Market navigator: week of 16 June 2025

Summary

• What happened last week: Middle East tensions escalated with Iran's nuclear developments and Israeli strikes, while US-China trade talks progressed in London.
• Markets in focus: Hang Seng Index temporarily breached 24,000 before retreating below this key level, while commodities surged on geopolitical risks.
• The week ahead: Central bank meetings from Japan, US, and UK dominate the calendar amid inflation concerns.

What happened last week

• Escalation of geopolitical tensions in the Middle East: Iran unveiled plans of a new uranium-enrichment facility, prompting Israeli strikes against military targets. West Texas Intermediate (WTI) crude oil surged 10% on supply concerns, while gold advanced above $3,400 as investors sought safe-haven assets. Global equity markets retreated on heightened regional tensions.
• US-China trade negotiations demonstrate progress: Constructive dialogue emerged following London meetings. President Trump indicated China would ease restrictions on magnets and rare earth elements, while the US would facilitate Chinese student access to American education.
• Tariff impact yet to show: US consumer price index (CPI) and producer price index (PPI) both registered 0.1% increases in May, slower than anticipated. It may be too early to conclude on the impact of higher tariffs, as manufacturers accumulated inventory and absorbed initial cost pressures. Meanwhile, consumer sentiment improved for the first time in six months.
• Bond yields declined following robust Treasury auction demand and increased Federal Reserve (Fed) rate cut expectations. Markets anticipate two or more 25-basis point reductions this year given moderate inflation data. 10Y and 30Y Treasury yields declined to 4.42% and 4.91% respectively.
• China's deflationary pressures intensify: CPI declined 0.1% year-on-year, marking the fourth consecutive deflationary month, while PPI contraction deepened to -3.3%. Subdued consumer demand and pricing competition, combined with trade uncertainty, represent primary contributing factors.

Markets in focus

Hang Seng Index retreats after testing key 24,000 resistance

The Hang Seng Index (HSI) delivered another positive weekly performance amid easing US-China trade tensions, though the index relinquished some gains during the latter portion of the week due to profit-taking activities and Middle Eastern geopolitical developments, concluding with 0.4% weekly gains. Healthcare emerged as the strongest-performing sector, with Sino Biopharma advancing 22% and Wuxi Biologics gaining 14% over the week. Zijin Mining appreciated 10% on elevated precious metals pricing. Conversely, automotive stocks declined as government measures address structural industry challenges including unsustainable price competition, supplier exploitation, and inventory irregularities. Geely and Li Auto's share prices contracted 9% and 6% respectively.

The temporary advancement above 24,000 last week confirms this level as substantial resistance level from both technical and psychological perspectives. As global market volatility increases amid Israel-Iran tensions and heightened anticipation surrounding central bank policy meetings, the HSI may revert to its previous narrow trading range between 22,650 and 24,000. Sustained advancement beyond 24,000 requires significant fundamental catalysts, though the 50-day simple moving average should provide robust support at the range's lower boundary. A decisive breakthrough above 24,000 could propel the index toward this year's peak at 24,874. Alternatively, a breach below current parameters may target 21,700.

Figure 1: Hang Seng Index (daily) price chart

Volatile commodities prices amid escalating geopolitical tensions

Last Friday, Israel conducted a military operation to prevent Iran's imminent nuclear weapons development, with strikes targeting multiple facilities including Iran's primary uranium enrichment facility at Natanz. The attacks resulted in casualties among senior military commanders and nuclear scientists, including Hossein Salami, chief of the Islamic Revolutionary Guards. The US emphasised non-involvement in the military action.

The situation intensified rapidly, with both nations launching drone and missile exchanges. Israel has focused targeting on Iran's domestic energy infrastructure, including the Shahran oil depot in Tehran and natural gas facilities, while direct impact on energy export infrastructure remains limited. However, the situation could deteriorate significantly if Iran's Kharg oil terminal, which handles over 90% of the nation's crude oil exports, is targeted, or if Iran restricts access through the Strait of Hormuz – a critical passage for regional energy shipments. The previously scheduled US-Iran diplomatic talks on Sunday have been cancelled.

WTI crude oil futures prices surged as much as 10% on the day of the attack, reaching new highs since January 2025. The weekly price chart indicates resistance at $75 per barrel from the downtrend line connecting lower highs since September 2023. Oil prices may test $79.3, where the 200-week simple moving average coincides with January's peak, should geopolitical tensions continue escalating. Support is anticipated around $66.5.

Figure 2: US crude oil futures (weekly) price chart

Gold prices also benefited from renewed safe-haven demand among global investors, closing the week with 3.5% gains and trading only $68 below the historical peak at $3,500. We assess a high probability for gold to surpass $3,500 amid further risk escalation. Support is expected at $3,310 along the uptrend line originating from January.

Figure 3: Spot gold (daily) price chart

The week ahead

Central banks take centre stage this week in a monetary policy sequence spanning three major economies, with the BOJ, FOMC, and BOE all convening crucial interest rates meetings that could reshape global financial markets. The Fed's decision will be particularly scrutinised alongside updated economic projections and Chair Powell's press conference for signals regarding future policy direction. China's industrial production and retail sales data will provide vital insights into consumer resilience and the economic impact of ongoing trade tensions and tariff pressures.

The BOJ faces a challenging inflation-versus-growth dilemma, with core inflation at 3.5% while gross domestic product (GDP) contracted 0.2%, will likely keep rates unchanged at 0.5%. The FOMC is expected to hold rates steady at 4.5%, though guidance on the future rate trajectory will be critical. Although inflation appears controlled currently, Trump's tariff policies threaten to add 1.5% to consumer prices. The BOE's Monetary Policy Committee (MPC) may continue to see divided voting, as inflation unexpectedly jumped to 3.5% while employment contracted sharply. Markets expect the BOE to hold rates in June but cut twice later in 2025.

Currency markets face heightened volatility potential, with hawkish BOJ guidance supporting the yen, dovish Fed surprises boosting US bonds and equities, and unexpected BOE cuts threatening sterling weakness across major currency pairs.

Figure 4: Implied Fed funds rate for December 2025

Key macro events this week

Monday 16 June 2025

• 10.00am (HK time) – China Industrial Production year-on-year (May): previous 6.1%, consensus 6%
• 10.00am (HK time) – China Retail Sales year-on-year (May): previous 5.1%, consensus 4.9%

Tuesday 17 June 2025

• 11.00am (HK time) – Japan BOJ Interest Rate Decision: previous 0.5%, consensus 0.5%
• 8.30pm (HK time) – US Retail Sales month-on-month (May): previous 0.1%, consensus 0.1%

Wednesday 18 June 2025

• 7.50am (HK time) – Japan Balance of Trade (May): previous -¥115.8 billion, consensus -¥895 billion
• 2.00pm (HK time) – UK Inflation Rate year-on-year (May): previous 3.5%, consensus 3.4%
• 8.30pm (HK time) – US Building Permits Preliminary (May): previous 1.422 million, consensus 1.42 million
• 8.30pm (HK time) – US Housing Starts (May): previous 1.361 million, consensus 1.36 million

Thursday 19 June 2025

• 2.00am (HK time) – US Fed Interest Rate Decision: previous 4.5%, consensus 4.5%
• 2.30am (HK time) – US FOMC Economic Projections
• 2.30am (HK time) – US Fed Press Conference
• 7.00pm (HK time) – UK BOE Interest Rate Decision: previous 4.25%, consensus 4.25%

Friday 20 June 2025

• 7.30am (HK time) – Japan Core Inflation Rate year-on-year (May): previous 3.5%, consensus 3.6%
• 2.00pm (HK time) – UK Retail Sales month-on-month (May): previous 1.2%, consensus -0.5%
• 10.00pm (HK time) – Europe Consumer Confidence Flash (June): previous -15.2, consensus -14.5

Source: Trading Economics, Reuters (as of 15 June 2025)