Bank earnings, geopolitics, and Fed expectations set a cautious tone for Monday

Global markets on Monday are likely to be driven by three main themes: major bank earnings in Canada, ongoing geopolitical tensions affecting energy prices, and shifting expectations for U.S. interest rates after key economic data. First, Canadian big bank earnings will be closely watched as a barometer of financial system health and consumer strength. Strong results would signal resilient credit conditions and support broader risk appetite, while weaker numbers could raise concerns about loan quality, profitability, and the outlook for the financial sector more broadly. Because banks sit at the core of the economy, their earnings can influence sentiment across global equities, not just in Canada. Second, geopolitical tensions, particularly involving Iran and the broader Middle East region, are keeping investors on edge. These tensions have helped push oil prices about 12% higher recently, supporting energy sector outperformance. Higher oil prices can boost energy company profits and related stock indexes, but they also raise concerns about input costs, inflation, and pressure on consumers and businesses worldwide. This mix of support for energy shares and worry about broader economic drag is contributing to a cautious tone in global markets. Third, markets are still digesting this week’s U.S. economic data, including Q4 GDP and core PCE inflation, which are key inputs for the Federal Reserve’s interest-rate decisions. The data have reinforced the idea that U.S. rates may stay elevated for longer than previously expected. That prospect has already weighed on U.S. and European equities and is encouraging a rotation away from high-growth technology stocks toward more defensive and cyclical areas such as industrials, consumer defensive names, and energy. With volatility measures like the VIX holding near 20, investors are pricing in continued near-term uncertainty as they reassess how long tighter financial conditions will persist. Taken together, bank earnings, geopolitics-driven moves in oil, and evolving Fed expectations are likely to set a cautious but active trading backdrop for global markets on Monday.