June 17, 2025

Global financial markets turned cautious Tuesday as escalating tensions in the Middle East triggered a risk-off sentiment among investors. U.S. stock futures fell and oil prices surged following controversial comments from President Donald Trump regarding Iran.

Futures Fall on Geopolitical Risk

S&P 500 futures dropped 0.7% in early trading after Trump, attending the Group of Seven (G-7) summit in Alberta, unexpectedly called for the evacuation of Tehran. The remarks, shared on social media, sharply contrasted with his earlier statement suggesting that Iran was open to negotiations. The uncertainty around U.S. intentions rattled markets and injected new fears of broader regional escalation.

European equities also weakened, while Asian markets ended the session mixed. Gold edged slightly higher, reinforcing its safe-haven status amid rising volatility. The U.S. dollar and Treasury yields, however, remained largely flat.

Oil Surges on Strait of Hormuz Risk

Brent crude swung sharply during the session, rising as much as 2.7% at one point, as fears grew that Iran may disrupt shipping in the Strait of Hormuz, a vital corridor for roughly 20% of global oil flows. Any interference could push crude prices significantly higher, reintroducing energy inflation risks at a time when central banks are closely watching price stability.

U.S. Political & Trade Developments

President Trump’s abrupt departure from the G-7 summit raised further questions, although he denied it was related to the Israel-Iran conflict. While in Canada, he struck a bilateral trade deal with the UK, agreeing to cut tariffs on key British exports and expand UK quotas on U.S. agricultural goods. However, trade talks with Japanese Prime Minister Shigeru Ishiba yielded no breakthrough.

Central Bank Caution Ahead of Fed Decision

The Bank of Japan left its benchmark interest rate unchanged, as widely expected, but adopted a more cautious tone, announcing it would slow the pace of bond purchase tapering. The move reflects concerns over recent market instability. The yen recovered some losses following the announcement, and Japanese bond yields edged slightly higher.

Investors are now shifting focus to the Federal Reserve’s policy decision scheduled for Wednesday. Chair Jerome Powell is expected to signal an extended rate hold, despite a series of soft inflation prints. Bloomberg Economics analysts Anna Wong and Chris G. Collins forecast a hawkish tone, noting that internal Fed models still predict future inflation pressure from tariffs and energy costs.