Welcome back. Investors are moving into some safe harbor assets following Israel’s airstrikes against Iran, but one traditionally calm asset class is taking a hit. Casey covers which one and how the situation in the Middle East could impact the Fed’s interest rate decision. 

Here goes: 

Safe haven trade

Oil prices surged while global equities faltered Friday morning on fears that Israel’s attacks on Iranian nuclear facilities could escalate into a broader conflict. 

Brent crude, a benchmark for global oil prices, gained more than 8% in the early hours of Friday morning. West Texas Intermediate crude rallied as much as 14% before paring some gains, following reports from Iran that oil facilities were not damaged by Israeli airstrikes. 

Gold approached its all-time high as investors moved toward safe-haven assets. 

The S&P 500 and Nasdaq Composite indexes hovered in the red for most of the session, trading 0.8% and 0.9% lower at 2 pm ET. 

Trading like a risk asset, bitcoin was also in the red on Friday — trading 0.6% lower on the day at 2 pm ET to hover around $105,200. 

US Treasury yields moved higher Friday morning, signaling investors’ fear that higher oil prices could lead to prolonged elevated inflation. While Treasury prices typically rally on geopolitical uncertainty (remember, prices and yields move inversely), inflationary pressures could impact the Fed’s rate-cutting timeline. 

Speaking of the FOMC, this week’s data (more on that below) makes a solid case that while committee members will probably not touch interest rates next week, a cut — or two — before year end may be in the cards. At least that’s what markets were thinking, but geopolitical tensions have given investors reason to pause. 

Odds of the first 25 basis point cut coming in September were at 59% on Thursday but dipped to 56% Friday morning, per data from CME Group. 

The shift, slight as it is, supports the narrative that traders are selling US Treasurys on fears the Fed may keep interest rates higher should oil prices stay higher. 

Early reports suggest that the situation in the Middle East will not be resolved quickly; Iran has vowed “severe” retaliation and has pulled out of a planned nuclear talk with the US. 

President Trump on Friday confirmed to reporters that he knew Israel was planning on attacking Iran, but the Wall Street Journal reported that earlier in the week, he’d asked Israeli Prime Minister Benjamin Netanyahu to stand down. 

This paints an uncertain picture, and investors appreciate certainty. So does the Fed. We’ll be back on Monday with a preview of what to expect from next week’s rate-setting meeting.

— Casey Wagner

Happy Friday! Investors got some key data points this week ahead of the FOMC’s June meeting. While markets are still banking on there not being an interest rate cut this time around, the long-term picture is looking more uncertain. 

Here’s a recap of this week’s economic events: 

• May’s CPI report, published Wednesday, came in cooler than expected. Headline CPI rose 0.1% over the month and 2.4% annually. Economists had projected the figures to come in at 0.2% and 2.4%, respectively. Core CPI, which excludes volatile food and energy prices, also rose 0.1% over the month and 2.8% year over year, compared with expectations of 0.3% and 2.9%, respectively. The numbers suggest that tariffs are not yet impacting prices, potentially because businesses are using stocked-up inventories or eating the costs themselves. We’ll be curious to see how the latest US-China trade deal impacts June’s figures. 

• May’s PPI report, published Thursday, was also muted. Headline PPI rose 0.1% over the month (vs. projections of a 0.2% increase) and 2.6% annually. The report supports what we saw in the CPI print; that tariffs are so far not hitting prices as much as anticipated. Both tentatively point to an interest rate cut from the Fed later this year, but as we wrote about above, the geopolitical situation could change things. 

• Initial jobless claims for the week ended June 7 came in just above expectations at 248,000. This is unchanged from the week prior, although continuing claims ticked higher to 1.956 million — marking the highest level since November 2021. The May employment report painted a pretty positive picture, but analysts have been growing increasingly concerned that while there may not be signs of mass layoffs, it does appear that finding a job is becoming more challenging.

— Casey Wagner