June 16 Financial Breakfast: Middle East situation significantly escalates, VIX fear index soars, and the three major U.S. stock indices turn down

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Israel and Iran continue to attack each other, and the situation has significantly worsened. Over the weekend, Israel directly struck Iranian energy infrastructure for the first time, expanding the conflict to oil and gas facilities. Additionally, the UK is deploying extra fighter jets and other military aircraft to the Middle East. The market is concerned that the escalation in the Middle East could impact the global energy supply chain, thereby increasing inflation and dragging down global economic growth, including that of the United States. The VIX fear index surged over 20%, and the three major U.S. stock indices opened lower and continued to decline, with the Dow Jones dropping 1.79% to 42,197 points; the S&P 500 fell 1.13%; and the Nasdaq decreased 1.3%; the China Golden Dragon Index fell 2.74%.

In terms of popular stocks, Nvidia's stock price closed down 2.1%, while Apple and Amazon fell 1.4% and 0.5%, respectively. Airline stocks continued to decline, with American Airlines, Delta Air Lines, and United Airlines seeing price drops ranging from 3.8% to 4.9%. Boeing's stock price continued to drop by 1.7%, with an intraday decline of up to 4.2%. Chevron rebounded 0.7%, while Exxon Mobil rose 2.2%.

The yield on the 10-year U.S. Treasury rose 4 basis points to 4.40%, ending a four-day decline; the U.S. dollar index increased by 0.31%, returning above 98.0; gold rose 1.41%, breaking through the $3,400 mark; WTI crude oil increased by 6.27%, surpassing the $70 mark; the USD/JPY rose 0.43%, recovering to 144.0; the EUR/USD fell 0.29%, ending a four-day rise; Bitcoin dropped 0.62% to 105,460, and Ethereum fell 1.87%, marking a four-day decline.

Macro News

Latest developments in the Israel-Iran situation:

1. Israel directly struck Iranian energy infrastructure for the first time, expanding the conflict to oil and gas facilities.

2. The UK is deploying additional fighter jets and other military aircraft to the Middle East, stating that this move is "emergency support" for regional security.

3. The Israeli military issued evacuation warnings to personnel around Iranian nuclear reactors and weapons factories.

4. The sixth round of U.S.-Iran nuclear negotiations, originally scheduled for Sunday (15th), has been confirmed as canceled.

5. Trump stated that "the attack on the U.S. and Iran tonight is unrelated," warning that if Iran attacks the U.S. in any form, the armed forces will "respond with unprecedented scale."

According to the Jerusalem Post, Iran has contacted Oman and Qatar, requesting the two countries to mediate between the U.S. and Iran to stop Israel's ongoing airstrikes and restart nuclear negotiations. Meanwhile, Saudi Arabia is also actively promoting a ceasefire framework behind the scenes, aimed at creating conditions for resuming negotiations.

Potential impact of the Middle East situation? JP Morgan raises "worst-case scenario probability" to 17%

As the situation in the Middle East continues to escalate, the market is concerned that it could impact the global energy supply chain, thereby increasing inflation and dragging down global economic growth, including that of the United States. JP Morgan stated that the "worst-case probability" of the Strait of Hormuz being blocked has risen from 7% to 17%, which means that oil prices could soar to $120-130 per barrel;Deutsche Bank added that given the significant global impact of such blockades, Iran is likely to consider it as a last resort, only in extreme circumstances. The current market has only partially priced in a moderate risk scenario and has not yet reflected the possibility of the closure of the Strait of Hormuz.

Gregory Daco, chief economist at EY-Parthenon, predicts that if the conflict between Israel and Iran escalates significantly, the global economy will suffer a substantial impact, with global real GDP growth expected to decrease by 1.8% compared to the baseline forecast one year later, and U.S. real GDP growth expected to decrease by 1.9% compared to the baseline forecast.

Phil Kral, head of the commodity intelligence trading department at the market service organization Silver and Gold Club, believes that with rising geopolitical risks in the Middle East, a weakening dollar, and renewed inflationary pressures, international oil prices have risen by 40% over the past two months. If oil prices remain above $100 per barrel, U.S. inflation could accelerate back towards 5%.

Ryan Sweet, chief U.S. economist at Oxford Economics, stated that if crude oil prices rise by $10 per barrel, the year-on-year increase in the U.S. Consumer Price Index (CPI) will rise by 0.5 percentage points, which will in turn affect consumer spending and economic growth.

Michigan's June Consumer Confidence Index better than expected, inflation expectations significantly decline

The preliminary value of the University of Michigan's June Consumer Confidence Index is 60.5, marking the first increase in six months. One-year inflation expectations fell from 6.6% in May to 5.1%, while five-year expectations dropped from 4.2% to 4.1%, the lowest in three months. The survey indicated that consumer concerns about the impact of tariffs have eased, but they remain cautious about the economic outlook.

Bank of America expects gold prices to reach $4,000 in the next 12 months

Bank of America predicts that gold prices could rise to $4,000 per ounce in the next 12 months, with deficits, interest rates, and the dollar being key factors. The report noted that interest rate fluctuations and a weakening dollar should support gold prices, especially if the U.S. Treasury or the Federal Reserve is ultimately forced to intervene and support the market. Gold is the preferred hedge against economic and geopolitical uncertainty. Following a series of attacks by Israel on Iran, claiming to target Iran's nuclear facilities and missile factories, several military commanders were killed in the attacks, leading to a surge in gold prices driven by safe-haven demand. Additionally, Goldman Sachs maintains its forecast that gold prices will rise to $3,700 per ounce by the end of this year.

Japanese media: Bank of Japan considers halving government bond purchases starting next year

According to the Nikkei newspaper, the Bank of Japan is considering halving its quarterly purchases of Japanese government bonds to 200 billion yen starting in April 2026. The report stated that the Bank of Japan will discuss this proposal at its policy meeting next Monday and Tuesday, and it is expected to receive support from a majority of the policy committee members.

Trump: May soon raise auto tariffs, threatens to set unilateral tariff rates in the next week or two

Last Thursday (June 12), U.S. President Trump publicly stated that the U.S. may soon further increase import tariffs on automobiles as a pressure tactic to induce overseas automakers to increase investments in the U.S. marketIn addition, Trump stated that he plans to send letters to trade partners in the next one to two weeks to notify them of the set unilateral tariff rates, which countries can accept or reject. The tariff deferral period in the United States will expire on July 9, and Trump expressed his willingness to accept an extension of the negotiation period, but does not believe it is necessary.

Market Overview

U.S. Stocks: The three major U.S. stock indices generally fell, with the Dow Jones down 1.79%, the S&P 500 down 1.13%, and the Nasdaq down 1.3%.

European Stocks: European stock markets generally declined, with the German DAX 30 index down 1.07%. The French CAC 40 index fell 1.04%. The UK FTSE 100 index rose 0.39%.

Bond Market: The yield on the U.S. 10-year benchmark treasury bond is about 4.40%, up 4 basis points from the previous trading day.

Commodities: Gold rose 1.41%, priced at $3,433 per ounce. WTI crude oil rose 6.27%, priced at $73.1 per barrel.

Foreign Exchange: The U.S. dollar index rose 0.31%, priced at 98.1. The USD/JPY rose 0.43%, while the EUR/USD fell 0.29%.

Cryptocurrency: Bitcoin fell 0.24% in the last 24 hours, currently priced at $105,216. Ethereum fell 1.87% in the last 24 hours, currently priced at $2,520.

Hong Kong Stocks: The Hang Seng Index night market futures closed at 23,739 points, down 114 points, compared to the previous day's Hang Seng Index closing at 23,892 points, a discount of 154 points, with a turnover of 10,255 contracts. The Hang Seng China Enterprises Index night market futures closed at 8,597 points, a discount of 58 points compared to the previous day's closing.

Global Company News

Ripple: Expects stablecoin market size to grow to trillions of dollars in the coming years

Ripple CEO Brad Garlinghouse stated that Circle's IPO performed well, partly because people believe that the U.S. stablecoin regulation "GENIUS Act" will pass. As the world's largest economy more actively embraces these technologies, it is beneficial for the global landscape, and he absolutely believes in the growth prospects of the stablecoin market, which is currently about $250 billion and is expected to grow to trillions of dollars in the coming years. Regarding rumors that Ripple has proposed to acquire Circle, Garlinghouse responded that he does not comment on rumors about Ripple's acquisition strategy, whether it has been attempted or not.

New York Council Passes New Bill to Regulate AI Tech Giants

The New York State Assembly recently passed the "RAISE Act," aimed at preventing large-scale disasters caused by cutting-edge AI models developed by tech giants such as OpenAI, Google, and Anthropic, such as resulting in casualties of over a hundred people or economic losses exceeding $1 billion. The bill has now been sent to New York Governor Kathy Hochul's desk, where she can choose to sign it into law, return it for amendments, or veto it outright. If the bill passes, all major global AI laboratories will be required to submit detailed safety and cybersecurity reports and proactively report any anomalies in AI models or data breaches, with those failing to meet standards facing civil penalties of up to $30 millionDrone manufacturer Airo listed on the US stock market, stock price soared 140%

Defense technology company and drone manufacturer Airo's stock price debuted on the New York Stock Exchange on Friday, with intraday gains reaching as high as 290%, leading to multiple trading halts due to price volatility. The stock ultimately closed at $24, up 140% from the offering price of $10. Airo raised $60 million in its initial public offering (IPO) in the US, with the offering price below the market expectation range of $14 to $16.

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