HG MARKETS:

U.S. stock index futures saw a modest increase on Monday, aiming to recover from the previous week’s significant losses. This slight uptick comes ahead of a key Federal Reserve interest rate decision later in the week. Dow Jones, S&P 500, and Nasdaq 100 futures all posted gains of around 0.4% to 0.5%.

Last Friday, the main U.S. stock market averages, including the S&P 500, NASDAQ Composite, and Dow Jones Industrial Average, experienced sharp declines (1.1% to 1.8%). This downturn was triggered by escalated tensions in the Middle East following airstrikes between Israel and Iran, which negatively impacted overall market sentiment.

Geopolitical uncertainty in the Middle East intensified over the weekend and into Monday as Israel and Iran continued their exchange of missile strikes. Reuters reported that Tehran has informed mediators Oman and Qatar it will not participate in U.S.-led ceasefire talks while Israeli strikes persist. Meanwhile, Israel has advised Iranian residents near nuclear facilities to evacuate, having targeted these sites and ballistic missile programs since Friday. However, the conflict appears contained for now, and importantly, investors seem to be assuming Iran will not disrupt global shipping via the Strait of Hormuz.

The Federal Reserve is scheduled to begin a two-day meeting on Tuesday and is widely expected to keep interest rates steady at around 4.5% when the meeting concludes on Wednesday. However, the primary focus for investors will be any signals from the central bank regarding potential future rate cuts, especially given recent indications of softer U.S. inflation and a cooling economy. While the Fed has generally maintained that rates will remain unchanged in the near term, recent data — including mild inflation, signs of a weakening labor market, and slower economic growth — has fueled speculation that the Fed might adjust its stance in the coming months. The central bank is also facing increasing pressure from President Donald Trump to lower interest rates. The Fed had already cut rates by a total of 1% in 2024 but had projected a slower pace of cuts for 2025 due to uncertainties surrounding inflation and the economy, much of which was attributed to Trump’s trade tariffs. Investors will also be looking at manufacturing survey data expected later on Monday.

Separately, leaders from the Group of Seven (G7) nations are convening in Canada this week. This summit is anticipated to be contentious, particularly because U.S. President Donald Trump has imposed significant tariffs on imports from several allied nations. Canadian Prime Minister Mark Carney emphasized that the summit would prioritize peace and security, but he also hinted at potential retaliatory measures from Ottawa if the U.S. does not remove its tariffs on steel and aluminum.