The markets took a hit yesterday, with the ASX 200 expected to follow suit as the S&P 500 and Nasdaq tumbled on the back of a hawkish Fed debut by Chair Kevin Warsh. The US 2-year yield jumped 13 bps to 4.18%, the highest since February 25, while the US Dollar index rose 0.8% to 100.3, remaining mostly range-bound. Gold, which had been on a four-day winning streak, took a nosedive and fell 1.7% overnight. The Brent crude oil price slid for the fifth consecutive session, dropping to about US$78 per barrel, a three-month low, with the US-Iran peace deal set to be signed in Geneva on Friday.
The S&P 500 tumbled from breakeven levels after the Fed decision and press conference, with all sectors finishing lower. The Equal-weight S&P 500 (-1.50%) underperformed the cap-weighted benchmark by 29 bps. The rate-sensitive 2-year yield jumped 13 basis points to 4.18%, with nine of 18 FOMC officials penciling in a rate hike by year-end. The hawkish FOMC and lack of forward guidance weighed on markets, with consumer-facing and rate-sensitive sectors like Discretionary, Real Estate, Staples, and Communications all down more than 2%.
Gold snapped a four-day win streak and tumbled 1.7% on the stronger dollar and elevated real yields. SpaceX shares rose as much as 5.9% in early trade but finished the session down 4.9% to US$191.82. Citadel reported that retail investors poured into US stocks at a record pace on the day of SpaceX's IPO, surpassing the previous record by 58%.
BMW shares tumbled 8% to their lowest in over five years after the German automaker cut its 2026 profit outlook, citing weakening demand in China and Iran-war-linked disruptions. OpenAI burned $3.7 billion in the first quarter of 2026, despite generating over half of its $5.7 billion revenue. Samsung reported rising chip production orders from BYD, Google, and AMD amid TSMC capacity strain.
Quantum tech firm EigenQ is set to go public in a $3 billion SPAC deal. The US-Iran draft MoU includes reopening the Strait of Hormuz, a $300 billion economic package, and immediate oil sanctions relief. However, Trump has stated that the US will not invest the $300 billion reconstruction fund floated for Iran. Israel has rejected the US request to withdraw troops from southern Lebanon, and Iran has warned that any continued Israeli troop presence or further strikes in Lebanon would violate the emerging US-Iran agreement.
European nations, including the UK, Germany, France, and Italy, have expressed readiness to lift sanctions on Iran in exchange for Tehran taking steps on its nuclear program. The IEA has cut its 2026 oil demand forecast, suggesting that a post-Iran war supply rebound could trigger a 2027 glut. Trump paused adding DeepSeek and CXMT to China's national security blacklist.
The Fed decision to hold rates at 3.50-3.75% and the shortened statement emphasizing solid growth and a stable labor market, while flagging elevated uncertainty from the Iran conflict, drove the markets downward. The updated dot plot shows 12.5 bps of additional tightening by the end of 2026, with 9 of 18 officials seeing at least one hike in 2026. The ECB has stated that a US-Iran peace accord may not prevent further rate hikes despite easing oil pressures.
Sweden's central bank paused rates for the sixth meeting but flagged potential tightening if the Iran war raises inflation. The Bank of Korea warns that big tech bonuses may spur wider wage growth and stronger consumer demand, complicating inflation. US retail sales rose 0.9% month-on-month in May, well ahead of the 0.5% consensus, and up 6.9% year-on-year. UK inflation unexpectedly remained steady at 2.8% in May, with services rising and transport as a major contributor.
Looking ahead, the markets will be closely watching the hawkish Fed, higher US dollar, and higher yields. The shortened policy statement and lack of forward guidance make macro predictions challenging. This has already driven downward pressure on equities and commodities, with yields spiking, particularly the short-end, and the VIX jumping. The US dollar has trended higher, impacting gold, copper, platinum, and silver prices. The broader weakness is expected to affect resource-related ETFs, Homebuilders, Software, Airlines, and other sectors.
