First light mews: Israel-Iran ceasefire remains in place, Powell holds firm, NATO summit in focus

Good morning, everyone. It was a busy day yesterday.

A fragile ceasefire between Israel and Iran remains in place for now. However, US President Donald Trump was not a happy chap over the reported initial violations from both sides in the hours following the truce announcement. Before departing for the NATO (North Atlantic Treaty Organisation) summit in the Netherlands, Trump sharply criticised both nations, stating, ‘We basically have two countries that have been fighting so long and so hard that they don’t know what the f*ck they’re doing’.

Fed chair Powell defends ‘wait-and-see stance’

US Federal Reserve (Fed) Chairman Jerome Powell claimed some of the limelight yesterday, testifying before the House Financial Services Committee. Despite persistent pressure from Trump to lower rates, as well as Fed Governors Michelle Bowman and Christopher Waller advocating support for a July rate cut, Powell defended the central bank’s ‘wait-and-see’ position. He maintained that the economy remains strong and policymakers need more clarity on the impact of Trump’s economic policies, particularly tariffs. 

Nevertheless, Powell acknowledged that if inflation were to ease further or the jobs market experienced a deterioration, rate cuts may be considered, sending US Treasury yields and the US dollar (USD) south. Investors, however, are still leaning in favour of September’s meeting as a date to cut rates by 25 basis points (bps). Adding to the discussion, Chicago Fed President Austan Goolsbee also suggested that if tariffs do not lead to increased inflation, the Fed should consider resuming rate cuts. However, he did not specify a timeline for easing. 

Macro highlights

CPI Inflation data (Consumer Price Index) from Canada landed yesterday and held steady at the headline level, rising 1.7% year-on-year in May, and matching April’s reading. The Bank of Canada’s (BoC) preferred measures of inflation – CPI Median and CPI Trim – both slowed to 3.0% from 3.2% and 3.1%, respectively. This leaves data at the upper boundary of the central bank’s inflation target band of 1% – 3%. The stable headline print, driven by a fall in rental and travel tour prices, and core prints remaining somewhat elevated, is unlikely to be sufficient to justify a rate cut next month. BoC rate pricing saw a moderately hawkish response, with 31 bps worth of cuts implied as of writing, compared to 33 bps before the data release. Investors are currently assigning a 68% chance that the central bank will remain on hold at the next meeting in July. 

In the US, consumer confidence unexpectedly declined sharply in June, falling to within striking distance of a five-year low as tariffs remain the primary concern for consumers. According to the Conference Board, consumer confidence slipped to 93.0, from a downwardly revised 98.4 reading in May. Inflation and high prices were also noted concerns, despite a slight easing in average 12-month inflation expectations. 

Day ahead

Today’s calendar is thin. We do have Powell’s testimony before the Senate Committee on Banking, although I do not expect the Fed Chair to deviate from his previous statements. Consequently, the market’s focus will largely be on developments at the NATO summit. 

By stating that it ‘depends on your definition’ and declining to provide clarification, Trump has cast doubt on the US’s commitment to NATO’s Article 5 mutual defence guarantee. This has rekindled long-standing European concerns about Trump’s commitment to the alliance, which he frequently criticises for insufficient defence spending, despite assurances from NATO Secretary-General Mark Rutte. Trump reiterated his call for allies to boost their defence budgets to 5% of GDP (Gross Domestic Product), claiming credit for pushing for higher contributions, a point Rutte publicly acknowledged in a private message.