Morning Bid: Israel-Iran truce hope in tatters

A look at the day ahead in European and global markets from Ankur Banerjee

Investor hope of a quick resolution to the Israel-Iran conflict was swiftly dashed after the long-time rivals attacked each other again and U.S. President Donald Trump urged Iranians to evacuate Tehran.

That, along with Trump reportedly calling the U.S. national security council and cutting short his visit to the Group of Seven summit, rattled investors leading to major risk-off moves.

European markets are set to open deep in the red, futures indicated, while oil prices jumped nearly 2% in Asian hours, taking gains to 7.5% since the conflict started on Friday.

U.S. futures also fell but currencies were relatively stable - with the U.S. dollar reprising its role as a safe haven. The worry for markets and the world remains that of possible U.S. involvement, broadening the conflict.

A White House aide said it was not true the U.S. was attacking Iran. Defense Secretary Pete Hegseth told Fox News that Trump was aiming for a deal with Iran on the latter's nuclear-related activity, and said the U.S. would defend its assets in the region.

Markets have generally been resilient to Israel-Iran developments since initial bouts of knee-jerk selling as investors look beyond the conflicts around the globe, keeping benchmark U.S. and European stock indexes close to record highs.

Amid the geopolitical noise, investors are bracing for a slate of central bank meetings this week, starting with the Bank of Japan which held interest rates as widely expected. The focus was rather on what the BOJ would do to its bond-tapering programme.

The BOJ decided to slow the pace of reduction of bond purchases from next fiscal year, signalling its preference to move cautiously in normalising still-easy monetary policy.

The central bank faces fresh challenges in weaning the economy off decade-long stimulus that has kept rates ultra-low and left the bank with an economy-sized balance sheet.

Market reaction to the BOJ's meeting outcome was muted, with the yen and bond yields glacial. As UBS analysts put it, "It's lots of mulling for not so much change."

Key developments that could influence markets on Tuesday:

Economic events: Germany's ZEW economic sentiment for June

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(By Ankur Banerjee in Singapore; Editing by Christopher Cushing)