Some 24 hours after U.S. President Donald Trump declared a Middle East ceasefire between Israel and Iran, the global market reaction remains cautiously optimistic though investors are well aware the situation is far from resolved.
While the initial market euphoria that followed Trump’s announcement has cooled, the relative calm in financial markets suggests that traders are still betting the worst-case scenarios regional escalation, oil supply shocks, and disruption to the Strait of Hormuz are off the table for now. Crude oil has stabilized after Tuesday’s 6% drop, and stock futures remain elevated, signaling that the broader risk-on mood is tentatively holding.
Trump’s buoyancy was on full display Tuesday as he touted the ceasefire’s success and even suggested China could resume purchases of Iranian oil forcing the White House into damage control, clarifying that U.S. sanctions policy remains unchanged. The president also contradicted his own intelligence agencies by claiming Iran’s nuclear sites had been “obliterated,” despite the Defense Intelligence Agency’s assessment that the facilities were merely set back by a couple of months.
Yet even amid inconsistencies and ongoing minor skirmishes, the ceasefire appears intact. Both Israel and Iran have declared conditional victory and indicated readiness to resume hostilities if provoked keeping geopolitical risk premiums high, especially for oil and gold markets trades.
Gold prices, which dipped to a two-week low after the ceasefire news, have since rebounded on continued uncertainty and a weaker U.S. dollar. The dollar has softened as traders price in an increasing likelihood of interest rate cuts, with a 50-basis-point reduction now fully priced in by year-end and a roughly 20% probability of action at the July meeting. Fed Chair Jerome Powell will testify again today before the Senate, but after reiterating the Fed’s wait-and-see stance in Tuesday’s House testimony, few surprises are expected.
Meanwhile, political intrigue adds another layer to the week’s headlines. In New York, 33-year-old democratic socialist Zohran Mamdani is poised to win the city’s Democratic mayoral primary, stunning establishment figures like former Governor Andrew Cuomo.
Key Watchpoints:
NATO Summit: Trump arrives in The Hague amid tensions with allies and a renewed push on defense spending.
Fed Chair Powell Testimony: Scheduled remarks before the Senate Banking Committee could reinforce dovish bias or attempt to cool rate cut speculation.
U.S. Data: May new home sales due today; more impactful data like Q1 GDP and the PCE Price Index arrive later in the week.
For now, the fragile Middle East truce, a Fed leaning dovish, and stabilizing oil prices have helped keep markets buoyant. But as recent days have shown, it won’t take much to upend that calm.