European stocks lower amid Middle East tensions and Fed warnings

European stock indexes are showing a decline due to growing concerns about the possible direct involvement of the United States in the conflict between Israel and Iran, as well as due to signals from the Federal Reserve System about the risks of inflation. At the meeting on Wednesday, the Fed kept the key rate unchanged and indicated the possibility of two cuts in 2025.

The Stoxx Europe 600 index is down 0.6%, putting it on course for a third straight day of losses. The MSCI Asia Pacific Index lost 1.3%, while the MSCI Emerging Markets Index fell 1.4%. Futures on the S&P 500 fell by 0.4%, on the Nasdaq 100 — by 0.5%, on the Dow Jones Industrial Average-by 0.3%. The dollar strengthened against most major currencies, while trading in stocks and bonds in the United States was suspended due to the Juneteenth holiday.

Investors became more cautious after reports that senior US officials are preparing for a possible strike on Iran in the coming days. The Fed previously lowered its economic growth forecasts and raised its inflation forecast, complicating its easing policy amid tariff-related uncertainty.

According to Gareth Nicholson, head of portfolio management with individual approach at Nomura, "we are now cautious and focus on asset classes that are less dependent on rates and the actions of the US president. Although there are few such assets on the market."

Japanese bond yields fell after the successful placement at the auction and amid reports of the Ministry of Finance's plans to reduce the volume of long-term securities issued from July. In Europe, decisions from several central banks are expected on Thursday. The Bank of England is expected to keep the rate at 4.25% and continue the strategy of one cut through the meeting. The Swiss National Bank is expected to cut the rate to zero.

According to Manish Bargawa, CEO of Straits Investment (Singapore), "direct US involvement in the attack on Iran will almost certainly cause a sharp jump in oil prices. This will increase global inflation and make it harder for central banks to contain it, including the Fed."

In recent days, Donald Trump has spoken out about the possibility of a strike on Iran, which has been at war with Israel for almost a week. He said that he would prefer to make a final decision "a second before the deadline", since the situation in the Middle East remains unpredictable.

While the Fed's median forecast for two rate cuts in 2025 was unchanged, a larger number of officials lowered their expectations. Seven members of the committee now do not expect a rate cut this year (four in March), and two more predict one reduction.

According to Chris Zaccarelli of Northlight Asset Management, "The Fed has clearly chosen a wait-and-see approach. They monitor the dynamics of tariffs and the labor market to see which part of their dual mandate will be affected first, and this will determine the future course."

Major market movements
Stocks

• Stoxx Europe 600 — minus 0.6% by 8: 17 London time
• S&P 500 futures — minus 0.4%
• Nasdaq 100 futures — minus 0.5%
• Dow Jones futures — minus 0.3%
• MSCI Asia Pacific-minus 1.3%
• MSCI Emerging Markets-minus 1.4%

Currencies

• The Bloomberg Dollar Spot index rose 0.1%
• Euro — minus 0.1% to $ 1.1467
• Yen — minus 0.1% to 145.33 per dollar
• Offshore Yuan — Unchanged at 7.1940 per dollar
• British Pound — minus 0.1% to $ 1.3408

Cryptocurrencies

• Bitcoin — Unchanged at $104,812. 5
• Ether — minus 0.3% to $ 2,523. 29

Bonds

• US 10-year Treasury Bond Yield — unchanged at 4.39%
• German 10-year bond yield — plus 4 bps to 2.54%
• UK 10-year bond yield — plus 5 bps to 4.54%

Raw material

• Brent crude — up 1% to $ 77.45 a barrel
• Spot Gold — down 0.4% to $ 3,356. 27 an ounce