European Midday Briefing : Stocks Fall on Fears of Middle East Escalation

MARKET WRAPS

Stocks in Europe were lower Thursday on a big day of central bank action, as concerns mounted over potential U.S. involvement in the Israel-Iran conflict.

The Bank of England is expected to follow the Federal Reserve in keeping interest rates unchanged.

The Swiss National Bank this morning cut its rates by 25bp to 0% in an effort to rein in the rapidly appreciating franc.

Norway's central bank then delivered a surprise by reducing its rates and hinting at further easing this year.

Investors are likely to be focused on the BOE outlook for the U.K. economy during the decision at 1100 GMT, given the strong expectation of policymakers standing pat at 4.25%

"The Bank of England's traditionally cautious approach to monetary easing is likely to prevail," Interactive Investor said.

Stocks to Watch

Carlsberg's recent share-price underperformance versus ABInBev and Heineken looked overdone, Citi said.

Focus is on the weather in June and July, but the risk to earnings and full-year guidance is still skewed to the upside, according to Citi.

Nestle's next chairman Pablo Isla has the trust of investors and comes to the role with an impressive track record at Inditex, where he was CEO for more than a decade, Vontobel said.

Economic Insight

Macro data, central bank decisions and even Trump's trade policy were all taking a back seat these days in light of the military escalation in the Middle East , LBBW said.

SEB Research said comments from members of the ECB's governing council after the June meeting indicate the ECB intends to pause interest-rate cuts in July It continues to expect the central bank to deliver two more rate cuts later in the year.

The Fed's meeting on Wednesday was tilted to a hawkish tone as it feels that rates aren't very restrictive, SEI Investments said.

"With the Fed expecting higher inflation in the coming months and quarters, we feel that there is a lower probability of two rate cuts in 2025."

U.S. Markets:

Stock futures were down as the prospect of U.S. involvement in the Israel-Iran conflict gives investors the jitters.

Markets are closed Thursday in observance of Juneteenth.

Forex:

The dollar rose to a one-week high after the Fed maintained a cautious stance on rate cuts on Wednesday and as the Iran-Israel conflict boosts oil prices and safe-haven assets.

The Fed left rates unchanged Wednesday, as widely expected, and was sticking firmly to a wait-and-see approach, Pepperstone said.

"The bar for a rate cut before the third quarter remains a very high one indeed, with my base case being that just one 25bp reduction is delivered this year, most likely in December."

Sterling could fall if the BOE indicates that interest rates could be cut by more than markets currently expect in a decision, ING said.

The Swiss franc rose after the SNB reduced rates. The central bank indicated no further cuts.

The decision was expected by most market participants but some were pricing in a chance that rates would return to negative territory.

The Norwegian krone fell to a one-month low against the euro after the Norges Bank unexpectedly cut its policy rate by 25bp to 4.25%.

Bonds:

Short-end Bund yields were expected to fall slightly, with the 10-year likely to stay in a narrow range, SEB Research said.

The prospect for additional ECB rate cuts later this year will support eurozone government bonds, SEB added.

Treasury yields were expected to rise as the Fed stays on hold longer than investors anticipated, Capital Economics said.

"We don't think the central bank will cut until next May."

That underpins Capital Economics' somewhat bearish projections for Treasurys this year, especially at the short end of the curve.

The mix of a limited risk-off market reaction to the conflict between Israel and Iran, and rising commodity prices has had an ambivalent effect on major government bond markets on both sides of the Atlantic, LBBW said.

Capital Group said fixed income markets are offering compelling opportunities for long-term investors, with the Fed on hold and the yield curve steepening.

"In our view, bonds are once again fulfilling their traditional role as portfolio stabilizers."

Energy:

Oil prices fluctuated in early trade as investors feared the U.S. might shift away from a diplomatic solution in the Middle East and join Israel's attack on Iran.

Volatility remained elevated, reflecting market concerns that any further escalation could heighten the risk of supply disruptions in the Gulf.

"The oil derivatives market highlights the nervousness of investors," ANZ Research said.

"Bullish options are fetching their biggest premium in more than a decade and volatility has surged to a three-year high."

Metals:

Gold futures fell, paring all gains made since Israel launched strikes against Iran.

The precious metal has reversed gains made earlier in the session, failing to capitalize on safe-haven demand as Middle East tensions continue to flare.

Gold appears to be entering a technical correction phase, XS.com said.

While the Fed meeting had a dovish tone on the prospect of rate cuts this year, real rates were still elevated for now, diminishing non-interest bearing gold's relative appeal, XS said.

EMEA HEADLINES

Switzerland's New Capital Rules Will Be Feasible for UBS, Central Bank Says

Switzerland's proposal to introduce tougher capital requirements on UBS Group will be feasible for the banking giant and shouldn't excessively reduce its shareholder distributions, the country's central bank said.

UBS's current capital position and its profitability expectations, coupled with potential mitigating measures and a phased-in implementation period for the new rules, mean the required capital increase will be achievable, the Swiss National Bank said in its annual financial stability report published Thursday.

Rio Tinto Agrees to Settle Mongolia Copper Mine Lawsuit

Rio Tinto agreed to pay $138.75 million to resolve a class-action lawsuit that alleged the company concealed problems during the expansion of a giant copper mine in Mongolia.

The plaintiffs in the lawsuit, led by Pentwater Capital Management, alleged the company misrepresented and omitted information about the expansion of the Oyu Tolgoi mine, which ran years late and nearly $2 billion over budget.

Vodafone Group Names Microsoft's Pilar Lopez as New Financial Chief

Vodafone Group appointed Pilar Lopez as its next chief financial officer, putting a Microsoft executive with a telecommunications background in charge of the company's finances as it seeks to rein in debt.

The U.K.-based telecom group said Thursday that Lopez will succeed Luka Mucic, who is leaving to become chief executive of German property company Vonovia.

GLOBAL NEWS

European, Asian Stocks Fall Amid Geopolitical Tensions; U.S. Markets Closed

European and Asian stock markets fell Thursday, while U.S. markets were closed for the Juneteenth holiday, but investors continued to steer clear of risky assets amid geopolitical concerns centered on the Middle East.

President Trump told senior aides that he approved attack plans for Iran but was holding off to see if it would abandon its nuclear program, according to people familiar with the deliberations.

The Fed Waits Out the Tariff Economy

Federal Reserve Chair Jerome Powell projected confidence when he insisted the central bank was in a good position to handle whatever the economy does next-all while repeatedly acknowledging the Fed has little idea what's actually coming.

The Fed is trying to see how the dust will settle from the aftereffects of President Trump's April 2 "Liberation Day" tariff announcements, among other policy changes. Most economists expect tariffs to lift prices over the coming months, and that is a worry for the Fed because officials still don't feel as if they completely vanquished inflation after a three-year-long fight.

China's Real Estate Recovery Is Mixed. These Cities Are Bouncing Back.

After nearly four years of turmoil, China's property market is no longer collapsing. But it isn't exactly recovering, either.

Instead, a clear divergence has emerged between the country's top-tier cities-Beijing, Shanghai, Shenzhen, and Guangzhou-and its vast network of smaller, so-called "lower-tier" cities. While demand is picking up in a few urban hubs, the rest of the country remains mired in oversupply, falling prices, and weak sentiment.

Why Iran's 'Axis of Resistance' Is Missing in Action

For decades, Iran's leaders built up a network of allied militias in the Middle East that shared a hatred of Israel and America to gain regional influence and protect the regime. But as the theocracy is now fighting for its own survival, its allies are missing in action.

Lebanon's Hezbollah, once seen as the most powerful in Iran's so-called Axis of Resistance, hasn't fired a single missile since Israel attacked Iran. Its military capabilities and leadership have been decimated by Israeli forces over the past year. Hamas, the Palestinian militant group, is a shadow of itself after 20 months of war with Israel that has seen its leaders killed and Gaza destroyed.

Israeli Air Dominance Means It Is Shooting Down Iranian Missiles Before They Launch

Iran is firing fewer missiles at Israel each day after Israel secured dominance over Iranian skies, enabling it to destroy launchers and take out missiles before they even leave the ground.

Israel said on Sunday that it had created an air corridor to Tehran. By Monday, it said its air force had complete control over the skies of Tehran. Since then it has struck dozens of missile launchers amounting to more than a third of Iran's total, the military said, sometimes just as they are preparing to launch an attack.

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06-19-25 0518ET