The NYSE, Nasdaq, and bond markets are closed today for Juneteenth, a federal holiday. This closure leads to lighter trading and a quieter session in North America. There’s increased focus on potential US military action against Iran, which may take place this weekend. In the meantime, Europe is wrapping up a week of central bank meetings.

Swiss National Bank Rate Decision

The Swiss National Bank (SNB) is expected to lower its interest rate by 25 basis points to help combat deflation. The Bank of England (BOE) is likely to keep its bank rate unchanged, but how the vote turns out could be noteworthy. With the Juneteenth holiday leading to quieter markets, trading volumes are down, resulting in less certainty in the short term. However, this calm doesn’t mean there isn’t momentum elsewhere. The quieter US session draws our attention to Europe, where important policy decisions are being considered. The SNB has signaled its intent to ease monetary policy, and a 25-basis-point cut is now expected. The current economic data, especially core inflation dropping below target, supports this decision. The strength of the Swiss franc is also significant. Such changes in policy can affect financial conditions across Europe, influencing volatility measures and yield curves more widely. At the Bank of England, the situation is more complex. While Governor Bailey is unlikely to change the benchmark rate soon, the voting results will matter. If there’s less dissent regarding a potential cut, we might see adjustments to front-end rates sooner than expected, particularly if upcoming economic data disappoints. We need to keep an eye on next month’s CPI data, as diverging expectations could create temporary opportunities.

Geopolitical Risks and Market Implications

On the geopolitical front, rising tensions between the US and Iran are prompting us to reassess risk premiums. Energy futures are already reflecting potential regional disruptions, with Brent spreads widening. If military action does occur, certain commodity markets might react strongly, especially those with a positive carry structure. This presents an opportunity to use short-dated gamma, which may be more affordably priced going into the weekend. In the absence of significant macro events in the US, it’s important to keep an eye on market responses. This includes watching volatility trends in foreign exchange and interest rates, and adjusting strategies accordingly during this calm period. Use this time to reassess delta exposures and prepare for possible shifts if new headlines emerge. The next chance for liquidity will come as Asia markets reopen, but we don’t expect a clear direction. We anticipate options activity will remain light, with wider-than-usual bid-offer spreads. For now, we are looking for consistency or discrepancies between implied and realized volatility, especially in sterling and oil-linked currencies, as such differences typically don’t last long. Focus on observable factors: guidance, inflation trends, and changes in rate differentials. From there, approach the market selectively. Create your live VT Markets account and start trading now.

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