Morning in New York: investors focus on US Fed decisions

Daily review and forecast of events on the US stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

The key event on June 18 will be the summing up of the results of the two-day meeting of the Federal Reserve, where the key rate is expected to remain unchanged. The most significant for investors will be the regulator's updated guidance on the adjustment of monetary conditions in the current year. The consensus assumes that the rate will be cut twice by the end of 2025, but the Freedom baseline scenario includes a delay in easing the MPC until 2026 with a single rate cut.

We expect the Fed to raise its forecast for core PCE (consumer spending index - the regulator's preferred measure of inflation) for 2025 from March's 2.8% to 3-3.1%, taking into account the impact of import tariffs and higher oil prices. The GDP guidance is likely to be adjusted to +1.5%. Unemployment expectations are likely to remain unchanged.

If the median rate estimate for 2025 rises from 3.9% to 4.1%, it would confirm the Fed's focus on maintaining the "long pause" and prioritizing the fight against inflation. If the rate target remains unchanged, it would signal a willingness to ease monetary conditions in the coming months, which would trigger a rally in equities. The most important part of the Fed Chairman Jerome Powell's press conference will be his comments on the impact of duties on the economy. We believe that he will continue to avoid hawkish rhetoric and harsh statements.

Of additional interest to traders will be the weekly data on the number of applications for unemployment benefits. This release was postponed from the traditional Thursday, because on June 19 in the U.S. will be celebrated Liberation Day and the markets will be closed. During the previous week the number of initial applications for benefits amounted to 248 thousand, thus continuing the trend of moderate increase in the index. Acceleration of its growth will signal the beginning of the pressure of tariff costs on the labor market. Also on Wednesday, housing starts will be released.

The escalation of the conflict in the Middle East, including a possible decision on the direct involvement of the US, will have a negative impact on investor sentiment. We assume that interest in risk assets will be reduced before the holiday.

Futures on American indices show about zero dynamics. We assess the balance of risks as neutral with an increased level of volatility. We forecast the S&P 500 to move within 5900-6060 points (from -1.4% to +1.3%).

- According to Bloomberg, U.S. regulators plan to lower the ESLR ratio for the largest banks from 5% to 3.5-4.5%. It is positive for JPMorgan (JPM), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC) and other systemically important banks. Also, the mentioned move can support liquidity in the Treasury securities market.

- The White House said Donald Trump will sign a new executive order extending the sale of TikTok's U.S. assets for another 90 days to avoid blocking the service. This is the third extension granted to China's ByteDance.

June 17 trading on U.S. stock exchanges ended in the negative. S&P 500 fell by 0.84%, Nasdaq 100 fell by 1%, Dow Jones fell by 0.7%, Russell 2000 - by 1.04%. Dynamics of quotations was determined by news about Iran-Israel conflict and weak data on consumer spending. Shares of Tesla (TSLA: -3.9%) were under pressure after the news about its plans to suspend assembly of Cybertruck and Model Y at the plant in Austin for a week. This would mark the third such suspension in the past year. The energy sector (XLE: +0.93%) became the leader of growth on the back of another jump in oil prices. Cyclical consumer goods producers (XLY: -1.72%) were the outsiders.

Macroeconomic statistics increased the caution of market participants. Retail sales in May fell by the maximum since January 0.9% m/m with consensus of 0.7%. The indicator excluding automobile sales declined by 0.3% m/m. At the same time, the benchmark group of goods, which more accurately reflects the state of consumption, recorded a growth of 0.4% against the consensus of 0.3%.

Import prices showed zero dynamics in May, while export prices fell by 0.9%.

Last month's industrial production unexpectedly contracted by 0.2% mom, although April's statistics were revised upward.

NAHB's housing market conditions index for June totaled 32. This is one of the three worst readings since 2012, indicating weakening buyer demand.

Donald Trump said the U.S. has "complete control of the skies over Iran" and knows the whereabouts of the country's supreme leader. Vice President J.D. Vance added that the president could take new steps to seek an end to Iran's uranium enrichment program. Reports have surfaced of joint discussions with the National Security Council about a possible attack on the Fordow nuclear facility. The market reacts moderately to increased geopolitical risks.

- Quotes of Verve Therapeutics (VERV: +81.5%) soared on news of a takeover by Eli Lilly for about $1 billion with a possible additional $300 million in CVR. The deal is expected to close in the third quarter.

- The positive dynamics of Reddit (RDDT: +6.1%) securities was provided by the presentation of a new line of Community Intelligence AI products, including Reddit Insights and Conversation Summary Add-ons. Investors saw this as a move to expand monetization.

- Shares of First Solar (FSLR: -17.9%) reacted with a drop on the release of the Senate's draft budget, which proposes to keep the repeal of solar and wind energy tax credits through 2028.

- The sale by SoftBank of 21.5 million shares of T-Mobile US (TMUS: -4.1%) at $224 per paper put pressure on the telecom's stock.