Investors eye Fed hearing as Iran optimism boosts equities

Global financial markets are showing renewed optimism as the US President Donald Trump signalled confidence that the war in Iran could end soon, with talks potentially resuming over the weekend.

Investor sentiment has improved on expectations of a diplomatic resolution.

However, the positive mood may face challenges from upcoming economic data expected to reflect slowing business activity and rising price pressures.

At the same time, attention is turning to a key political event in Washington, where scrutiny of the Federal Reserve’s leadership could shape interest rate expectations in the months ahead.

Fed chair nominee faces congressional test

Investors are set to gain more clarity on Trump’s nominee to lead the Federal Reserve when former Fed governor Kevin Warsh appears before Congress for his confirmation hearing on April 21.

Warsh enters a challenging environment, with Trump pushing for lower interest rates even as the Iran conflict has driven energy prices higher, fuelling inflation concerns.

Market expectations have shifted significantly.

Fed funds futures, which earlier priced in two quarter-point rate cuts by December, are now indicating virtually no cuts since the conflict escalated in late February.

Trump has also intensified pressure on current Fed Chair Jerome Powell.

Trump has threatened to remove Powell from his separate board role if he does not step down after his term as chair ends on May 15.

Meanwhile, corporate earnings and economic data will also be in focus.

Tesla is among major companies reporting results, while March retail sales data could provide insights into consumer spending trends amid rising prices.

Stocks rally, but oil markets remain cautious

Equity markets are pricing in a positive outcome to the Iran conflict.

The S&P 500 has rebounded to record highs, while Japan’s Nikkei has also reached new peaks despite concerns over energy imports.

Investors appear to be betting on a return to pre-war conditions, where strong corporate earnings supported equities.

However, oil markets are signalling caution.

Benchmark Brent crude remains close to $100 per barrel and is still about 33% higher than late February levels.

Prices for physical crude deliveries have also reached record highs.

Analysts warn that if talks fail to reopen the Strait of Hormuz, energy prices could remain elevated.

This would likely force central banks to keep borrowing costs high, potentially weighing on corporate earnings.

Asia and emerging markets feel the strain

Central banks across Asia are also navigating the fallout from higher energy costs.

China is set to announce its loan prime rate on April 20, with analysts expecting no change as policymakers aim to support economic recovery.

However, growth may slow as the effects of the Middle East crisis weigh on corporate profits and external demand.

In Indonesia, the central bank faces pressure to stabilise the rupiah, which has recently fallen to record lows.

Policymakers are considering recalibrating their approach to maintain financial stability.

The Philippines’ central bank has also warned of “spillover effects” after inflation accelerated in March and exceeded its target range.