Market navigator: week of 23 June 2025

Summary

• What happened last week: Geopolitical tensions between Israel and Iran intensified while major central banks maintained accommodative stances, with the Federal Reserve keeping rates unchanged despite lowering growth forecasts.
• Markets in focus: US equity indices traded within narrow ranges as investors assessed policy implications and geopolitical risks, while the yen weakened following dovish Bank of Japan signals and gold maintained its upward trajectory.
• The week ahead: PMI data from major economies will provide insights into manufacturing and services sector health, with US PCE data serving as a critical Fed policy gauge.

What happened last week

• Israel-Iran conflict escalates: Diplomatic efforts to broker a ceasefire have yet to materialise, with China urging Israel to cease military operations while the UK, France and Germany engage Iran in negotiations. President Trump has established a two-week deadline to determine US military involvement against Iran. WTI crude oil futures hovers around $75 per barrel.
• Fed maintains policy stance: The Federal Reserve held rates unchanged and maintained projections for two rate reductions by year-end. However, policymakers revised their 2025 growth forecast downward from 1.7% to 1.4% while elevating inflation expectations from 2.8% to 3.1%. Short-term Treasury yields declined whilst long-term yields experienced upward pressure.
• Central bank decisions across major economies: The Bank of Japan (BOJ) maintained its policy rate at 0.5% but signalled deceleration in bond tapering from April 2026, conveying a dovish stance. The Bank of England (BOE) kept rates unchanged while maintaining a trajectory towards gradual easing, as the recent spike in inflation is expected to be neutralised by a slowdown in the labour market. There is high probability of an August rate cut if oil price impacts remain contained.
• Mixed Chinese economic indicators: Retail sales surpassed expectations with 6.4% year-on-year (YoY) growth in May, driven by online shopping festivals and government subsidies. However, industrial output deceleration and continued housing price declines raise questions about recovery sustainability, though emerging 'emotional spending' trends present selective opportunities.

Markets in focus

US equity markets consolidate amid policy uncertainty

Major equity indices maintained narrow trading ranges throughout the week as global investors evaluated implications from central bank meetings and evolving Israel-Iran situation. The S&P 500 index recorded modest losses of 0.2% during the shorter trading session.

The index declined on speculation regarding potential US military engagement against Iran, particularly following President Trump's early departure from the G7 summit. The White House's subsequent clarification regarding a two-week deliberation period provided temporary market relief. The Federal Open Market Committee's (FOMC) dimmer growth outlook and heightened inflation concerns added downward pressure, constraining US equities from challenging February's record highs.

Market breadth indicators reveal a deteriorating trend, with fewer S&P 500 constituents trading above their 20-day and 200-day moving averages, indicating a narrowing participation in the upward momentum. The US 500's robust V-shaped recovery in May has dissipated, with consolidation around the 5,900 to 6,000 range likely to persist absent significant catalysts. February's peak at 6,147 represents a formidable resistance level, while the 200-day simple moving average (SMA) at 5,843 provides technical support. Material developments regarding the Israel-Iran conflict, particularly US involvement, and tariff policy announcements ahead of the 8 July deadline constitute primary volatility catalysts.

Figure 1: US 500 index (daily) price chart

Bank of Japan signals dovish pivot amid persistent inflation

Japan's consumer price index (CPI) excluding fresh food accelerated to 3.7% YoY in May, rising from 3.5% in April and reaching its highest level since February 2023. In its latest monetary policy statement, the BOJ acknowledged that consumer prices have been elevated for an extended period, with particular emphasis on rice price dynamics. However, the policy board expects the effects of rising import and food prices to diminish over time.

Instead, the policy board appears to have intensified focus on economic deceleration and Japanese Government Bond market stability. Bond futures markets currently price a 43% probability for at least one rate increase in 2025, down from nearly 60% prior to the BOJ meeting. The yen depreciated 1% against the dollar following the central bank's relatively dovish communication.

The USD/JPY technical analysis indicates the currency pair is positioned at a critical juncture, with 146 serving as resistance on two occasions over the past two months. A decisive break above 146 would likely propel the pair towards 148 before encountering selling pressure. Conversely, a decline below 142.5 could trigger a test of April's recent low at 139.9.

Figure 2: USD/JPY (daily) price chart

Gold maintains upward trajectory on multiple supportive factors

The World Gold Council's Central Bank Gold Reserves Survey, conducted between February and May, revealed that 95% of central bank respondents anticipate increased gold reserves over the next 12 months, while 73% expect to reduce US dollar holdings within their reserves over the next five years.

Beyond medium-term central bank demand, gold's safe-haven characteristics have attracted increased attention over the past fortnight, despite a technical pullback following the sharp rally on 13 June. The Israel-Iran conflict has resulted in 430 casualties in Iran and 25 in Israel as of Friday. While international leaders pursue de-escalation through diplomatic channels, the primary uncertainty concerns potential US participation in operations against Iran, aimed at dismantling its nuclear programme and potentially catalysing political regime change.

Technical analysis reveals a clear uptrend in gold prices, supported by the 50-day moving averages. The relative strength index has proven effective in identifying rebound opportunities throughout 2025, with all declines below 50 followed by sharp recoveries. Last week's pullback may present opportunities for bullish positioning. A 100% Fibonacci extension of the upward movement between 9 June and 15 June could propel gold prices towards the historical high at $3500. Should gold prices fall below the 50-day SMA at $3319, substantial support is anticipated around $3200.

Figure 3: Spot gold (daily) price chart

The week ahead

Global business activity indicators dominate this week's economic calendar, with flash purchasing managers' indices (PMI) readings from Australia, Japan, the UK and US providing comprehensive insights into manufacturing and services sector performance across major economies. The data will offer crucial perspectives on global economic momentum, with particular focus on whether Japan and the UK's manufacturing sectors can recover from May's contractionary readings and whether US services maintain their robust expansion. The US Personal Consumption Expenditures (PCE) price index release on Friday takes centre stage, providing critical input for monetary policy deliberations following last week's FOMC meeting.

May's US CPI and producer price index (PPI) could serve as reliable predictors for Friday's PCE data release. Core CPI and PPI both increased 0.1% monthly, with manufacturers accumulating inventory and absorbing initial cost pressures during the early stages of higher tariffs. We anticipate a similar pattern in the PCE data, with both headline and core indices rising 0.1% month-on-month (MoM) while tariff rates remain under negotiation with trading partners. As the Fed's preferred inflation gauge, this data will provide important guidance on US monetary policy trajectory. Markets currently price two 25-basis-point reductions by year-end, with the initial cut anticipated in September.

Figure 4: US core PCE price index MoM change

Key macro events this week

Monday 23 June 2025

• 7.00am (HK time) -- Australia S&P Global Manufacturing PMI Flash (June): previous 51
• 7.00am (HK time) -- Australia S&P Global Services PMI Flash (June): previous 50.6
• 8.30am (HK time) -- Japan Jibun Bank Manufacturing PMI Flash (June): previous 49.4, consensus 49.5
• 8.30am (HK time) -- Japan Jibun Bank Services PMI Flash (June): previous 51.0
• 4.30pm (HK time) -- UK S&P Global Manufacturing PMI Flash (June): previous 46.4, consensus 46.9
• 4.30pm (HK time) -- UK S&P Global Services PMI Flash (June): previous 50.9, consensus 51.5
• 9.45pm (HK time) -- US S&P Global Manufacturing PMI Flash (June): previous 52, consensus 51.2
• 9.45pm (HK time) -- US S&P Global Services PMI Flash (June): previous 53.7, consensus 52.9
• 10.00pm (HK time) -- US Existing Home Sales (May): previous 4M, consensus 3.95M

Tuesday 24 June 2025

• 10.00pm (HK time) -- US CB Consumer Confidence (June): previous 98.0, consensus 99.1

Wednesday 25 June 2025

• 9.30am (HK time) -- Australia Monthly CPI (May): previous 2.4%, consensus 2.4%
• 10.00pm (HK time) -- US Fed Chair Powell Testimony

Thursday 26 June 2025

• 8.30pm (HK time) -- US Durable Goods Orders MoM (May): previous -6.3%, consensus 6.8%
• 8.30pm (HK time) -- US GDP Growth Rate QoQ Final (Q1): previous 2.4%, consensus -0.2%

Friday 27 June 2025

• 7.50am (HK time) -- Japan Retail Sales YoY (May): previous 3.3%, consensus 2.6%
• 8.30pm (HK time) -- US Core PCE Price Index MoM (May): previous 0.1%, consensus 0.1%
• 8.30pm (HK time) -- US Personal Income MoM (May): previous 0.8%, consensus 0.3%
• 8.30pm (HK time) -- US Personal Spending MoM (May): previous 0.2%, consensus 0.2%

Key corporate earnings

Wednesday 25 June 2025

• Micron Technology

Source: Trading Economics, Reuters (as of 21 June 2025)