There is an ongoing shift in expectations with regards to the next Fed decision. Markets are starting to lean more heavily towards an interest rate cut, perhaps as early as next month. The Fed itself has begun to soften its tone on the matter, with a number of board members now sympathetic to the idea. US stocks are certainly optimistic. The Dow Jones rose 400 points yesterday but the bigger story lies with the S&P 500 and Nasdaq Composite. Both indices came comically close to breaking their record highs yesterday, but would eventually settle just beneath them. The S&P 500 closed a mere 3 points away from its all-time high, while the Nasdaq Comp was similarly only a handful of points away.

With the PCE price index set for publication later today, markets may get the justification they need to push both indices to new highs. The index is the Fed’s preferred inflation gauge and will be used to determine whether the central bank’s 2% target remains in sight. Inflationary pressures in the US have decreased consistently since the start of the year. Should the newest data print follow suit, the Fed will have all the justification it needs to consider a cut on the 29th of July.

On the Dollar front, the DXY appears to have taken the plunge. The index is now down to the low-97 mark while competing currencies continue to push higher against the Greenback. Despite the weakness in the Dollar, gold is once again struggling to maintain any positive momentum, falling below $3,300 an ounce this morning. Silver on the other hand appears to be consolidating its position around $36, with ample room to move in either direction. The main event however is currently unfolding in platinum, which broke above $1,400 an ounce yesterday, a threshold not seen since 2014.

The ceasefire between Israel and Iran appears to be holding. A quick glance at financial markets confirms that most traders believe the conflict is over for now. Crude oil prices have totally collapsed since Monday, meaning no one is expecting any supply disruptions in the region. Brent Crude futures are back down to $68 a barrel, $10 down from just a couple of days ago. Gold is once again struggling to justify its high price tag and is now down to $3,330 an ounce. US indices put in solid performances on Tuesday, with all three majors gaining over 1% and the S&P 500 and Nasdaq Composite climbing to within a short step to their respective record highs.

On the other side of the equation, the Dollar is taking an absolute beating. The DXY is currently floundering below 98 and looks tempted to plunge to new multi-year lows. The Euro edged above $1.16 yesterday while the Pound Sterling closed above $1.36 – both multi-year highs against the Greenback. Weakness in the Dollar followed comments from Fed Governor Michelle Bowman, who on Monday suggested that the central bank might be in a position to lower interest rates as early as July.  The comments follow those of Governor Christopher Waller, who last week also claimed that the Fed could start cutting rates during the next meeting. Friday’s PCE price index may well be pivotal in this regard.

Besides crude oil, one of the more aggressive pivots sparked by the ceasefire in the Middle East occurred in cryptocurrencies. Bitcoin’s sojourn below $100,000 was short-lived indeed, rising back above $105k on Monday and pushing higher still yesterday and this morning. After rising to 66%, Bitcoin dominance has taken a hit over the past few sessions, allowing the broader crypto market to catch up.

So much for the two week wait. Financial markets are still trying to make heads or tails of the US strike carried out against Iranian nuclear facilities over the weekend. The reaction so far has been relatively muted, even in oil markets. Crude prices have risen a modest 2% in the wake of the attack, pushing Brent futures up to $78 a barrel and WTI above $75. The obvious question however is what happens next. Should the regime retaliate and cause disruptions in the Strait of Hormuz, there will be immediate consequences on crude oil delivery and pricing, but for now oil markets are betting that the situation will not escalate any further. The strait currently accounts for a quarter of all seaborn oil trade. Underscoring all of the above, there is still a fundamental market structure that is keeping a lid on prices. The fact remains that global inventories are high, oil producing nations are largely holding back on production and worldwide demand forecasts are nothing to write home about.

For all the commotion on the international stage, gold has had very little to say for itself. A high opening this morning was quickly abandoned and the precious metal is currently down to $3,370 an ounce at the time of writing. Silver and platinum are not seeing any particular inflows either. The Dollar on the other hand has taken up a stronger position this morning, pushing the DXY back above 99 and putting major currencies on the back foot. US stock market futures are predictably down, although only marginally. Cryptocurrencies have been hit the hardest, with Bitcoin briefly dipping below $100k last night and barely holding onto it this morning.

Developments in the Middle East will likely be the main driver over the next few sessions, in what is set to be a relatively light week in terms of economic data. Later today, manufacturing and services PMIs will provide the latest insights into the European and US economies. The mid-week has little to offer other than Jerome Powell’s latest testimony before the US Congress. The most notable event of the week will have to wait until Friday in the form of last month’s PCE price report. Until then, all eyes on Iran.

Calmer trading conditions in the latter half of the week. Tensions in the Middle East are alive and well but have not escalated any further since the initial exchange. When asked whether the US would enter to conflict, president Trump responded by saying he would wait two weeks before announcing a decision, creating a window for talks between the two factions. US markets were closed yesterday but futures edged down late on Thursday. The Dollar has been relatively flat over the past couple of days, unmoved by the Fed’s decision to maintain rates at 4.5% on Wednesday.

The Fed was not alone in this regard. Central banks from around the world chimed in with various adjustments to their national currencies this week. In Europe, the trend was heavily in favour of rate cuts, as Switzerland, Sweden and Norway all slashed rates on their respective currencies. Safe-haven flows towards the Swiss Franc have heavily appreciated the currency this year, forcing it to multi-year highs versus the Dollar and prompting the Swiss National Bank to reduce rates to zero yesterday. In Sweden, meagre growth prospects are allowing room for more stimulus, which the central bank was all too happy to provide in the form of the seventh rate cut since last spring. Norway meanwhile enacted its first rate cut in five years as inflation concerns in the Nordic state are finally showing signs of abating. Further afield, the rest of the world by and large held rates steady. The US, the UK and Japan all remained steadfast this week, with the US and UK maintaining much higher rates than those observed in the rest of the world.

The rise in crude oil prices threatens most of Europe with lower growth in a way that the US is largely immune to, given its large domestic shale operations. Speaking of which, oil prices edged higher this week, with Brent Crude futures hovering around $77 a barrel this morning while WTI futures rose above $75. While the conflict between Israel and Iran has driven crude prices higher, the same cannot be said for gold, which continued to bleed lower this week, dipping below $3,350 an ounce this morning.

Safe-haven demand was not enough to push gold any higher this week, despite the explosive exchange between Israel and Iran. It is fair to say that the conflict escalated further than most were predicting, but fortunately talks of a ceasefire are beginning to surface. Gold fell back below $3,400 on Monday and has since made no effort to claw back the losses. On Tuesday, while gold prices were busy floundering in irrelevance, silver took the opportunity to pump over 2% to close above $37 an ounce. Silver has enjoyed an impressive rally so far this month, and interestingly one that has been completely independent of gold. The divergence between the two metals is of historical significance. By and large, silver and gold tend to move in the same direction on any given trading day, but this rule of thumb is currently being tested and silver seems to be acting on its own whims. The same can also be said of platinum, which is up 5% this week already.

Difficult to say what markets are predicting for the next chapter in the Middle East, but as far as oil markets are concerned, we are not out of the woods just yet. Brent Crude futures are closing in on $77 a barrel while WTI has climbed above $75. Prices have surged because market participants are afraid of potential supply disruptions, but so far, such disruptions have not materialised. No supply cuts have occurred as of yet, and the Strait of Hormuz remains clear. Should calmer heads indeed prevail, it will suddenly become much harder to justify current oil prices.

The Fed is up in a few hours. Markets will be shocked if the board delivers anything but a rate hold, but the devil is in the details. Will Powell finally soften his tone and hint at a rate cut in the future? Anything is possible but “no” is the likely answer. Interest rate traders are not predicting a cut until September at the earliest. Long summer ahead.

Israel and Iran continued to exchange missile strikes over the weekend and the question at the back of everyone’s mind is whether or not the US will be dragged into the conflict. Markets are on the back foot as developments emerge and will likely remain so until the dust settles.

The conflict is certainly working in gold’s favour. The precious metal pushed to a record weekly close of $3,433 an ounce last Friday and pushed marginally higher still this morning in the Asian session. The flight to safety is an obvious move in light of potential escalation in the troubled region, as is the surge in crude oil over the last few days. Oil prices pushed 10% higher at the end of last week, with Brent Crude peaking around $75 a barrel.

With the exception of gold and oil, warfare in the Middle-East has not been kind to financial markets. US stock indices took a hammering last Friday, particularly the Dow, which closed the day 1.8% lower. Things were not much prettier for the S&P 500 and Nasdaq Comp, which lost 1.1% and 1.3% respectively. Further afield, the situation was much the same, with stock markets from Europe to Asia reacting poorly.

While developments in the Middle East will likely be the main driver behind market movements this week, a number of items on the economic calendar still hold some weight. No fewer than three interest rate decisions are scheduled over the next few days. First in line is the Bank of Japan, which is expected to hold rates on the Yen at 0.5% tomorrow morning. The Fed is up next on Wednesday and is also expected to keep rates steady at 4.5%. Last but not least, the Bank of England will chime in with its own decision on Thursday, which will most likely result in a rate hold on the Pound at 4.25%. There is also the overlooked matter of the G7 meeting in Canada this week, which will focus on Israel, Ukraine, but also international trade and tariffs.