Market Watch – The Week Ahead

As we start a new week, the focus is on Iran. Over the weekend, the US attacks on Iranian nuclear facilities, raised fears of a major escalation in the Middle East conflict. However, investors are taking a moderate approach on Monday. The oil price is up a mere 1%, the Hang Seng equity index is eking out a gain, and European and US equity market futures are pointing to small losses before the market open.

Markets’ reactions are muted

So, why are markets so calm? Firstly, the Iranian leadership has not yet embarked on retaliatory action, which suggests that there will not be a knee jerk escalation in the conflict. Secondly, the US administration has been keen to stress that their attacks in Iran were not directed at civilians, and only on nuclear sites. Thus, Iran may choose similar targeted retaliatory action on US military assets. For example, after the US took out a high-ranking Iranian regime official in 2020, Iran responded by striking a military base in Iraq, and this did not lead to World War Three.

There are no signs yet that this conflict will dramatically escalate, or that there will be a direct war between Iran and the US. This is why there is no clear direction for markets and volatility has not spiked at the start of this week.

US administration seeks to calm market reaction

For now, the market seems to be buying the narrative from the US government that these strikes are one and done. This is why the Brent crude oil price has pared gains and is currently trading at $78 per barrel, after hitting $80 a barrel earlier. There is intraday volatility in the oil market right now, but the main impulse is to keep oil below $80 per barrel as ample supply keeps a lid on prices.

The gold price is lower by $10 per ounce, and bitcoin is also clawing back earlier losses and is back above $101,000 and is higher by more than $2,000 per token on Monday. Gulf markets are also proving to be resilient to the crisis. Israeli markets are higher on Monday, and bourses in Saudi Arabia, the UAE and Jordan have seen only small losses so far. This also reflects calmness in the region, which is limiting the selloff in Europe and the US.

However, even though markets are calm so far, 2025 has been one curve ball after another. The surprise US attack on three nuclear facilities in Iran over the weekend is considered a major escalation in the Iran/ Israel conflict and has ratcheted up geopolitical risk as we move towards the second half of the year.

What could come next?

While markets are calm on Monday, this is an active conflict, and the situation could change very quickly. This week the focus will be on what happens in the Strait of Hormuz. 20% of the world’s oil travels through the Strait, which lies between the Persian Gulf, and the Gulf of Oman, and it provides the only sea passage from the Persian Gulf to the open ocean. It is hugely important for the oil and gas market, but also for commercial freight ships. Iran could choose to close the Strait of Hormuz or use antiship missiles and drones to attack ships and essentially close it to freight traffic. Both options would send energy prices skyrocketing and weigh heavily on global risk sentiment.

However, at the start of this week, freight was still moving through the Strait of Hormuz as normal, which is a positive sign. The US Secretary of State, called on China to prevent Iran from closing the Strait. It imports 45% of its oil from Iran, and this would be severely disrupted if the Strait is closed. This is important revenue for Tehran, which is necessary now more than ever as it fights back against Israel, and now the US. Thus, part of Monday’s muted response to the US strikes on Iran is linked to the Strait of Hormuz.

Why shipping companies could breathe a sigh of relief this week

Closing the Strait would be like Tehran shooting itself in its own foot,  so this may not be the best way to get back at the US. Also, the closure would be considered an act of war, and US marines and warships, stationed in Bahrain, would likely defend the Strait

Shipping companies like Maersk, and other freight carriers are worth watching at the start of this week. They have already seen a war premium added to their share prices by traders, and Maersk’s share price is down more than 7% in the past month. This could be enough for now if the situation does not escalate further, and selling pressure may recede as we progress through this week.

Dollar is world’s chosen haven in times of trouble

The FX market has a risk of flavor at the start of this week, and the dollar is the best performing currency in the G10 FX space in the aftermath of the US strikes on Iran. Interestingly, the USD is performing best vs. the commodity currencies and the Japanese yen. This is somewhat contradictory: commodity currencies are weakening because oil price gains have been muted so far, while the yen is weakening because it is a big oil importer and is exposed to conflict in the Middle East.

The pound and the euro are also losing some ground to the dollar at the start of this week, partly because the dollar is the FX market’s haven of choice, but also because the UK, and to a lesser extent Europe, could be dragged into the conflict to support the US, if the situation deteriorates further.

At some point geopolitical risks become part of the fabric of financial markets, and stocks and currencies can focus on other things. Unless Iran chooses a provocative retaliation against the US in the coming days, then the upside in the oil price and downside for risky assets like stocks could be contained. However, headline risk is huge, and the situation could deteriorate quickly, so investors may still be on edge, even if price action is muted for now.

The global economy still has a troika of risks to content with an Iran/ US direct conflict, US trade tariffs, and energy price risks. However, the world’s major central bankers are still data dependent, so it is worth keeping an eye on the most important economic data releases this week.

1, Global PMI reports

The first reading of June PMI reports for the major economies will be released later this morning. This will give us a timely update about how economies are holding up in the face of tariff risks. Of course, there is now more risk to contend with, which these early PMIs will not reflect, however, they could give us a clue as to how adept the world’s largest economies are to absorbing yet more risks.

Economists are expecting the composite Eurozone PMI to rise slightly to 50.5 in June, up from 50.2 in May. The average rate of the last three months is roughly in line with the Jan- March figure, of just over 50, which suggests that the Eurozone’s Q2 GDP could be similar to Q1 levels. The export orders component will be watched closely to see how they have been impacted by Trump’s tariffs. We know that exports were brought forward to Q1 due to Trump’s trade policy, however, the Eurozone still doesn’t have a trade agreement with the US, and further tariffs on key sectors could be on the cards, however, this may not be reflected until the Q3 data.

The UK’s service sector PMI will be in focus, after a dismal reading for May GDP. PMI data is expected to rise sharply to 51.3 in June, from 50.9, which would partly reverse April’s decline, and would be the highest reading since March. The export orders will also be watched, to see if they spiked this month on the back of the US/ UK trade agreement. The PMI data is expected to show that the UK economy could have contracted slightly in Q2, however, the survey data tends to be more pessimistic than real data, so the economy could be more resilient than these surveys tell us.

In the US, the composite PMI survey is expected to moderate to 52.0, from 53.0 in May, which suggests that the US economy may have continued to slow in Q2, after a sharp slowdown in growth at the start of this year. Import data is worth watching closely. Although tariffs are paused until next month, has the earlier rush to import goods to beat the tariffs, now faded? If yes, this could act as one positive driver for growth, as the trade deficit narrows sharply.

Overall, we do not think that the market will be too responsive to the PMI surveys this week, as geopolitical headlines drive short-term price action.

2, Nato Summit and US PCE

The Nato Summit on Tuesday is the chief focus for the market, as US President Donald Trump is scheduled to attend. Of course, he may choose to stay in the US if the situation with Iran deteriorates further, however, if he does attend the market will be focused not only on his chastising of Nato members for not pulling their weight through defense spending, which is now starting to reverse, but for what he says about the US’s strategy in dealing with Iran. Thus, this summit is a major risk event and is one not to miss for investors.

The week will finish with US PCE data for May. This is expected to inch up only marginally. The monthly core rate is expected to rise a mere 0.1%, the annual core rate is expected to rise to 2.6% from 2.5% in April. While price export components from China are expected to rise, they could be neutralized by lower service price inflation. Thus, the prospect of a July rate cut, as put forward by the Fed’s Chrostopher Waller at the end of last week, could be kept alive if the PCE data, the Fed’s preferred measure of inflation, remains stable. This could be good news for risk sentiment as we move through the week.

The material on this page does not constitute financial advice and does not take into account your level of understanding, investment objectives, financial situation or any other specific needs. All information provided, including opinions, market research, mathematical results and technical analyzes published on the Website or transmitted To you by other means, it is provided for information purposes only and should in no way be construed as an offer or solicitation for a transaction in any financial instrument, nor should the information provided be construed as advice of a legal or financial nature on which any investment decisions you make should be based exclusively To your level of understanding, investment objectives, financial situation, or other specific needs, any decision to act on the information published on the Website or sent to you by other means is entirely at your own risk if you In doubt or unsure about your understanding of a particular product, instrument, service or transaction, you should seek professional or legal advice before trading. Investing in CFDs carries a high level of risk, as they are leveraged products and have small movements Often the market can result in much larger movements in the value of your investment, and this can work against you or in your favor. Please ensure you fully understand the risks involved, taking into account investments objectives and level of experience, before trading and, if necessary, seek independent advice.