Top Trade Ideas - June 23rd
Do markets fade the escalation like last week, or is this time different?
US equity markets ended slightly lower as geopolitical tensions in the Middle East overshadowed economic fundamentals. The S&P 500 dipped 0.2% for the week, dragged by defensive and rate-sensitive sectors, while energy rallied 2.8% on firmer crude prices. Reports that the US would delay involvement in the Israel-Iran conflict for two weeks helped lift markets off their lows by Friday, but uncertainty around the situation kept risk appetite subdued. However, weekend actions from the US leave markets facing a lot of uncertainty about the coming weeks.
The FOMC held rates steady, as expected, and projected two more cuts this year. Markets initially rallied on the dovish dot-plot but reversed course as Chair Powell emphasised a cautious and patient stance. The OIS curve now prices in exactly 50bps of cuts for 2025.
Fed’s Waller (voter) said, post-FOMC, that rates could be cut as soon as next month, with the impact of tariffs on inflation likely to be short-lived.
Elsewhere, a fresh threat to US-China chip trade rattled the tech sector, while stablecoin legislation passed in the Senate spurred sharp moves in financials and crypto. Mastercard and Visa sold off, while Coinbase surged 16%.
The dollar staged a notable rebound, led by gains against the yen, while Treasuries were little changed despite the Fed meeting. The 10-year yield closed roughly 3bps lower on the week, reflecting muted rate repricing and limited haven flows despite the geopolitical backdrop. Markets now turn to 4Q earnings from FedEx and Nike, and rebalancing flows into quarter-end.
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The Economic Week Ahead
Flash PMIs from the US, eurozone, and UK will headline the week, offering a real-time pulse on global growth momentum. With oil prices rising amid escalating Middle East tensions and tariff uncertainty lingering, the surveys will be crucial in determining whether April marked a local trough in business sentiment or if downside risks are building again. June’s S&P PMIs in the US and the UK will also help gauge whether recent signs of services resilience are sustainable.
For the US, additional focus will fall on the Fed’s preferred inflation gauge, May core PCE, due Friday. A softer print could reinforce expectations for a rate cut by September, especially after muted CPI and PPI data earlier this month. However, energy-driven price pressures and signs of sticky shelter inflation could keep policymakers cautious. Consumer confidence and a raft of housing and durable goods data will round out the US calendar, while $211 billion in Treasury auctions will test market appetite as fiscal concerns remain elevated.
On the central bank side, Powell headlines with testimony to Congress in the middle of the week. The Fed also holds a public meeting on Wednesday to review the SLR rule, a key constraint on bank balance sheets during Treasury market stress.
Trump attends the NATO summit that’s taking place in The Hague. Worth watching for defence names, both EU and US.
In the eurozone, flash PMIs and sentiment surveys will be assessed alongside French and Spanish inflation prints and consumer spending data, providing further context after the ECB’s recent rate cut. Germany’s Ifo and GfK surveys could show whether trade disruptions and global political risks are beginning to dent corporate optimism.
The UK’s flash PMIs will give an early look at whether May’s rebound continued into June. Markets will also watch Friday’s retail sales and consumer confidence data for signs of strain on household spending. Gilt auctions midweek and ongoing rate cut speculation will keep bond markets active.
In Canada, May CPI on Tuesday will be key for the Bank of Canada’s policy path. After headline inflation slowed in April, focus turns to core measures, where stickiness remains. The BoC has emphasised vigilance over second-round tariff effects, with surveys already indicating businesses plan to pass through higher costs.
Asia’s inflation focus will be sharp. Tokyo CPI on Friday will offer the Bank of Japan an early read on price trends, while core inflation is expected to remain persistently above 3%. BOJ board member Tamura will speak midweek, and markets will parse the central bank’s June meeting summary for signals on bond purchase tapering.
Australia’s May CPI print could be decisive in cementing expectations for a July rate cut. Recent inflation moderation and global risks have reopened the door for policy easing, though oil volatility and geopolitics could inject caution.
Across emerging markets, central banks in Mexico, Hungary, the Czech Republic, and Russia will set policy, with rate cuts expected or possible in most. Meanwhile, China’s only major release, industrial profits, will be watched for signs of tariff drag, and Taiwan’s export-heavy economy faces similar scrutiny amid shifting US trade dynamics.
In Southeast Asia, rate decisions in Thailand and the Philippines are expected to lean dovish, while inflation data from Singapore and Malaysia may confirm a broader disinflation trend. New Zealand’s Q1 GDP will be pivotal in assessing whether its shallow recovery is gaining traction.
With the macro narrative now balancing easing inflation, rising geopolitical risk, and residual tariff shock, this week’s PMI and CPI data will shape the tone for both bond markets and policy signalling heading into Q3.
FX
CAD/JPY primed for a move higher:
Historically, the correlation between CAD/JPY and oil has been decent, but the pair hasn’t yet caught a material bid from the recent pop in oil following the conflict in the Middle East.
We think the pair has legs to catch up in the coming weeks, especially following a BoJ meeting that’s clearly more focused on handling bond purchase reductions right now. The Yen could see weakness from the lack of meaingful guidnace going forward on future rate hikes.
From a technical perspective, the pair is knocking on the door of a break higher should it manage to take out the resistance from the downward trendline. From there, we wouldn’t rule out a medium term move to 110.00.
Entry: 106.35
Take Profit: 109.50
Stop Loss: 104.95
Adding OTM GBP/USD put exposure:
So far this year, any dips in GBP/USD have been swiftly bought, as we’ve seen the UK seemingly impress while the USD has capitulated.
At the end of last week, this dip appeared to have been bought again. The short-term move lower was partly due to more poor UK data. We’re already expressing our short GBP view via long EUR/GBP.
Yet in conversation late last week, a good point was raised that it’s not bad value at all to hold some OTM GBP/USD puts, both for a GBP lower view but also in case the short USD train (which is fast becoming a crowded trade) gets a sharp unwind.
Therefore, we look to add a small position in the options space with a generous payoff.
Buy a three-month 20 delta (1.3010) strike Put costing 0.5%