Weekly Market Outlook 6/22/2025
Praying for Peace
Hello traders,
First things first.
US has now firmly involved itself into the Israel-Iran conflict in the middle east.
This newsletter does not care about profits more than it cares about world peace. I’m hoping for de-escalation through the week and finding peace and stability in the region.
Recap of last week’s trades can be found on X account by clicking the links in this sentence.
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I. Surface calm hides mechanical stress
Headline equity moves looked ordinary in the five sessions that ended 20 June 2025. Spooz front-month futures slipped 0.65 percent. Nasdaq-100 futures gave back 1.31 percent. Beneath that calm, the equal-weight S&P fell twice as much, the advance–decline line recorded five straight lower closes, and ninety-day realised volatility turned up for the first time since March. Brent crude exploded eleven percent to 77 dollars. Gold tagged 3475 before easing. Ten-year Treasury yields fell eight basis points to 4.38 percent. The widely watched VIX closed 20.62, up from 19.11, breaking a two-month stretch of complacency. Liquidity thinned as systematic funds began cutting exposure once the volatility filter tripped.
Three shocks drove the odd mix of falling duration, rallying energy, and flagging growth leadership. First, Israel’s largest air raid since 1973 and the follow-on United States bunker-buster strikes on Iranian enrichment tunnels raised the odds of a Strait of Hormuz interruption. Second, the Federal Reserve signalled that tariff-driven inflation risk outweighs softening demand, dividing the dot plot: seven of eighteen officials now foresee no rate cuts in 2025. Third, that tariff package itself combines a ten-percent blanket duty, a fifty-percent hit on metals and derivative goods, and a thirty-five-percent stack on sensitive Chinese imports. The package lifts costs, curbs spending, squeezes real income, and limits the central bank’s ability to respond.
Systematic risk-parity and volatility-targeted portfolios unload when realised volatility rises. The one-day VIX jump from fourteen to twenty on 18 June should remove about one quarter of gross exposure over the subsequent ten trading days. The flow arrives slowly, but when market depth is thin, even modest program selling can magnify price excursions. That mechanical overhang helps explain why the tape wobbled each afternoon after looking firm early.
II. Gulf escalation reshapes energy calculus
A. The timeline
13 June 02:10 local time: Israel kicked off Operation Rising Lion. More than two hundred F-35 I and F-15 I fighters departed Ramon, Nevatim, and Hatzerim to strike about one hundred Iranian locations. Targets included Natanz centrifuge halls, Isfahan conversion buildings, missile depots near Tabriz, hardened Khordad-15 batteries outside Tehran, and cyber nodes in Shiraz. Thermal satellite imagery confirmed multiple roof collapses at Natanz and flash burns across concrete at Isfahan. Iranian media soon named Major General Hossein Salami and General Mohammad Bagheri among the dead.
15 June: Tehran answered with Operation True Promise III. Roughly one hundred fifty Fateh-313 and Zulfiqar ballistic missiles plus more than one hundred Shahed-136 drones aimed at Israel’s air-defence grid and government offices. Most were intercepted by Arrow, David Sling, and Iron Dome, yet quite a few penetrated the shield and slammed into the defence ministry tower in Tel Aviv.
21 June 02:10: Washington executed Operation Midnight Hammer. Two flights of B-2 Spirits from Whiteman AFB and a Virginia-class submarine in the Arabian Sea dropped fourteen GBU-57 bunker penetrators and fired twenty Tomahawks at Fordo, Natanz, and Isfahan power feeds. Planet Labs images six hours later showed caved adits at Fordo and cratered ventilation shafts. The International Atomic Energy Agency confirmed no radiation leak.
B. Market transmission
War-risk insurance on very large crude carriers jumped from 0.95 percent to 1.30 percent of hull plus cargo. For a two-million-barrel super-tanker that means an extra one point eight million dollars per voyage, equivalent to roughly two dollars per barrel of Persian Gulf crude. Freight brokers quoted spot tanker rates up forty percent. Brent backwardation widened six dollars between the prompt and ten-month contracts as refiners paid up for nearby barrels.
Tel Aviv equities rallied five percent on belief that direct United States participation would shorten the conflict. Kuwait and Oman indices dropped three percent as ports and sovereign wealth funds priced higher funding and infrastructure risk. Gulf Cooperation Council currencies held their pegs, but forward points blew out on the dirham and riyal.
Chinese refiners rely on about seven hundred thousand barrels per day of Iranian oil routed through barter channels. A clogged Hormuz would wreck that flow. Beijing dispatched a vice-minister to Geneva for shuttle diplomacy while state-run planners accelerated work on the Gwadar pipeline corridor. Engineering memoranda suggest the corridor cannot carry serious volumes before 2027, so strategic stockpiles remain China’s only near-term cushion.
C. Strategic spillovers
The Israeli raids reaffirmed the Begin doctrine: destroy potential nuclear capability before a weapon becomes operational. The doctrine signals to Tehran that covert enrichment will invite kinetic disruption, pushing Iran to pursue an overt deterrent. That pursuit inverts Western planning assumptions and weakens the nonproliferation regime. Proxy combat has already widened. Houthi units armed with one-way drones have turned Red Sea shipping lanes into a hazard zone. Twin pressure points at Hormuz and Bab el Mandeb now assign a structural risk premium to container as well as energy freight, raising global delivered prices even if no formal blockade occurs.
III. Russia–Ukraine: attrition, shells, and food
While the Gulf story grabbed headlines, Russia continued an incremental push along the Avdiivka-Krasnohorivka pocket. The Russia Matters war card recorded an additional sixty-four square miles captured in the week to 18 June, nudging total Russian-held land to about nineteen percent of Ukraine, similar in area to Ohio. Moscow’s Geran-2 drones, reverse-engineered from the Iranian Shahed, now saturate trench lines instead of rear electrical substations. The shift conserves Kalibr and Iskander stock for distant targets while grinding Ukrainian artillery at the contact line.
Kyiv’s fiscal hole remains vast. The 2024 deficit sat near twenty percent of gross domestic product. Treasury sees a wider gap this year because shell procurement costs have doubled since early 2023. Brussels pledged to channel ninety percent of interest from immobilised Russian reserves to Ukraine, but disbursements arrive quarterly and cover roughly eight weeks of artillery burn. The United States supplemental appropriations front-loaded one million forty-five-millimetre rounds, yet Pentagon releases indicate the depot drawdown pace would exhaust that tranche by October unless Congress renews funding.
Chicago soft red wheat futures are sixteen percent higher year to date. European gasoil cracks widened after chatter that Odessa grain ports could shut if Russian units advance further west. Fertiliser spot prices in Brazil firmed three percent on anticipation of disrupted Black Sea ammonia flows. For investors the war no longer shocks every day, yet it keeps a permanent bid under food and energy volatility surfaces.
IV. Policy gridlock: the Fed meets tariffs
A. Dot plot divide
The Federal Open Market Committee kept its target band at 4.25 to 4.50 percent on 18 June. The Summary of Economic Projections revealed a notable hawkish tilt. Seven officials now pencil no cuts through December. Chair Jerome Powell cited tariffs forty-one times across his prepared remarks and the subsequent news conference, framing duties as a unique blend of cost push and demand drag.
B. Tariff layers and arithmetic
Blanket ten-percent duty on practically all merchandise imports except crude, LNG, and strategic metals that the United States cannot yet replace.
Fifty-percent rate on iron, steel, aluminum, and derivative household goods such as refrigerators and washing machines.
Thirty-five-percent cumulative hit on designated Chinese categories that overlap with Section 301 findings on intellectual property abuse.
Contingent fifty-percent tariff on the European Union from 9 July if an industrial policy accord fails.
Yale Budget Lab modelling implies a one point five percentage point lift to the consumer price level and a zero point six percentage point reduction in 2025 real growth. Brookings reaches similar price pressure but a larger investment drag due to capital-goods uncertainty.
C. Monetary policy trap
The central bank now faces a textbook stagflation bind. If it cuts early to aid slowing consumption, it risks validating the tariff price bump. If it stands pat, real rates climb as the economy slows, increasing recession odds. The bond market is undecided. Eurodollar futures price roughly fifty basis points of easing by December, down from sixty in early June, while swaption volatility in the three-month bucket trades near one hundred forty basis points, flagging event risk concentrated in the next quarter.
V. Bond market rallies in spite of Fed tone
Ten-year yields fell because global reserves sought safety once Gulf risk exploded. Wednesday’s twenty-five billion dollar ten-year reopening drew a bid ratio of 2.58 and indirect coverage of 2.9, the strongest foreign interest in two years. The issue priced three basis points through the when-issued yield. Dealers report that Middle East sovereigns recycled fresh oil receipts directly into Treasuries rather than the repo market, removing collateral from trading desks and tightening swap spreads. Two-year yields drifted to 3.90. The curve sits fifty basis points inverted, still less extreme than last summer.
VI. Cross-asset pulse
Equity internals: Semiconductor weakness led declines after Washington hinted it may revoke production waivers for onshore Chinese fabrication plants. The Philadelphia Semiconductor index fell three percent on Thursday. Banking names lagged as the yield curve flattened, reducing net interest margin expectations. Utilities and consumer staples both advanced about one percent.
Credit markets: Investment-grade spreads widened four basis points to 110 over Treasuries. High-yield spreads closed at 412 after seeing 430 mid-week. Primary issuance carried the widest new-issue premium since January as underwriters cushioned demand uncertainty. Loan desks flagged a pickup in covenant-light repricings stalled by tariff cost modelling.
Currencies: The Dollar Index dipped toward ninety-eight despite the surge in energy prices. Traders cited two drivers: falling long-end yields and concern that wide tariffs will hurt the current account. Dollar-yen fell to 146 before speculative accounts sold yen to fund oil hedges. Euro held above 1.09 even with rising French political risk, aided by European gas storage topping eighty percent capacity after a mild spring.
Commodities: Brent’s eleven-percent jump overshadowed a nine-percent increase in Singapore marine fuel, indicating the insurance mark-up passed straight into refined product freight. Industrial metals diverged. Copper slipped two percent on factory gloom. Nickel, tied to electric-vehicle batteries, rose four percent after a mine accident in New Caledonia.
Digital assets: Bitcoin stayed pinned between 103 and 99k. Spot ETF flows showed net outflow of 132 million dollars in the fortnight to 14 June. Glassnode data indicated whale wallets bought twenty-one thousand five hundred coins during that stretch, cushioning the dip. Correlation with Nasdaq has slipped to 0.31, the lowest since late 2022, suggesting crypto is drifting toward a macro hedge rather than pure tech sentiment.
VII. Scenario tree to late September
source for the probability percentages is cited here
VIII. Trade blueprint
Risk cap per sleeve equals one percent of portfolio.
Short Nasdaq-100 September: Entry 21 750 to 21 800, stop daily close above 22 050, first target 21 000 then measured 20 350, reward to risk roughly three to one at second target.
Long Brent August: Entry 72.8 to 73.4, stop daily close under 69.9, targets 78 then 82, reward to risk near two to one on first target.
Pair trade: long XLU and XLP against short XLY: Equal notional. Exit if pair underperforms seven percent. Thesis: cost push tariffs plus Gulf energy shock depress discretionary spending and help regulated cash-flow sectors.
Bitcoin tactical long: Entry 92-94k, stop 88k exit 100 to 105k. Narrative Shifting to BTC being an inflation hedge is the thesis.
IX: WEEKLY LEVELS
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