Markets are now preparing for a rocky weekend, with high stakes geopolitical developments ahead.
Despite recent back-and-forth rhetoric and Iran threatening to cancel the negotiations entirely, a group of Islamic republic diplomats—including Iran’s Foreign Minister Araghchi—is traveling to Islamabad, Pakistan, to move onto a potential peace deal between the US and Iran.
These talks should be ongoing for a relatively long time, hence a real change in narrative and dynamic is not to be expected anytime soon.
However, steady progress and positive communications will be required to maintain risk-sentiment at current, very positive levels. Stock Markets actually took a step back from their ecstatic pricing from earlier this week, but they still remain at relative peaks.
Adding to the geopolitical relief, Israel-Hezbollah tensions are slowly abating, as a ceasefire and formal talks on that side of the arena should be expected by Tuesday.
On the macroeconomic front, the recent commodity shock is officially showing up in the data.
The latest US CPI report showed the first direct hits from recent energy price rises, with headline inflation coming in at 3.3% y/y.
This was heavily driven by a massive 0.7% rise from energy and food inflation (with Core CPI only at 0.2% – but still concerning for the Fed) – The highest report in two years.
While this complicated the inflation picture, the report was well priced (as-expected).
Canadian Employment also marked a decent rebound, also coming as expected at 14.1K (Unemployment rate ticked lower to 6.7%).
Meanwhile, institutional continuity might provide a slight anchor for monetary policy amid recent Market chaos. In other news, Kevin Warsh’s hearing has been announced to be delayed, which could keep Powell at the head of the Fed for a prolonged period.
