Finance
Trading Day: Markets calm in eye of hurricane
Published by Global Banking & Finance Review®
Posted on June 18, 2025
8 min readLast updated: January 23, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on June 18, 2025
8 min readLast updated: January 23, 2026
Global markets showed stability amid Middle East tensions and Federal Reserve updates, with slight changes in oil and precious metals prices.
By Jamie McGeever
ORLANDO, Florida (Reuters) - TRADING DAY
Making sense of the forces driving global markets
By Jamie McGeever, Markets Columnist
Key equity, bond, currency and commodity prices mostly ended little changed on Wednesday, as investors digested the fast-moving developments in the Middle East and the Federal Reserve's latest policy decision and guidance.
In my column today I explain why the Bank of Japan's cautious approach to reducing its balance sheet will help keep domestic real rates and yields deeply negative, and keep Japanese money overseas. More on that below, but first, a roundup of the main market moves.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. Early Fed chair nomination could rattle markets 2. Dollar exit could be crowded for some time: Mike Dolan 3. UK inflation slows but oil price jump creates newproblem for Bank of England 4. China talks up digital yuan in push for multi-polarcurrency system 5. Texas Instruments plans $60 billion U.S. investment amidTrump's onshoring pushToday's Key Market Moves
* Oil prices end a volatile session slightly higher,recovering losses of around 2% earlier in the day. Brent crudesettles at $76.70/bbl, WTI at $75.14/bbl. * Wall Street's three main indices end essentially flat,although the Russell 2000 small cap index rises 0.6%. * U.S. Treasury yields fall 1 basis point or less across thecurve. * The dollar edges higher but only just. The Swiss franc isone of the biggest movers in G10 FX, slipping 0.3% ahead ofThursday's SNB meeting. * Gold fails to scale $3,400/oz for a second day, but thebig mover in precious metals is platinum, leaping 4% to an11-year high of $1,329/oz on continued strong demand from China.Platinum is up around 25% so far this month.Markets calm in eye of hurricane
With the Israel-Iran war entering its sixth day, President Donald Trump leaving the world hanging over his next move and Washington's involvement in the conflict, and the Federal Reserve flagging rising 'stagflation' risks, world markets were remarkably calm on Wednesday.
At least, they were calm by the end of U.S. trading, regaining their poise after some intra-day turbulence and settling pretty close to where they ended the previous day.
In some ways, this was surprising, given the newsflow.
Iranian Supreme Leader Ayatollah Ali Khamenei rejected Trump's demand for unconditional surrender, and the U.S. president said his patience had run out. Asked if he had made a decision on whether to join Israel's bombing of Iran, Trump said: "I may do it. I may not do it. I mean, nobody knows what I'm going to do."
Later on Wednesday the Fed kept interest rates on hold as expected, but officials' revised economic projections pointed to slower growth and higher inflation and unemployment over the next couple of years. Stagflation.
Trump also resumed his verbal attacks on Fed Chair Jerome Powell before the central bank's policy announcement, calling him "stupid" and berating him for not lowering rates like other central banks.
On the other hand, there was ultimately little change in the immediate landscape or near-term outlook for investors to price on Wednesday.
The situation in the Middle East is extremely tense, but no more so than 24 hours ago. Trump's equivocation may fuel the uncertainty and tension, but also leaves the door open to more benign outcomes. Perhaps.
Similarly, Fed officials may think higher inflation risks mean fewer rate cuts are warranted in 2026 and 2027, but they maintained their central forecast of 50 basis points of rate cuts this year.
Investors could reassess on Thursday. U.S. markets will be closed for the Juneteenth federal holiday, but markets everywhere else will be open and investors will have a raft of policy decisions from other central banks to digest too, most notably from the Bank of England and Swiss National Bank.
The SNB, flirting with negative interest rates again, will be particularly fascinating. Economists expect it to cut rates 25 basis points to zero, and go negative by the end of the year. Traders are attaching a one-in-four chance it cuts half a point on Thursday.
As much of the world frets about the price impact of tariffs, Switzerland is fighting deflation. The franc has never been stronger in broad terms, and its safe-haven status could spur even greater appreciation in the weeks and months ahead.
BOJ caution could keep Japanese capital overseas
The Bank of Japan is taking a more cautious approach to reducing its balance sheet, meaning Japanese capital invested overseas is less likely to be coming home anytime soon.
In the face of heightened economic uncertainty and recent volatility at the long end of the Japanese Government Bond curve, the BOJ announced on Tuesday that it will halve the rate of its balance sheet rundown in fiscal year 2026 to 200 billion yen a quarter.
The central bank began gradually shrinking its bloated balance sheet 18 months ago and last August began an even more gradual interest rate-raising cycle, representing a historic shift after years of maintaining ultra-low and even negative nominal rates.
All else being equal, this modest tightening would be expected to narrow the yield gap between Japanese and foreign bonds, making JGBs more attractive to domestic and foreign investors while also strengthening the yen.
So why hasn't Japanese capital been coming home? In part, because Japan's real interest rates and bond yields remain deeply negative, and the latest BOJ move suggests this is likely to remain the case for the foreseeable future.
The prospect of Japanese real returns staying deeply negative is enhanced by current inflation dynamics. Inflation in Japan is the highest in two years by some measures and may prove sticky if Middle East tensions continue to put upward pressure on oil prices. Japan imports around 90% of its energy and almost all of its oil.
Japan's yield curve could also potentially flatten from its recent historically steep levels if the BOJ's decision caps or lowers long-end yields. And the curve will flatten further if the BOJ continues to 'normalize' interest rates - something BOJ Governor Kazuo Ueda insists is still on the table, although markets think the central bank is on hold until next year.
MARKET MUSCLE
Either way, a flatter yield curve won't be particularly appealing to Japanese investors who may be considering pulling money out of U.S. or European markets. And there is a lot of money to repatriate, meaning even marginal shifts in Japanese investors' positioning could be meaningful.
While Japan is no longer the world's largest creditor nation, having recently lost the crown to Germany after holding it for more than three decades, it still has plenty of financial muscle with a net $3.5 trillion in overseas stocks and bonds, the highest total ever.
Analysts at Deutsche Bank estimate that Japanese life insurers and pension funds hold more than $2 trillion in foreign assets, around 30% of their total assets.
What would prompt Japanese investors to repatriate? In a deep dive on the topic last month, JP Morgan analysts said several stars would have to align, namely a sustainable rise in long-term Japanese interest rates, an improvement in the country's public finances, and steady yen appreciation against the dollar.
That's a tall order. But if this were to materialize, and banks and other depositary institutions reverted to pre-'Abenomics' asset allocation ratios of 82% domestic bonds and 13% foreign securities, repatriation flows from these institutions alone could amount to as much as 70 trillion yen. That's just under $500 billion at current exchange rates.
That's not JPMorgan's base case though, certainly not in the near term. But over the long term, they think some reversal of the flow of capital from JGBs into U.S. bonds over the last decade or more is "plausible".
The BOJ's decision on Tuesday probably makes the prospect of any significant capital shift less plausible, though, at least for now.
What could move markets tomorrow?
* Israel-Iran conflict * Australia unemployment (May) * Philippines interest rate decision * Taiwan rate decision * Bank of England rate decision * Swiss National Bank rate decision * Norges Bank rate decision * Turkey rate decision * European Central Bank officials speak at various events -board member Claudia Buch, Governing Council member FrancoisVilleroy de Galhau, and Vice President Luis de Guindos * U.S. markets closed for federal holidayWant to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Jamie McGeever; Editing by Nia Williams)
Key equity, bond, currency, and commodity prices mostly ended little changed, as investors digested developments in the Middle East and the Federal Reserve's latest policy.
The Fed kept interest rates on hold but revised economic projections indicated slower growth and higher inflation and unemployment over the next couple of years.
The Bank of Japan is taking a cautious approach to reducing its balance sheet, which suggests that Japanese capital invested overseas is less likely to return home soon.
Analysts suggest that a sustainable rise in long-term Japanese interest rates and a shift in asset allocation ratios would be necessary for Japanese investors to consider repatriating capital.
The ongoing tensions in the Middle East may fuel uncertainty in the markets, but as of now, the situation remains stable compared to previous days.
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