Geopolitical developments in the Middle East conflict are likely to continue to concern investors around two weeks after the outbreak of the geopolitical escalation. In particular, the rise in oil prices and the associated fear of a slowdown in the global economy could continue to cause headaches for market participants.
The focus of the new trading week is likely to be on the central bank meetings of the Federal Reserve (Fed) and the European Central Bank (ECB).
Geopolitical risks remain in focus - Middle East conflict fuels recession worries
The ongoing fighting in the Middle East conflict could continue to weigh on investors' appetite for risk. US President Donald Trump recently called for NATO support in securing oil shipments in the Strait of Hormuz. The strategically important strait is considered a bottleneck for international oil trade. In 2024, an average of around 20 million barrels of crude oil per day passed through the strait, which corresponds to around 20 percent of global consumption.
US producer prices ahead on Wednesday - US Federal Reserve likely to keep its feet still on interest rates
Data on US industrial production is already awaiting investors today (14:15). While Tuesday has fewer relevant potential sources of impetus, investors should focus on Wednesday in particular.
On Wednesday afternoon, US producer price data is expected first (13:30), which could send out inflation signals and thus provide monetary policy impetus.
Attention should also be paid to incoming industrial orders (15:00).
In the evening, investors are likely to focus their attention on the Fed's key interest rate decision (19:00) and the subsequent FOMC press conference with Jerome Powell (19:30).
However, according to the CME Group's „Fed Watch Tool“, only 0.9% of market participants expect a rate hike of 25 basis points and 99.1% expect a pause in interest rates. The interest rate band in the USA currently stands at 3.50 to 3.75 percent.
European Central Bank to decide on key interest rate on Thursday - Middle East conflict likely to remain dominant topic for the time being
On Thursday, the focus will consequently shift to the key interest rate decision by the European Central Bank (ECB) (14:15). ECB President Christine Lagarde is expected to address the public at 14:45.
Whether the ECB will cut interest rates also remains questionable.
The bottom line is that investors may be temporarily distracted from developments in the Middle East conflict by monetary policy developments. Even if the markets are not currently holding out much hope for US interest rate cuts in particular, the expected speech by Jerome Powell should be watched closely. There could possibly be statements on the current inflation trend due to the ongoing war with Iran.
Dow Jones Industrial Average Index
Oil price (WTI)
