20.06.2025 Bulls Struggle for Momentum as Fed Caution and Global Tensions Weigh

Stock market bulls may aim for modest gains this week, but overall momentum remains subdued as investors face a reality check: the Federal Reserve may keep interest rates higher for longer than anticipated. A mix of economic headwinds — from unresolved U.S. trade policy to renewed geopolitical uncertainty in the Middle East — continues to cast a shadow over risk sentiment.

Fed Holds Rates Steady, But Policy Path Grows Less Clear

As expected, the Federal Reserve left interest rates unchanged during its recent policy meeting. However, the latest dot plot still indicates the possibility of two rate cuts by year-end. While not entirely off the table, those cuts appear less imminent. Updated projections reveal slightly lower growth expectations for 2025, paired with upward revisions in inflation and unemployment forecasts — an environment that edges closer to stagflation risk.

Fed Chair Jerome Powell emphasized a more cautious outlook, noting that tariffs are unlikely to be inflation neutral. He acknowledged that at least part of the cost burden will be passed on to consumers. Many economists now expect tariff-related inflation to begin emerging in the coming months. Still, if consumer prices rise only modestly, a potential rate cut in September remains on the table.

Trade Policy Uncertainty Looms

The future of U.S. trade negotiations is another key source of concern. The White House has yet to finalize a comprehensive agreement, and the 90-day pause on tariff escalation is set to expire on July 8. While officials have hinted that the pause could be extended for trade partners engaged in good-faith discussions, the broader structure remains unclear.

It’s becoming evident that bilateral deals will be limited to the top 15 U.S. trade partners. Countries outside that group may face unilaterally determined tariff rates — a process likely deferred until after the next administration takes office. Until clarity emerges, markets may continue to move cautiously amid policy limbo.

Middle East Risk Adds to Market Fragility

In parallel, escalating tensions in the Middle East are keeping energy markets on edge. The possibility of a disruption in the Strait of Hormuz — a vital corridor for global oil shipments — has increased. A potential U.S. military intervention, while not yet confirmed, remains on the table, with President Trump expected to make a decision in the next two weeks.

Investors are closely monitoring developments, as any escalation could lead to significant commodity price shocks and spill over into broader risk assets.

Key Economic Events and Earnings on Watch

Fed Chair Jerome Powell’s testimony before Congress on June 24–25 is likely to be closely watched for further insights into the Fed’s evolving policy stance. Meanwhile, key economic data scheduled for release includes:

• Monday: Existing Home Sales

• Tuesday: Consumer Confidence, Case-Shiller Home Prices

• Wednesday: New Home Sales

• Thursday: Durable Goods, Q1 GDP (final), Pending Home Sales

• Friday: PCE Price Index, Consumer Sentiment

Earnings season also brings a few key names into focus:

• Tuesday: FedEx, Carnival

• Wednesday: General Mills, Micron

• Thursday: McCormick, Nike, Walgreens

Policy Shift Delayed: Fed Eyes Inflation Over Labor Weakness — For Now

Fed officials appear more uncertain now than they were earlier in the year. Seven members now forecast no rate cuts in 2025, up from just four in the previous projection. That shift reflects growing concerns about persistent inflationary pressures, particularly from tariffs, even as the labor market begins to show early signs of softening.

Many analysts suggest that if oil prices had remained stable, the Fed’s tone might have been more dovish. However, with fuel prices climbing and inflation still sticky, the central bank remains stuck in a difficult position — balancing inflation control with the risk of economic slowdown.

Our Trading System This Week: A Controlled Drawdown

Amid the macro uncertainty, our AI-supported, quant-enhanced trading system experienced a controlled drawdown this week, reflecting the volatility across metals and index futures.

📉 Weekly Performance Snapshot:

While drawdowns are part of every live trading strategy, our system remains structured around capital preservation and disciplined execution — especially during periods of high macro uncertainty. Trade volume and risk parameters were adjusted accordingly.

We remain confident in our framework and focused on sustainable performance over longer cycles.

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Wishing you a great week!