US stock markets are expected to open higher today following a ceasefire announcement between Israel and Iran, even though missile exchanges continue. President Donald Trump backed the ceasefire on Tuesday morning but warned there could be challenges in keeping the agreement. Equity futures surged over 1% early Tuesday but then stabilized amid reports of ongoing military activity. Meanwhile, oil prices fell by 3.8%, ending around $65.90 after starting the week above $73.00, which is a positive sign for the US economy.

Federal Reserve Testimony

All eyes are on Federal Reserve Chair Jerome Powell as he prepares to testify before Congress. He’ll face tough questions about his choice to keep interest rates steady, especially as inflation concerns are growing due to trade policies. Recent reports showing a decline in inflation have prompted some Federal Reserve officials to support interest rate cuts by July. During his testimony, Powell will likely address these issues, balancing caution against temporary inflation spikes. Recently, markets have seen a slight increase due to geopolitical changes, particularly the ceasefire between regional powers. Trump’s confirmation of the agreement early on Tuesday also suggested a lack of overwhelming confidence. Still, markets seem to be approaching this uncertainty with cautious optimism—at least for now. Initially, equity futures jumped more than 1%, but then settled into a steadier pattern as reports of further military exchanges emerged. This initial rise, despite the later cooling, indicates market participants are responding to headlines while also factoring in a reduction of ongoing tensions. At the same time, energy markets reacted quickly. Crude oil prices, which had opened the week above $73, dropped over 3% to just below $66. This shift suggests traders believe there are fewer immediate threats to oil production and supply. Lower energy prices could also positively impact the broader economy by slightly easing input costs across various sectors. If this trend continues, we might see a long-term effect on key economic indicators.

Market Volatility Adjustments

Everyone is now focused on Powell’s upcoming testimony before Congress. He will face pressing questions, especially regarding the Federal Reserve’s current approach to interest rates. Powell has limited room to shift without raising concerns on either side. If he leans too dovish, inflation worries could resurface; if too hawkish, investors might doubt the Fed’s ability to adapt to external pressures. Recent data showing softer inflation has led to growing support within the Federal Reserve for potential rate cuts at the July meeting. Some governors have already cautiously supported this direction. If Powell hints at this during his testimony, it could lead to a reevaluation of near-term futures. It’s crucial to pay attention to the language used in his statements and responses, especially regarding how the Fed views recent economic softness. The immediate market focus will be on the rate path and how the Fed distinguishes between temporary and persistent inflation. The significance of global developments will also be considered. Expectations of volatility in the coming days seem justified. With markets becoming increasingly sensitive to geopolitical events and economic data, even minor remarks or routine hearings could cause significant shifts in sentiment. In options markets, short-term implied volatility might rise, especially if Powell appears hesitant when faced with pointed questions. It’s wise to approach static positions with caution and reassess strike prices, especially as the broader economic perspective shifts. Adjusting breakeven points based on the new oil price stability and possible shifts in rate guidance may help in maintaining sustainable risk levels. Market participants should be ready for swift changes in sentiment as we monitor ongoing developments from Washington and around the world. Create your live VT Markets account and start trading now.

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