Geopolitical tensions and shifting Fed cut expectations weigh on global markets

Global markets today are being driven by a tug-of-war between rising geopolitical tensions in the Middle East, shifting expectations for U.S. interest rate cuts, and the fading boost from strong U.S. corporate earnings. Stock index futures in the U.S. and sentiment across global risk assets weakened during the Asian session as investors focused on the latest round of U.S.-Iran negotiations. This third round of talks, centered on Iran’s nuclear enrichment program and ballistic missiles and constrained by a tight U.S. ultimatum for a deal by March 1, is heightening uncertainty around potential escalation in the region. That uncertainty is pushing investors toward traditional safe havens such as gold and raising concerns about possible disruptions to oil supply, both of which can weigh on global growth expectations and risk appetite. At the same time, markets are reassessing the path of U.S. Federal Reserve interest rate cuts. The probability of a first rate cut by June has fallen notably, even though traders still expect multiple cuts later in the year. This repricing reflects worries that inflation may remain sticky or that the Fed will stay cautious, which can pressure equity valuations worldwide by keeping borrowing costs higher for longer. Today’s U.S. initial jobless claims report will be closely watched: a higher-than-expected reading could revive hopes for earlier rate cuts by signaling a cooling labor market, while a stronger labor signal could reinforce the view that cuts will be delayed, potentially adding to equity market volatility. Balancing these headwinds is the lingering, but now fading, positive impact from Nvidia’s stronger-than-expected earnings and upbeat outlook released yesterday. Those results initially supported risk sentiment and broader equity indices by reinforcing the narrative of resilient corporate profits and ongoing demand in key growth sectors. However, as geopolitical risks and interest-rate uncertainty have come back into focus, the earnings-driven optimism has taken a back seat. Overall, the dominant forces for global markets today are geopolitical risk from U.S.-Iran talks and the evolving outlook for Fed rate cuts, with economic data and prior earnings strength acting as secondary influences on whether investors lean into or away from risk assets in the near term.