- The United States and Iran have paused mutual attacks and resumed diplomatic negotiations, leading to a rapid retreat in geopolitical risk premiums. This has caused international crude oil prices to plummet by over 4%, while futures for the three major U.S. stock indices have risen across the board.
- The market is focusing on the Federal Reserve's interest rate meeting this week. Although CME tools show the probability of a rate hike this week has risen to 38%, the market generally expects policy adjustments to be more likely in September, with the benchmark 10-year U.S. Treasury yield remaining at a high of 4.641%.
- Wall Street is entering the busiest week of the earnings season, with 177 S&P 500 component companies, including Apple and Microsoft, set to release their results. Capital expenditure and investment in artificial intelligence have become core indicators for valuation restructuring.
Easing Geopolitical Tensions Lower Oil Premiums
WTI crude futures fell more than 4% in a single day to around $85 per barrel, while Brent crude also retreated to around $88, having previously breached the $100 mark. With the U.S. and Iran halting daily retaliatory attacks, the tail risk of disruptions in Middle Eastern energy corridors has been alleviated. In the short term, traders are locking in profits again, quickly squeezing out the geopolitical premium in the oil market, significantly reducing the overall risk aversion sentiment in the commodity market.
Rising Risk Appetite Boosts Stock Index Futures
Futures for the three major U.S. stock indices have risen across the board, with Dow futures up about 280 points or 0.5%, S&P 500 futures up 0.7%, and Nasdaq 100 futures up 1.1%. Bitcoin also remains stable above $65,000. The cooling of geopolitical tensions has directly boosted Wall Street's risk appetite, with funds flowing back into equity assets, filling the valuation discount caused by the previous escalation in the Middle East situation, and providing a temporary respite from the recent downward trend in U.S. stocks.
Approaching Fed Decision and Tail Risks of Inflation
The Federal Reserve is about to hold its interest rate meeting, with Chairman Kevin Warsh's statements becoming the focus of market attention. Currently, CME FedWatch shows the probability of a rate hike this week has risen to 38%, with the 10-year U.S. Treasury yield approaching a high of 4.641%. The market is concerned that the previous rise in energy prices may transmit to core inflation, and if the Fed turns hawkish, risk assets may face the challenge of liquidity repricing.
Tech Giants' Earnings Face AI Scrutiny
This week, 177 S&P 500 component companies will release their earnings, with tech giants Apple (AAPL:US), Microsoft (MSFT:US), Amazon (AMZN:US), and Meta Platforms (META:US) taking center stage. Market funds are highly focused on the return on capital expenditure in the AI field by these tech giants. Their performance will directly determine whether the growth sector of U.S. stocks can maintain its current valuation premium and provide guidance for future capital flows.
