Global Markets Slide as Geopolitical Risks Rise and Powell Warns on Inflation

Stocks around the globe slipped as concerns grew over a potential escalation between the United States and Iran. This tension coincided with a fresh warning from Federal Reserve Chair Jerome Powell, who cautioned that inflation remains a serious threat to the economy. His remarks added further unease to markets already unsettled by interest rate uncertainty and geopolitical instability.

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Futures linked to Europe’s Euro Stoxx 50 dropped 0.7%, while U.S. equity futures also moved lower. In Asia, the regional MSCI benchmark fell over 1%, dragged down by sharp declines in Hong Kong shares.

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The U.S. dollar gained strength against most major currencies, underscoring a flight to safety among investors. With U.S. stock and bond markets closed Thursday in observance of Juneteenth, traders had fewer real-time cues from Wall Street.

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Investor sentiment soured further following a Bloomberg report that senior U.S. officials are preparing for a potential military strike on Iran in the coming days. The already tense mood in financial markets was exacerbated by concerns that such a move could dramatically spike oil prices and further inflame inflationary pressures around the world.

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This latest geopolitical development comes on the heels of a dovish yet cautious update from the Federal Reserve. The central bank left its benchmark interest rate unchanged on Wednesday and acknowledged that inflation could remain elevated for longer than expected due to rising tariffs and broader economic uncertainty.

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Gareth Nicholson, head of discretionary portfolio management at Nomura, spoke to Bloomberg TV about the tense backdrop. “We’re taking a cautious stance and favoring asset classes that aren’t closely tied to interest rate movements or political developments in the U.S.,” he said. “But the reality is, there aren’t many uncorrelated assets in this environment. Caution seems to be the only logical approach.”

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Meanwhile, Japanese government bond yields declined after a successful auction and reports that Japan’s finance ministry may reduce its issuance of long-dated bonds starting in July. These moves are part of a broader global recalibration of monetary and fiscal strategies.

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In Europe, markets are gearing up for a number of central bank policy decisions. The Bank of England is widely expected to keep its interest rate steady at 4.25% and reaffirm its slow-and-steady approach to easing monetary policy, likely sticking to one rate cut every other meeting.

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On the commodities front, oil prices fluctuated amid growing concern over U.S.-Iran tensions. Manish Bhargava, CEO of Singapore-based Straits Investment, said, “If the U.S. becomes directly involved in striking Iran, we’re looking at a significant surge in oil prices.

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That would fuel inflation worldwide and complicate efforts by central banks like the Fed to keep prices under control. It could also push back any plans for rate cuts.”

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Former President Donald Trump has been vocal in recent days about the possibility of targeting Iran militarily. Speaking from the White House on Wednesday, he indicated he preferred to wait until the last moment to make a decision, given the rapidly evolving situation in the Middle East. Iran and Israel have been engaged in escalating hostilities for the past week, raising fears of a broader conflict.

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On the monetary policy side, the Federal Reserve voted unanimously to maintain its current benchmark interest rate. Powell emphasized that increased tariffs are likely to elevate consumer prices and that the inflationary impact may be more sustained than previously anticipated. While the Fed still expects two rate cuts in 2025, some officials have trimmed their individual forecasts, reflecting increased uncertainty.

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“Powell played it safe,” said Haris Khurshid, chief investment officer at Karobaar Capital in Chicago. “The Fed hasn’t changed its guidance significantly, but it’s clear that inflation concerns—driven in part by tariffs—are creating hesitation. They’re not in a rush to cut rates. It’s a difficult balancing act with growth slowing, inflation remaining sticky, and geopolitical risks escalating.”

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Market Summary

Stocks:

• S&P 500 futures slipped 0.3%
• Nasdaq 100 futures dropped 0.5%
• Dow Jones Industrial Average futures fell 0.3%
• MSCI Asia Pacific Index declined 1.3%
• MSCI Emerging Markets Index dropped 1.2%

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Currencies:

• Bloomberg Dollar Spot Index rose 0.2%
• Euro dipped 0.2% to $1.1454
• Japanese yen held steady at 145.21 per dollar
• Offshore yuan was flat at 7.1940 per dollar
• British pound slipped 0.2% to $1.3392

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Cryptocurrencies:

• Bitcoin edged down 0.1% to $104,700.98
• Ether declined 0.4% to $2,519.16

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Bonds:

• U.S. 10-year Treasury yield was unchanged at 4.39%
• German 10-year yield rose by two basis points to 2.52%
• U.K. 10-year yield fell by six basis points to 4.49%

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Commodities:

• Brent crude oil gained 0.2%, reaching $76.89 a barrel
• Spot gold dropped 0.5% to $3,351.63 an ounce

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In short, global financial markets are entering a phase of heightened uncertainty driven by the intersection of inflation, central bank caution, and rising geopolitical tensions. Investors are becoming more risk-averse, seeking shelter in the dollar and carefully watching developments in the Middle East and central bank commentary for further clues.

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