Markets are facing a „heat test“ from geopolitics, monetary policy, and AI fantasy. With the geopolitical chapter remaining open and central banks offering investors no clear guidance, the question of how long AI euphoria can justify high valuations is increasingly coming into focus.
The hope for a final diplomatic solution in the Iran conflict lives on, but there can be no talk of a genuine all-clear. Negotiations between the US and Iran are likely to continue to be closely watched by the markets. At the same time, recent developments serve as a reminder of how fragile the ongoing negotiation process remains.
Additionally, investors are likely to digest the aftermath of the latest Fed meeting. At the same time, concerns are growing that the US central bank could lose its balance in its tightrope walk between fighting inflation and supporting growth.
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Despite renewed threat from Trump: Agreements in first round of negotiations between USA and Iran
According to mediators from Qatar and Pakistan, the goal is to reach a final agreement within 60 days. In the first round, an agreement was reached on establishing a communication channel to the Strait of Hormuz. This is intended to prevent „incidents and communication failures,“ according to Pakistan and Qatar. In addition, there will be working groups on, among other things, Iran's nuclear program and Western sanctions.
US President Donald Trump issued threats again on Sunday during negotiations, which did not lead to the breakdown of talks.
Monetary policy developments are likely to come back into focus, especially after the Fed meeting last Wednesday. As expected, the US central bank kept the interest rate corridor at a range of 3.50 to 3.75 percent, but increased the general interest rate hike fantasy for the current year.
Purchasing managers on both sides of the Atlantic in focus
On Tuesday, various purchasing managers (S&P Global) will initially be the focus of investors. For Germany, figures for the services sector, manufacturing sector, and „composite“ are expected (9:30 AM). The counterparts for the Eurozone will follow at (10:00 AM) and for the US on the American side at 3:45 PM.
US price data could provide monetary policy impetus on Thursday.
New data on the core personal consumption expenditures price index (2:30 PM) are likely to be in focus on Thursday, which could provide important inflation signals and thus monetary policy indications (2:30 PM). At the same time, new orders and the US GDP growth rate will also be released.
The Michigan Consumer Sentiment Index and consumers' five-year inflation expectations will round out the trading week on Friday (4:00 PM).
It's also important to always pay attention to Fed representatives who speak to the public. Governor Christopher Waller is expected today (3:00 PM), John Williams on Thursday (9:40 PM/New York), and on Friday Austan Goolsbee from the Chicago Fed branch (12:30 AM).
