US stock futures slump as Middle East conflict enters fifth day

• US stock futures face selling pressure on mounting tensions between Israel and Iran.

• Iranian military forces struck ballistic missiles on the Israeli intelligence agency.

• The Fed is widely anticipated to keep interest rates steady on Wednesday.

US stock index futures face a sharp selling pressure during European trading hours on Tuesday. Investors dump US equity futures as the risk appetite of investors has diminished significantly amid uncertainty surrounding the future of the aerial war between Israel and Iran, and the outcome of the monetary policy by the Federal Reserve (Fed) on Wednesday.

At the time of writing, S&P 500 futures are down 0.6% slightly below the psychological level of 6,000. Down futures ease over 240 points, and slides to near 42,720.

Tensions between Iran and Israel have escalated as Tehran has struck ballistic missiles on Israeli intelligence agency Mossad’s headquarters during the European trading session, Tehran Times reported.

Tehran has accelerated attacks on Israel after the Israeli Defence Forces (IDF) confirmed that they have assassinated Ali Shadmani, Iran’s senior-most military official and Khamenei’s closest military advisor, according to CNBC.

Meanwhile, the US Dollar (USD) trades calmly, with the US Dollar Index (DXY) wobbling around 98.20. The US Dollar should has performed strongly amid heightening geopolitical tensions, however, its upside seems capped ahead of the Fed’s monetary policy announcement. Theoretically, demand for safe-haven assets, such as US Dollar, increases amid geopolitical uncertainty.

According to the CME FedWatch tool, the Fed is almost certain to leave interest rates unchanged in the range of 4.25%-4.50%. Therefore, the major trigger that will direct US equity markets will be Fed’s guidance on the monetary policy outlook for the remainder of the year, and economic and inflation forecasts.

In Tuesday’s session, investors will focus on the US Retail Sales data for May, which will be published at 12:30 GMT. The Retail Sales data, a key measure of consumer spending, is expected to have declined by 0.7% after a 0.1% growth seen in April.