Global Markets Volatile as Fed Signals Rate Cuts, Geopolitical Tensions Rise

This week, global financial markets experienced a mix of reactions due to a combination of central bank policies, slowing macroeconomic data, and geopolitical tensions. The Federal Reserve maintained its policy stance but signaled two rate cuts for 2025. Meanwhile, China's latest economic figures showed a slowdown in factory output despite an increase in consumer spending.

In Europe, inflation returned to the European Central Bank's 2% target, and the Bank of England's steady approach kept gilt yields stable. Investor sentiment became volatile after the United States confirmed precision air strikes on Iran's main nuclear facilities, which sent crude oil prices sharply higher and prompted traders to seek safe-haven assets.

While US equities saw slight gains, European markets declined, and Asian markets were mixed, reflecting a cautious global outlook. Energy stocks benefited from the oil spike, defensive plays outperformed growth stocks in the S&P 500, and bond markets rallied as investors sought safer assets. Currency movements were generally muted, although the yen briefly tested 146 per dollar due to rate differential trades.

In the equity markets, the S&P 500 ended the week with a slight loss, while the Dow Jones Industrial Average and the Nasdaq Composite both posted small gains. Defensive real estate names and a late-week rally in megacap tech stocks helped mitigate some of the volatility caused by Middle East tensions. In Europe, the FTSE 100 ended a six-week winning streak due to weak retail sales data and profit-taking in the housing sector. In Asia, Japan's Nikkei 225 inched up slightly, supported by strength in chip stocks before profit-taking set in. India's Nifty 50 closed at a fresh record high, driven by renewed foreign inflows into banks and industrials. AI-themed growth ETFs saw significant gains, while energy stocks lagged as oil prices gave back some of their mid-week spikes. Notable laggards included Accenture, which cut its guidance, and Tesla, which faced chatter about its robotaxi launch. In the UK, Berkeley Group tumbled on weaker profits.

In the commodities market, crude oil prices settled higher, driven by geopolitical tensions between Israel and Iran. Gold prices held steady despite a softer dollar, as safe-haven bids offset some of the downward pressure. Silver and copper prices were mixed, with silver tracking gold lower and copper hovering near its recent levels amid mixed economic data from China and a modest pullback in the dollar.

In the currency markets, the US dollar eased slightly, while the yen tested 146 per dollar due to policy divergence. In the bond markets, yields fell as the Federal Reserve reiterated its data-dependent approach and the Bank of England kept the door open for summer rate cuts. Eurozone bond yields held steady, with ECB officials hinting at more easing later in the year. Switzerland and Norway both trimmed their rates by 25 basis points, reflecting a global tilt toward incremental easing.

In the cryptocurrency market, Bitcoin started the week above $106,000 and finished around $99,000, still well above its 50-day moving average. Ethereum fell to $2,181 alongside Bitcoin following the announcement of America attacking Iran. Solana and Hyperliquid spiked early in the week, while DeFi token AERO surrendered its early gains. There were no major hacks reported, and regulatory consultations in the EU wrapped up. Rumors of a spot-ETH ETF in the US returned after an SEC meeting leak, and XRP is in talks with the SEC to resolve its legal case.

On the macroeconomic front, China's industrial production grew at its slowest pace in three months, while retail sales jumped unexpectedly. Euro-area inflation returned to the ECB's target range, bolstering expectations of a cautious rate-cut path. In the US, initial jobless claims dipped but remained higher than in the first quarter, indicating a cooling labor market. UK retail sales fell sharply, highlighting weakening consumer momentum and providing further cover for the Bank of England to discuss summer rate cuts. The United States' bombing of Iran's key nuclear facilities pushed oil prices higher and spurred a flight to safe-haven assets, heightening fears of wider regional escalation and supply-chain disruption. Ongoing hostilities between Israel and Iran, now compounded by Washington's direct involvement, continue to embed a risk premium in energy markets and inject fresh volatility across global equities and emerging-market currencies.

Looking ahead, markets appear to be navigating a narrow path: softening but not collapsing macro prints are anchoring the case for gradual easing, yet the sudden flare-up in the Middle East reminds investors that exogenous shocks can overturn even the clearest data-driven narratives. Cyclicals such as autos and travel lagged, while oil majors and gold miners drew fresh bids on the geopolitical risk premium. The tech complex proved resilient, hinting that AI-linked capital expenditure remains a counter-cyclical shelter. Heading into next week, all eyes will be on flash PMIs, a raft of US housing data, and crucially, Iran’s response to the strikes. A material disruption to Strait-of-Hormuz traffic would amplify the current oil rally and could force central banks to juggle growth worries against an energy-driven inflation bump. Conversely, any signs of diplomatic de-escalation may see risk assets claw back lost ground, especially with quarter-end rebalancing flows in play. If Brent settles above $85 per barrel for more than a week, expect at least one major central bank outside the Fed to pause or rethink its easing path before July is out. For nimble investors, the opportunity may lie in barbell positioning, holding quality defensives on one side and selective energy or commodity plays on the other, while keeping dry powder for a potential summer volatility spike.