By Daniela Hathorn, senior market analyst at Capital.com
Markets are entering a pivotal week as investors weigh the start of the US bank earnings season against a challenging backdrop of elevated bond yields, geopolitical uncertainty and stretched equity valuations. The Nasdaq 100 has retreated from recent highs above 31,000, while the S&P 500 is also trading softer. With the 10-year Treasury yield still above 5%, strong results alone may not be enough: investors will be looking closely at guidance for evidence that earnings growth can continue to support current valuations.
The dollar remains firmly supported, with EUR/USD trading near 1.12 as the divergence between the US and European outlooks becomes increasingly pronounced. US growth has remained comparatively resilient, while widening sovereign spreads, softer growth and political uncertainty continue to weigh on European assets. Attention now turns to Wednesday’s US CPI report. A softer inflation reading could ease pressure on Treasury yields and the dollar, while another persistent print would strengthen the case for the Federal Reserve to keep policy restrictive—or tighten again—despite recent signs of weakness in the labour market.
For MENA markets, oil remains the most immediate cross-asset risk. Brent is holding above $100 as continued attacks around the Strait of Hormuz keep a sizeable geopolitical premium embedded in prices. Improving export flows and alternative supply routes have so far limited a more aggressive rally, but any further escalation could quickly drive crude higher, reignite global inflation concerns and complicate the outlook for interest rates. Investors therefore face a delicate balance: upbeat bank earnings could revive risk appetite, but persistent inflation, Treasury yields above 5% or a renewed energy shock would make elevated equity valuations increasingly difficult to defend.
