US equity futures tumble as US considers roIe in Israel-Iran conflict

Markets reverse gains on escalating conflict concerns

US 500 equity indices rebounded overnight after Israel capitalised on its initial military success, prompting Iran to seek de-escalation.

The market's relief over this development cooled this morning, with US equity futures falling 0.6% to a low of 6051.25, following reports that President Trump will return early from the G7 meeting currently being held in Canada because of the ongoing Middle East crisis and his call for an evacuation of Tehran.

US military asset movements raise stakes

These developments come after unverified posts on X over the past 24 hours have noted a significant movement of US military assets toward the Middle East, including tanker aircraft and a full Carrier Strike Group. These assets could support the weaponry needed to neutralise the Fordow uranium and other enrichment sites located deep underground in Iran. To recap, the main aims of Israel's attack on Iran last week were to weaken its rival's military capabilities and disrupt Iran's nuclear programme.

The risks of the US lending its military might to support the second goal above include civilian casualties, responses from regional proxies, the release of radioactive material, and a possible increase in Russian or Chinese backing for Iran and its proxies. Not to mention higher energy prices if it led to the Strait of Hormuz being blocked.

Central banks face challenging backdrop

While we await more news from the Middle East, spare a thought for the Federal Reserve (Fed) and the Bank of England (BoE), which meet later this week to discuss interest rate settings. After recent events in the Middle East, an already murky macro backdrop has become even more challenging.

Fed may pivot to dovish stance

We think the risks ahead of this week's Fed meeting is that the Middle East becomes a catalyst for the Fed to sound more dovish this week, like they were for Fed speakers after the 7 October 2023 Hamas attack.

Specifically, the Fed may use Thursday's Federal Open Market Committee (FOMC) meeting. to set up a 25 basis point (bp) rate cut in July, earlier than the September meeting the market is currently expecting. The US rates market is only assigning a 12.5% probability to this outcome, according to the CME's FedWatch tool; however, we think the probability may soon be set to rise to closer to 50%.

CME FedWatch Tool chart

_{The figures stated are as of 17 June 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}