Geopolitical calm boosts markets ahead of Fed speech
Geopolitical calm boosts markets this week as investors welcome a shift away from risk-driven volatility. Global equities rallied following signs of easing tensions in Eastern Europe and the Middle East, while central bank watchers recalibrate their expectations ahead of Fed Chair Jerome Powell’s upcoming Jackson Hole address.
The probability of a U.S. rate cut in September now sits at 84%, down from nearly 98% a week ago, according to interest rate futures. This adjustment reflects stronger-than-expected economic data in the U.S. and a more cautious outlook on inflation. Despite that, equity markets moved higher—driven by optimism that Powell may adopt a more balanced tone, signaling a data-dependent approach rather than an urgent one.
The S&P 500 and Dow Jones posted solid gains, while the Nasdaq saw modest increases. Investor appetite broadened beyond mega-cap tech into cyclical sectors such as financials, energy, and industrials. The risk-on tone extended globally, with the FTSE 100, DAX, and Nikkei 225 all trending higher in recent sessions.
Currency markets echoed this sentiment shift. The U.S. dollar stabilized around 97.85, reflecting lower demand for safe-haven assets. Meanwhile, gold and Treasury yields held steady, suggesting that investors are neither fully risk-off nor committed to aggressive positioning before the Fed’s policy signal.
The phrase geopolitical calm boosts markets captures the week’s narrative. Lower geopolitical risk has allowed investors to refocus on fundamentals—such as labor market strength, earnings revisions, and central bank communication—rather than bracing for immediate shocks.
Market Implications:
Equity portfolios may rotate toward cyclicals and international exposure amid reduced volatility.
Fixed-income investors should monitor the Jackson Hole speech for clarity on the Fed’s glide path; short-duration bonds may offer better protection if cuts are delayed.
Currency hedging remains relevant, particularly for dollar-exposed positions, as DXY volatility levels off.
Policy risk is still present. A hawkish shift from Powell could quickly unwind recent gains.
If the geopolitical backdrop remains stable and Powell maintains optionality, risk assets could extend gains into September, albeit with tactical volatility around key data releases.
