As of writing, Dow Jones futures are up 0.2%, S&P 500 futures are up 0.03%, and Nasdaq futures are up 0.29%.
Against a backdrop of signs of progress in US-Iran diplomacy, oil prices are falling, a development that has eased market fears that the fragile process to end the Iran war could break down. US stock index futures edged higher on Monday.
The European Stoxx 600 index is fluctuating during the session, recently down 0.1%. Technology stocks are rising, but consumer-sensitive stocks are weakening. The UK's FTSE 100 is flat, France's CAC 40 is down 0.1%, the Netherlands' AEX index, which has a high weighting of tech stocks, is up 0.35%, Germany's DAX is up 0.3%, Spain's IBEX 35 is flat, and Italy's FTSE MIB is down 0.25%.
Asian stocks rose overnight, boosted by progress in peace talks. Japan's Nikkei index rose 1.6%, and South Korean stocks rose 0.7%, following a cumulative gain of more than 11% last week driven by demand in the semiconductor sector.
Market enthusiasm for semiconductors and memory chips continues.
In individual stock news, SpaceX shares fell nearly 6% in pre-market trading, poised for a third consecutive decline; Getty Images shares surged over 300% after announcing a cooperation agreement with OpenAI.
US-Iran Talks and Oil Prices
As negotiators from Tehran and Washington agreed on a roadmap for a final deal, Brent crude fell 1.7%, approaching $79 per barrel.
Susannah Streeter, Chief Investment Strategist at Wealth Club, said, "The Swiss talks are indeed making further progress towards a long-term solution, and oil prices have retreated again as a result." She added, "But clearly there is still a long way to go before a long-term agreement is reached, and more obstacles could arise before a final signature."
Previously, Iran war negotiations were jolted as Tehran announced the closure of the Strait of Hormuz again. After US Central Command said 55 ships passed through the waterway on Saturday, US President Trump threatened new strikes against Iran.
Despite US President Trump's threat to strike Iran if Hezbollah continues attacks on Israel, signs of negotiating progress have emerged in the Middle East. Channels of communication have been established to avoid conflict and ensure safe commercial shipping passage through the Strait of Hormuz.
Qatari and Pakistani officials subsequently stated that the first round of talks has concluded, with progress made in formulating a roadmap for a "final agreement within 60 days."
Meanwhile, Iranian negotiator Hossein Ghorbanzadeh hinted at progress on sanctions exemptions for Iranian oil sales and the release of frozen assets. Mediators said the two countries agreed earlier Monday to establish a mechanism to ensure the cessation of Lebanese military operations, resolving a key point of contention in the peace talks.
Analysts at ING said, "Recent developments show the path to a more lasting agreement will be challenging. The key factor remains: whether oil and LNG flows from the Persian Gulf continue to recover, despite all the rhetoric."
Stephan Kemper, Chief Investment Strategist at BNP Paribas Wealth Management, said, "Even during the Middle East conflict, the stock market is pricing in a relatively positive outcome. The market has already partially digested this expectation, so it won't overreact to the upside with progress."
UK Politics and Fiscal Concerns
Traders are also watching UK political turmoil: UK Prime Minister Keir Starmer announced his resignation at 10 Downing Street on Monday. Sterling pared losses after briefly touching its lowest level since 2026, while UK government bonds stabilized after two consecutive days of declines.
In the UK, Starmer's departure means the country could see its seventh prime minister in 10 years and paves the way for Andy Burnham to succeed him.
Investors are focused on how the former Manchester mayor, if he becomes prime minister, would affect UK fiscal policy.
Nick Rees, Head of Macro Research at Monex Europe, said, "A new leader does not change the tough fiscal reality he will face." He noted, "The real issue that led to Starmer's downfall is that no credible fiscal solution is yet in sight."
Mohit Kumar of Jefferies wrote, "Markets will focus on Burnham's choice of Chancellor. The concern is that his policies could lean left, and if the new Chancellor lacks credibility, it will heighten concerns about the fiscal deficit and debt."
Starmer stated that nominations for the new Labour leader will open on July 9, with an election planned to be completed by September 1. He will remain in office during this period.
Skylar Montgomery Koning, a macro strategist, said, "The UK market's reaction to Starmer's resignation is muted because this change has long been anticipated. The market is now more focused on who will succeed as prime minister, and with Andy Burnham seen as the clear frontrunner, UK assets will remain more influenced by Fed policy."
Bond Markets and Inflation Expectations
US Treasuries remain under pressure, with the 2-year yield rising 4 basis points to 4.230%, its highest level since early 2025, and the 10-year yield up 3.4 basis points to 4.484%. Following hawkish signals from the Fed last week, markets have priced in a 75% probability of a September rate hike. Futures markets indicate cumulative tightening of about 38 basis points by year-end.
Bond traders, having recently adjusted positions in anticipation of further rate rises, are now focused on Thursday's US Personal Consumption Expenditures (PCE) inflation data to judge whether the market's hawkish expectations are justified.
The market widely expects this gauge, the Fed's preferred inflation measure, to show acceleration in both the month-on-month and year-on-year data for May.
Fabio Bassi, Head of Cross-Asset Strategy at JPMorgan, said, "Our base case remains patience, expecting the first rate cut in the second half of 2027, but downside risks are rising, and there is a possibility of an earlier cut."
Eurozone government bond yields fell in opening trade. There are no major data releases or sovereign bond issuance scheduled in the eurozone for Monday. The 10-year German Bund yield fell 2 basis points to 2.962%.
Dollar Edges Higher
Driven by hawkish Fed expectations, the US Dollar Index (DXY) rose 0.1% to 100.905, after hitting a one-year high of 101.127 on Friday.
The dollar rose 0.3% against the yen to 161.71 yen, only prevented from breaking through the 2024 high of 161.96 (a 40-year high) by potential Japanese intervention.
Bitcoin rose 0.3% to $63,940.
Gold prices fell, with New York gold futures down 0.7% to $4,218.20 per ounce, as investors weighed the prospects for US-Iran peace talks and the direction of US monetary policy.
Following the Fed's hawkish stance, the May PCE inflation test is imminent, while Micron Technology earnings will simultaneously gauge the AI trend.
The core focus for markets this week will be inflation data, particularly the May Personal Consumption Expenditures (PCE) report, the Fed's favored inflation gauge. The Fed believes PCE provides a more precise measure of price changes because it uses business surveys rather than consumer surveys, incorporating a broader set of data.
The PCE price index rose 3.8% year-on-year in April, well above the 2% target and the largest increase in three years. This is the first major inflation data since Fed officials released their rate decision last week.
As the Fed Chair wants the Fed to rely less on economic forecasts, investors may pay more attention to PCE and other economic indicators. Markets will also closely watch a series of Fed official speeches this week to further understand how policymakers interpret recent inflation developments and whether officials continue to support a "higher for longer" policy outlook.
On the earnings front, FedEx and Micron Technology will be highlights on the earnings calendar, with Micron Technology providing another important update on artificial intelligence (AI)-related demand and memory price trends.
Not Afraid of Rate Hikes? The Fed's "New Policy" May Not Halt the Bull Market's Pace!
The new Fed Chair, Kevin Warsh, is attempting to break with the long-standing tradition of "forward guidance." He believes the Fed should reduce its interventionist messaging, letting financial market pricing itself become the "weather vane" guiding the economy, interest rates, and inflation expectations.
For investors, the Fed under Warsh could mean a higher volatility, but less interventionist market environment. While rate hikes might damage the Fed's short-term "popularity," demonstrating anti-inflation resolve through this "hardcore" approach could instead solidify the market's trust foundation in the long run.
Before the AI premium is completely exhausted, this bull market might still have a "second half" to look forward to. Meanwhile, a rate-hiking cycle does not necessarily equate to the end of a bull market.
Reviewing historical data, in four out of the five rate-hiking cycles since the early 1990s, the S&P 500 index rose during the period of tightening.
Key Stocks in Focus
After AbbVie confirmed it will acquire biotech firm Apogee Therapeutics, Apogee's stock surged 50%. In this $10.9 billion deal, AbbVie will acquire all outstanding shares of Apogee for $135.11 per share in cash, a 49% premium to the stock's Thursday closing price. AbbVie stated the acquisition will accelerate its business layout in respiratory diseases, and its own stock rose about 1%.
After building materials firm CRH Group announced an $8.5 billion acquisition of Arcosa, the latter's stock rose over 7%. This all-cash acquisition values Arcosa at $150 per share, a 10% premium to Thursday's closing price. CRH stated Arcosa's building materials business will complement and enhance its existing business portfolio.
SpaceX shares fell over 5% in pre-market trading, reportedly planning to issue at least $20 billion in bonds. Although the stock has cumulatively retreated about 13% from Tuesday's closing high, it is still up 30% from its $135 IPO price.
Getty Images shares soared 150% after announcing a cooperation agreement with OpenAI on Sunday. Getty Images content will be integrated into OpenAI's search engine and ChatGPT products. Even after the sharp rally, Getty Images' total market capitalization remains well below $1 billion.
Alphabet fell nearly 2% after a Google AI lab researcher left for Anthropic last Friday. Senior research scientist John Jumper departed Google DeepMind, just days after Google engineering vice president Noam Shazeer officially announced joining OpenAI.
Investment bank Evercore ISI initiated coverage of Credo Technology with an "Outperform" rating, sending the company's shares up over 3% on the positive news. Analysts stated the market currently views the company as an AI connectivity play in the copper cable space, but as its product roadmap advances, the market will gradually reposition it as a player in the optical communication sector.
Micron Technology shares rose 4.5% after two institutions raised their price targets. Bernstein raised its target to $1,300, and Needham raised its to $1,550. Micron Technology, along with storage peers like Seagate Technology, Western Digital, and SanDisk, were among the best-performing S&P 500 stocks in Monday's pre-market trading.
Chevron rose over 1.5% after announcing it will supply natural gas energy to Microsoft's data center in West Texas. This 20-year cooperation agreement will serve the data center codenamed "Project Kirby," which is expected to consume 2.7 gigawatts of power and is scheduled to be connected to the grid in 2028.
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