federal Open Market Committee policy decision (2:00 PM EDT), news conference from Fed Chair Jerome Powell and policymakers' new economic and rates projections
* European Central Bank Vice President Luis de Guindos and heads of central banks of Italy, Spain, Netherlands, France and Germany meet students in Milan; ECB chief economist Philip Lane speaks in Amsterdam; Bank of Canada governor Tiff Macklem speaks
* U.S. corporate earnings: Progressive
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, opens new tab, is committed to integrity, independence, and freedom from bias.
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