Markets traded with a cautiously constructive tone as investors digested the first clear inflation snapshot tied to the recent energy shock, while closely monitoring geopolitical developments ahead of key US–Iran talks this weekend.
US CPI came in slightly softer than expected at 3.3% YoY (vs. 3.4% forecast), offering some relief despite a historic surge in gasoline prices — the largest since 1967. The data weakened the dollar and supported both equities and gold, reinforcing the view that inflation, while elevated, may not be accelerating beyond expectations.
Earlier in the session, Canadian employment data missed estimates, adding to broader USD softness.
Geopolitics remained firmly in focus. Optimism around a potential Ukraine-Russia agreement, alongside tentative progress in US–Iran discussions, helped sustain risk appetite. However, uncertainty persists as internal divisions within Iran’s negotiating camp and ongoing tensions in the Strait of Hormuz continue to cloud the outlook.
Federal Reserve commentary struck a balanced tone. San Francisco Fed President Mary Daly suggested that if oil prices retreat quickly on the back of a resolution in the Iran conflict, a rate cut could be back on the table. At the same time, she emphasized that markets may look past current CPI prints if a durable ceasefire takes hold.
After a seven-day rally, US equities paused, though major indices remain on track for their strongest weekly performance in over a year. European equities also advanced, with the Stoxx 600 rising on renewed optimism around Eastern European peace efforts.
In commodities, oil hovered near recent lows and is on track for its steepest weekly decline in nine months, reflecting easing supply concerns tied to ceasefire developments.
Rates markets showed mixed signals, with traders trimming expectations for near-term easing following the CPI release, while still pricing a cautious path for policy into 2026.
Bottom line:
Markets are balancing improving inflation optics with fragile geopolitical progress. For now, softer CPI and falling oil are supporting risk assets — but the durability of this move hinges on whether ceasefires evolve into lasting resolutions.
