• Stocks in the US were spooked by what seemed like an imminent US involvement in Israel's offensive against Iran.
• Firing between Israel and Iran continued overnight. Iran used a hypersonic missile, while no attacks were seen from the US. Risk recovered and oil waned off highs.
• US officials signalled that the next 24 to 48 hours would be critical in determining whether a diplomatic solution with Iran is possible - or if the president might resort to military action instead, according to ABC.
• APAC stocks were mostly lower following the softer handover from Wall Street; US equity futures recovered from earlier lows.
• European equity futures are indicative of a slightly softer cash open, with the Euro Stoxx 50 future down -0.3% after cash closed with losses of 1.0% on Tuesday.
• Highlights include UK CPI, US Building Permits, Housing Starts, Jobless Claims, Fed, Riksbank & BCB Policy Announcements, speakers include ECB’s Nagel, Elderson, Lane, de Guindos, Panetta, BoC’s Macklem; Fed Chair Powell, Supply from Germany.

US TRADE

EQUITIES

• US stocks were sold in another session dominated by Israel-Iran geopolitics and amid fears of the US joining Israel's offensive.
• SPX -0.84% at 5,983, NDX -1.00% at 21,719, DJI -0.70% at 42,216, RUT -1.04% at 2,102
• Click here for a detailed summary.

NOTABLE HEADLINES

• US President Trump posted "U.S. Wage Growth BEST IN 60 YEARS!", via Truth Social
• AMD (AMD) and Xbox (MSFT) announced a strategic, multi-year partnership to co-engineer silicon across a portfolio of devices, including next-gen Xbox consoles.
• The Fed board announces an open meeting to discuss proposed revisions to the supplementary leverage ratio standards at 19:00BST/14:00EDT on June 25th.
• Atlanta Fed GDP Now (Q2 25): 3.5% (prev. 3.8%).
• US plans to ease capital rule limiting banks’ Treasury trades, according to Bloomberg. Bank regulators plan to propose decreasing the Supplemental Leverage Ratio for the largest banks.
• BoC Minutes: Members expected the boost in export growth to dissipate quickly as tariffs and uncertainty continued. There could be a need for further reduction in interest rates if the effects of tariffs and uncertainty continued to spread through the economy and cost pressures on inflation were contained.

TRADE/TARIFFS

• Supreme Court asked to hear a challenge to Trump's global tariffs, according to Bloomberg.
• Mexican President Sheinbaum said she had a very good phone conversation with US President Trump; they agreed to work together to reach an agreement on diverse topics that worry them, according to Reuters.
• White House said US President Trump will sign an additional executive order this week to keep TikTok running; the extension will last 90 days.
• South Korea and the US are to hold the third round of trade talks next week, according to Maeil.
• Japanese PM Ishiba agreed with US President Trump to continue ministerial-level tariff talks; Ishiba said Japan will continue to work intensely to achieve a trade deal with the US.

APAC TRADE

EQUITIES

• APAC stocks were mostly lower following the softer handover from Wall Street, with stocks in the US spooked by what seemed like an imminent US involvement in Israel's offensive against Iran. However, sentiment in APAC hours recovered as news surrounding US involvement quietened down overnight, with oil also coming off its best levels amid no signs of an American military attack. Ranges remained narrow ahead of the FOMC announcement.
• ASX 200 traded subdued with sectors overall mixed, but gold miners provided headwinds for the index.
• Nikkei 225 was modestly firmer and underpinned by recent losses in the JPY, while Japanese PM Ishiba agreed with US President Trump to continue ministerial-level tariff talks. Ishiba added that Japan would continue to work intensely to achieve a trade deal with the US.
• Hang Seng and Shanghai Comp traded lower but to varying degrees with underperformance in Hong Kong, although with limited news from the region, and attention focused on geopolitics.
• US equity futures recovered from earlier lows as markets initially anticipated a US attack on Iran, which ultimately did not occur during APAC hours. Traders looked ahead to the FOMC and SEP release, which is expected to be a placeholder meeting, with the Fed observing a wait-and-see approach.
• European equity futures are indicative of a slightly softer cash open, with the Euro Stoxx 50 future down -0.3% after cash closed with losses of 1.0% on Tuesday.

FX

• DXY traded with a downward bias as participants awaited a US response against Iran, which ultimately did not happen (at the time of writing), with traders then looking ahead to the FOMC and SEP release, which is expected to be a placeholder meeting. DXY was contained within 98.63-98.84 and experienced some late selling.
• EUR/USD was supported by the subdued Dollar, with newsflow for the EU on the lighter side in APAC hours. EUR/USD eventually topped 1.15 amid late USD selling and after declining from a 1.1577 peak the previous day.
• GBP/USD was uneventful and overall underpinned by the Dollar, with Cable maintaining a 1.3400 status after recently giving up a 1.3600 handle. Traders looked ahead to UK inflation data at 07:00 BST on Wednesday.
• USD/JPY gradually edged lower but remained above the 145.00 handle for most of the session before testing and breaching the level to the downside, whilst on the trade front, Japanese PM Ishiba agreed with US President Trump to continue ministerial-level tariff talks.
• Antipodeans were modestly firmer and off earlier lows as the high-beta FX tracked the recovery in sentiment after geopolitical updates quietened down.
• PBoC set USD/CNY mid-point at 7.1761 vs exp. 7.2027 (prev. 7.1746)
• Chilean Central Bank maintains benchmark interest rate at 5.00%, as expected, with the decision unanimous.

FIXED INCOME

• 10yr UST futures traded essentially flat overnight amid a lack of updates on the geopolitical front as APAC markets opened, with eyes set on the upcoming FOMC. Futures saw a knee-jerk higher after Bloomberg reported US plans to ease capital rules limiting banks’ Treasury trades.
• Bund futures saw sideways trade in German debt as participants focused on geopolitics overnight, while EZ traders looked ahead to several ECB speakers and the final release of the EZ CPI for May.
• 10yr JGB futures played catch-up to the upside across Western counterparts amid the flight-to-quality on fears of the US joining the attack on Iran.
• US sold USD 23bln of 5yr TIPS; Stop through 1bps; Tail: -1.0bps (prev. 2.2bps). High Yield: 1.650% (prev. 1.702%, six-auction average 1.916%); WI 1.660%. B/C: 2.53x (prev. 2.28x, six-auction average 2.41x). Dealer: 6.55% (prev. 18.1%, six-auction average 10.6%). Direct: 18.82% (prev. 17.8%, six-auction average 18.8%). Indirect: 74.62% (prev. 64.2%, six-auction average 70.6%).
• Australia sold AUD 900mln 2.75% May 2035 bond, b/c 3.44x (prev. 2.75x), average yield 4.2413% (prev. 4.2457%)

COMMODITIES

• Crude futures initially saw gains on fears of the US joining the attack on Iran, with some reports suggesting it could be imminent. However, the attack ultimately did not take place, and as such, crude prices trimmed the earlier upside. The situation remained fluid, with Iran using its latest hypersonic missiles against Israel. Earlier, modest upside was seen on the much larger-than-expected draw in private inventories.
• Spot gold trimmed earlier gains as markets awaited the US attack on Iran. Spot gold traded in a USD 3,378.89-3,395.79/oz parameter, within yesterday's USD 3,365.79-3,403.08/oz band.
• Copper futures traded within narrow ranges and off earlier lows as the contracts tracked global risk sentiment amid fluid geopolitics.
• Private inventory data (bbls): Crude -10.133mln (exp. -0.6mln), Distillate +0.32mln (exp. -0.1mln), Gasoline -0.2mln (exp. +0.2mln), Cushing -0.8mln.
• Brent crude's premium to Dubai at its highest since September 2023, according to sources and data cited by Reuters.
• Qatar set June-loading Al-Shaheen crude term premium at USD 2.48/bbl, highest in a year, according to Reuters sources.

CRYPTO

• Bitcoin traded relatively flat on either side of USD 105k ahead of the FOMC.
• US Senate had enough votes for stablecoin bill passage, according to Bloomberg.

NOTABLE ASIA-PAC HEADLINES

• PBoC governor said they will improve the monetary policy toolbox, according to Reuters.
• Chinese FX regulator said exports have maintained resilience; recent buying of onshore stocks has increased; will continue to implement proactive macro policy; will keep yuan basically stable at reasonable and balanced levels, according to Reuters.
• PBoC injected CNY 156.3bln via 7-day reverse repos with the rate maintained at 1.40%

DATA RECAP

• Japanese Trade Balance Total Yen (May) -637.6B vs. Exp. -892.9B (Prev. -115.8B, Rev. -115.6B)
• Japanese Exports YY (May) -1.7% vs. Exp. -3.8% (Prev. 2.0%)
• Japanese Machinery Orders YY * (Apr) 6.6% vs. Exp. 4.0% (Prev. 8.4%)
• Japanese Machinery Orders MM * (Apr) -9.1% vs. Exp. -9.7% (Prev. 13.0%)
• Japanese Imports YY (May) -7.7% vs. Exp. -6.7% (Prev. -2.2%)
• New Zealand Current Account- Annual (Q1) -24.662B vs. Exp. -24.8B (Prev. -26.401B)
• New Zealand Current Account/GDP (Q1) -5.7% vs. Exp. -5.8% (Prev. -6.2%)
• New Zealand Current Account - Qtrly (Q1) -2.324B vs. Exp. -2.2B (Prev. -7.037B)

GEOPOLITICS

MIDDLE EAST

• OVERVIEW: Throughout the APAC session, firing between Israel and Iran continued, Iran used its new hypersonic Fattah missiles which reportedly penetrated Israeli airspace; no updates were seen from US President Trump, US officials, or US press channels. Risk recovered from earlier lows and oil waned off highs.

US Involvement

• US officials signalled that the next 24 to 48 hours would be critical in determining whether a diplomatic solution with Iran is possible - or if the president might resort to military action instead, according to ABC.
• "Western sources: We have indications that the US will attack Iran soon", according to Kann News.
• US embassy in Jerusalem will be closed Wednesday through Friday, according to the US State Department.
• US President Trump is considering a range of options when it comes to Iran, including a possible US strike on the country, according to multiple officials cited by NBC.
• US President Trump said "We know exactly where the so-called “Supreme Leader” is hiding. He is an easy target, but is safe there - We are not going to take him out (kill!), at least not for now", via Truth Social.
• The Pentagon is playing its role in providing options if diplomacy with Iran fails, via US official to Al Jazeera.
• US military moving fighter jets to the Middle East and continuing deployments of warplanes to bolster defences amid Israel-Iran conflict, according to Reuters citing US officials. "Pentagon moves more fighter jets to Middle East", according to Sky News Arabia
• US President Trump said "We now have complete and total control of the skies over Iran", via Truth Social. Politico's Jake Traylor citing a White House official, said that the “We” that President Trump is referring to here in the post on Truth after having complete control over Iran's skies is in fact the United States, not Israel.
• B-52 bombers are currently stationed on Diego Garcia island in the Indian Ocean, according to informed sources at the Pentagon telling Al Jazeera. "US sources talk about the flight of strategic B-52 bombers towards the region", according to Asharq News.
• US President Trump is seriously considering attacking Iran and is holding a crucial meeting with his advisers, according to Walla News/Axios citing Senior American Officials.
• The Pentagon is moving more fighter jets to the Middle East and is extending the deployment of air assets already in the Middle East, Fox News reports.
• The US military is preparing for the possibility that US President Trump decides to order the US Air Force to help refuel Israeli fighter jets as they carry out strikes over Iran, two sources familiar with the matter told CNN.
• Trump's desire to handle the escalating conflict in the Middle East diplomatically is waning. Officials familiar with the ongoing discussions tell CNN Trump is growing increasingly warm to using US military assets to strike Iranian nuclear facilities. "Trump is not eager to make any deals with the Iranians unless they're far more forthcoming than they have been to date and are willing to make serious compromises regarding a potential nuclear deal, a White House official familiar with the ongoing discussions tells me". "The new, more hawkish posture represents a significant shift in Trump’s thinking, though the sources said Trump remains open to a diplomatic solution – if Iran makes significant concessions".
• Before launching its attack on Iran last week, Israel provided the US with intelligence it deemed alarming: Tehran was conducting renewed research useful for a nuclear weapon, including on an explosive triggering system, via WSJ. "But U.S. officials briefed by the Israelis weren’t convinced that the information pointed to a decision by Tehran to build a bomb, according to a senior intelligence official, another U.S. official and two congressional aides familiar with the discussions. " "Trump’s view that Iran is near to getting a bomb is shared by some other administration officials. “We believe that Iran is as close to having a nuclear weapon as one can get. They have all the components necessary to put one together,” a senior administration official said."
• Senior White House Official told Fox's Lawrence that the meeting with National Security Advisors in the Situation Room will start "very soon"; says "US strikes inside Iran on targets... are on the table". The Official telling him that US strikes inside Iran on targets, like the facility where Iran has its nuclear program, are on the table.
• US President Trump reportedly backed down from sending senior officials to meet with the Iranians to try to reach a deal, according to US officials to CNN, being cited by Al Jazeera.
• Israel Channel 12 journalists report US could join the war against Iran Tuesday night, via Faytuks News citing a telegram post.

Strikes Headlines

• Iranian Revolutionary Guards said Iran's Fattah missiles broke through Israeli defences, giving it 'complete domination' over Israeli airspace.
• "Israel's Channel 12: Army attacks Tehran's refineries", according to Al Arabiya.
• Israeli military said it attacked a centrifuge production site and several weapons production sites of the Iranian regime last night.
• IDF Spokesman said the Iranian regime still has great capabilities that allow it to harm them, Al Jazeera reports. They attacked the IRGC headquarters and killed Iran's Chief of Staff. "When we finish our mission, we will announce it and will not allow the existential threat against us to continue".
• Israeli Minister of Strategic Affairs said "We will remove Iran's capabilities to launch ballistic missiles, completing the mission in Iran will not take long", via Al Hadath; "We destroyed uranium enrichment facilities in Iran. We are close to completing the mission in Iran".
• Iran has reportedly prepared for strikes on US bases if the US joins the war, according to NYT; Officials suggest that in the event of an attack, Iran could begin to plant mines in the Strait of Hormuz.
• Iranian Supreme Leader Khamenei said The battle has begun, via Al Hadath.
• Iranian state media claimed that tonight (Tuesday night) will "hold a surprise the world will remember for centuries", according to multiple reports.
• "IRGC: Attacks on Israel will continue continuously and gradually", according to Sky News Arabia.

Diplomacy Headlines

• "Source familiar says there are no plans for a meeting this week between Witkoff and Araghchi", according to an Al-Monitor journalist.
• US President Trump is seriously considering attacking Iran and is holding a crucial meeting with his advisers, according to Walla News/Axios citing Senior American Officials.
• US military is preparing for the possibility that US President Trump decides to order the US Air Force to help refuel Israeli fighter jets as they carry out strikes over Iran, two sources familiar with the matter told CNN.
• The Pentagon is playing its role in providing options if diplomacy with Iran fails, via US official to Al Jazeera.

OTHER

• North Korea's Kim Jong Un met Russia security official Shoigu on Tuesday, according to KCNA.