The North American session leaned strongly towards a risky toneWith equities rising, oil is soft, and yields are moving marginally lower. The backdrop to the move was largely driven by the renewed diplomatic momentum, as talks between the US and Iran appear to be gaining momentum – with Pakistan playing a central role. While the day’s headlines were sometimes inconsistent and even contradictory, the overarching narrative pointed to Reengagement rather than growth.
US envoys Witkoff and Jared Kushner are reportedly on their way, while Iranian Foreign Minister Abbas Araghchi is also expected to be in the area. Current indications suggest all sides may first meet separately with Pakistani officials, with the possibility of more direct talks coming up by Monday. Markets are clearly choosing to focus on possibility of reducing stressAnd that optimism helped fuel the rally in US equities.
That optimism translated Record-setting performance on Wall Street. Both the NASDAQ and S&P 500 closed at all-time highs, with the S&P up 0.80% and the NASDAQ up 1.63%. Leadership once again came from mega-cap tech, with Nvidia, Alphabet and Amazon all finishing at record levels. Meanwhile, Intel made headlines with a surprise gain of over 23%. The turnaround at Intel highlights how quickly sentiment can change – what was avoided until recently is now being embraced, even at lofty valuations close to 80x Forward P/E. This is a reminder that Markets don’t wait for perfection – they expect it. Either that, or markets are inefficient and sometimes make wildly irrational moves.
Looking ahead, earnings will take center stage next week and could bring fresh volatility. Wednesday featured reports from Amazon, Alphabet, Meta and Microsoft – a heavyweight lineup that will test the sustainability of the current rally. On Thursday, Apple, Caterpillar and Merck follow, adding further depth to both the tech and industrial sectors.
In the fixed income sector, yields have eased but remain within recent ranges. The 2-year yield declined 4 basis points to 3.784%, while the 10-year yield fell 1.7 basis points to 4.305%. Despite today’s decline, yields still remained high on the week, with the 10-year up 5 basis points and the 2-year up 7.9 basis points. Attention now turns to the Federal Reserve, with the FOMC meeting scheduled for next Wednesday. Expectations of no change in rates remain firmly in place, with the current target range centered around 3.75%. would rather focus on guidance and toneEspecially as markets consider geopolitical risks versus a reduction in inflationary pressures.
In the FX market, the US dollar weakened as traders focused on the possibility of an improving risk appetite and easing of geopolitical tensions. Low oil prices and expectations of future softening of inflation also contributed to the move. Commodity and growth-sensitive currencies led the gains, with the NZD and GBP each up about 0.50%. The EUR advanced 0.32%, while the AUD rose 0.34%, reflecting a broad shift from a defensive position.
Oil prices told a slightly more nuanced story. WTI crude for June delivery fell 0.87% to $95, while July crude fell 0.74% to $90.15, reflecting optimism about supply stability as tensions ease. However, Brent crude painted a more cautious picture, rising $1.11 (1.08%) to $106.20 – indicating that Not all market participants are fully confident that the risks have been removed.
Ground level: Markets are leaning toward a more optimistic geopolitical narrative, pushing equities to record highs and pressurizing the dollar. However, with big earnings looming, Fed decisions, and geopolitical uncertainty ahead, the current calm may prove fragile.
