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Iran-Israel conflict enters sixth day, Fed decision ahead - what’s moving markets
2025-06-18 17:55:34
U.S. stock futures point up on Wednesday, with tensions intensifying in the Middle East as fighting between Israel and Iran enters a sixth day. Oil prices retreat marginally after jumping on Tuesday as concerns swirl around the impact of the violence on global crude supplies. The conflict is set to overshadow an impending Federal Reserve interest rate announcement, while the Senate passes a bill creating a regulatory framework for stablecoins.
1. Futures tick higher
U.S. stock futures edged higher as investors kept tabs on violence in the Middle East and looked ahead to a fresh Federal Reserve interest rate decision later in the session.
By 03:30 ET (07:30 GMT), the Dow futures contract had added 76 points, or 0.2%, S&P 500 futures had risen by 16 points, or 0.3%, and Nasdaq 100 futures had increased by 70 points, or 0.3%.
On Tuesday, the main averages on Wall Street ended lower, erasing earlier gains, following a fifth day of fighting between Israel and Iran. Beyond the raging conflict, traders were digesting weak retail sales data and monitoring developments in President Donald Trump’s trade agenda and fiscal policy.
The benchmark S&P 500 slipped by 0.8% and the tech-heavy Nasdaq Composite dropped 0.9%, while the 30-stock Dow Jones Industrial Average declined by 0.7%. The Cboe Volatility Index, meanwhile, increased to 21.6, notching its highest level since May 23.
2. Oil prices retreat amid escalating Iran-Israel conflict
Oil prices inched down, easing back from a 4% uptick in the previous session, as markets assessed the possibility of crude supply disruptions because of the Israel-Iran conflict and the effect of a looming Fed interest rate decision on demand.
Brent crude futures had fallen by 0.3% to $76.20 a barrel, but remained above $76 for a second consecutive day. West Texas Intermediate crude futures dipped by 0.3% to $73.02 per barrel by 03:30 ET.
Israel’s air force said in a social media post that it had carried out strikes on centrifuge and weapons production facilities in the Tehran area on Wednesday, adding that the targets were attacked as part of a broader military effort to damage Iran’s "nuclear weapons program and missile production industry."
Tensions in the Middle East have intensified since Israel launched airstrikes at Iranian nuclear sites last Friday. Israel has continued to fire waves of missiles into Iran, leading to retaliatory volleys. Casualties have been recorded on both sides.
The role of the U.S. in the conflict remains a major focus. Trump has demanded an "unconditional surrender" from Iran and claimed that Supreme Leader Ayatollah Ali Khamenei was an "easy target." He also seemed to suggest that U.S. had helped Israel in establishing "complete and total" air superiority over Iran.
U.S. Vice President JD Vance later said that Trump was only interested in using the American military to "accomplish the American people’s goals," but noted that the president could still "decide he needs to take further action" to prevent Iran from enriching uranium.
3. Fed decision ahead
The Fed is widely expected to leave interest rates unchanged at the conclusion of its latest two-day gathering on Wednesday, as policymakers gauge the impact of Trump’s sweeping tariff plans on inflation and the broader economy.
Officials are also tipped to maintain a wait-and-see approach to future borrowing cost reductions, a stance the central bank has adopted as economists warn that the levies could fuel price pressures and weigh on growth.
Crucially, the Fed will release an update to its closely-watched "dot plot," which brings together officials’ projections for the trajectory of rates. Investors currently see a 54.8% chance that the Fed will not unveil its next rate cut until September, according to CME Group’s (NASDAQ:CME) FedWatch Tool.
However, a recent surge in crude prices due to the Israel-Iran fighting could upend these estimates, analysts at ING noted.
"[T]he latest spike in oil prices may be offsetting recent positive news on inflation, especially as the Fed remains concerned about tariff-led price increases over the coming months. The overall message today should be broadly hawkish in our view, with continued caution on easing plans," the ING analysts led by Francesco Pesole said.
4. Senate passes stablecoin bill
The U.S. Senate has passed legislation that establishes a regulatory framework overseeing dollar-pegged cryptocurrency assets dubbed "stablecoins."
In a rare bipartisan move on Tuesday, the upper chamber of Congress approved the bill, which would require these tokens to be backed by liquid assets like U.S. dollars or Treasury bills and make issuers detail the make-up of their reserves every month.
Stablecoins are typically pegged on a 1:1 basis to the dollar, theoretically granting them a constant value. They have become used more frequently as a tool for crypto traders to move assets between tokens.
Should the bill receive support from the House and be signed into law, it would be a milestone for the crypto industry, which has long advocated for a legal framework around stablecoins. Trump, who pushed heavily to garner support from the sector prior to his election win last year, has faced some calls to usher in these changes.
5. U.S. bank regulators planning to ease key capital rule - Bloomberg
Top U.S. bank regulators intend to reduce a key capital buffer for the country’s biggest lenders, Bloomberg News reported on Wednesday, amid concerns that the buffer constrained their trading of U.S. Treasuries.
The Federal Reserve, the Federal Deposit Insurance Corp, and the Comptroller of the Currency, plan to lower the enhanced supplementary leverage ratio (ESLR) by up to 1.5 percentage points, Bloomberg said, citing people briefed on the plans. The ESLR could be lowered to a range of 3.5% to 4.5% from current levels of 5%.
The rule applies to the biggest U.S. banks, such as JPMorgan Chase (NYSE:JPM), Goldman Sachs, and Morgan Stanley.
The ESLR is a capital requirement for large, systematically important U.S. banks that ensures the lenders hold enough capital to act as a backstop against more risk-based capital holdings.