All eyes on Fed today

Retails sales in the US fell by 0.9% m/m in May, extending the modest drop of 0.1% a month earlier. The decline was primarily down to a drop in car purchases as ex-auto retail sales were lower by a more modest 0.3% while control group sales, which feeds into consumption metrics for GDP in the US, were actually higher by 0.4% m/m. Elsewhere in the US economy industrial production dropped by 0.2% m/m in May largely down to lower manufacturing output.

Focus today will be on the outcome of the FOMC meeting where no change in rates from the Federal Reserve is expected. The Fed will update its summary of economic projections and may tilt toward a more hawkish stance to indicate it is still reluctant to ease rates prematurely.

The exchange of attacks between Iran and Israel continued overnight with no apparent end to the conflict in sight in the near term. US President Donald Trump called for Iran’s “unconditional surrender” while the US military also moved more forces toward the Middle East region. Regional air travel has been disrupted with national carriers in the UAE suspending some routes while Qatar advised LNG shipping firms to keep their vessels out of the Gulf until ready to load.

Today’s Economic Data and Events

10:00 UK CPI y/y May: forecast 3.3%

12:00 SA CPI y/y May: forecast 2.8%

16:30 US initial jobless claims June 14: forecast 245k

22:00 FOMC rate decision upper bound: forecast 4.5%

Fixed Income

US Treasuries were relatively quiet overnight ahead of the conclusion of the FOMC meeting later today. Yields on the 2yr UST dipped by less than 2bps to 3.9518% while the 10yr yield dropped almost 6bps to 4.3888%. Markets are assigning 0% of a probability of a move from the Fed today with fewer than two 25bps cuts priced in over the rest of the year.

Saudi National Bank priced a USD 1.25bn 10yr NC5 at T+200bps with books at more than USD 4.1bn.

FX

Currency markets moved back toward the US dollar overnight with the DXY index gaining by 0.8%. EURUSD dropped by 0.7% to 1.148 while GPBUSD sank by 1.1% to 1.3429. USDJPY also saw the yen lose ground for a third day running at 145.29, up 0.4%.

Commodity currencies fared worst with CAD weaker by 0.8% while NZD and AUD were lower by 0.78% and 0.75% respectively.

Both Indian rupee and Turkish lira closed weaker overnight.

Equities

It was another risk-off session in equity markets with all major indexes in the US closing lower. The Dow Jones fell 0.7% while the S&P 500 dropped by 0.8% and the NASDAQ closed lower by 0.9%. European markets were also weaker with a near 1% decline in the Euro Stoxx index while the FTSE fell 0.5%.

Regional markets were weaker overnight. The DFM sank by 0.6% while the ADX 15 fell by roughly the same amount. The Tadawul in Saudi Arabia fell more sharply, down 1.4%.

Commodities

Oil prices recorded another strong day of gains with Brent futures up 4.4% to USD 76.45/b while WTI added4.3% to USD 74.84/b. Markets are watching the conflict in the Middle East closely for signs of disruption to shipping or production of oil, products and natural gas.

The IEA revised its oil demand growth forecasts for 2025 lower by 20k b/d to 0.72m b/d and by a similar amount for 2026. Demand is still expected to decline in developed markets and record growth of just 0.82m b/d in emerging markets. The agency noted that oil markets still looked well supplied “in the absence of a major disruption” caused by the conflict between Iran and Israel. The IEA expects oil supply to increase by 1.8m b/d in 2025 with more than 1m b/d of supply additions in 2026.