Tensions in the Middle East and their impact on financial markets

The last 24 hours have brought news of escalating tensions in the Strait of Hormuz region. Iranian rockets hit US military units, prompting them to withdraw from the area. Additionally, there was an American attack on an Iranian oil tanker, which only heightened tensions. The Strait of Hormuz is a key route for global oil trade, through which about 20% of the world's oil production flows. The escalation of the conflict may affect oil prices, which in turn could lead to increased volatility in financial markets. It is also worth noting that Saudi Arabia and Kuwait ultimately decided not to block US military access to their bases, which may be an attempt to de-escalate the situation.

Donald Trump threatened the European Union with higher tariffs if a trade agreement is not reached by July 4. Such threats may raise concerns about a potential trade war between two significant economies in the world. An increase in tariffs by the USA could lead to retaliation from the European Union, which would negatively impact international trade and could result in further escalation of tensions in global markets. In the longer term, this could lead to a slowdown in economic growth in both Europe and the USA.

The Federal Open Market Committee (FOMC) maintains interest rates at 3.50-3.75%. Market expectations do not foresee changes in interest rates at the upcoming meeting in June, with a 94.1% probability of maintaining the current level. In the context of rising geopolitical tensions and potential changes in trade policy, the stability of monetary policy may serve as a calming factor for the markets. However, it is important to monitor upcoming macroeconomic data that may influence future FOMC decisions.

Tomorrow's day in the financial markets may be dominated by the developments in the Middle East and the markets' reactions to the trade threats from the USA towards the EU. Investors should pay attention to any new information regarding the conflict in the Strait of Hormuz, which may affect oil prices, as well as the potential responses from the European Union to Donald Trump's rhetoric. Markets will also be monitoring any signals regarding monetary policy in the context of the upcoming FOMC meeting.