Investors turned cautious again on Tuesday as the Israel-Iran conflict continued. US Treasury yields fell ahead of the FOMC meeting, where the Fed is expected to leave rates unchanged as it seeks more clarity on the impact of tariffs. Yesterday's data releases showed a softening US economy in May: retail sales dropped by more than expected (although so-called "core" retail sales increased); import prices remained stable, surprising to the upside; and industrial production fell slightly.
Eurozone sovereign bond yields and peripheral risk premia rose slightly, as German businesses expectations from the ZEW survey surprised to the upside, due to hopes over the fiscal boost. In the FX market, the dollar strengthened against most peers on safe-haven flows. The yen underperformed after the BoJ announced it will halve its bond tapering pace in 2026.
Equity indices fell across the board in Western developed markets, with the Iberian indices among the worst performers, and US market volatility spiking again. In commodities, oil and gas prices also rose, as risks in the Middle East increased.
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