Market Reaction
• After a more than 1% decline on Friday due to geopolitical tensions, US stock futures opened higher on Monday.
• Dow, S&P 500, and Nasdaq futures were up between 0.4% and 0.5%.
• A slight pullback in oil prices helped improve investor sentiment.

Geopolitical Developments
• The Israel-Iran conflict has entered its fourth day.
• G7 leaders began their annual summit, with the conflict casting a shadow over the talks.
• Russia stated it is ready to mediate between Israel and Iran.

Energy Prices and Inflation Concerns
• Oil surged 7% on Friday but eased somewhat at the beginning of the week.
• Investors remain concerned that higher energy prices could reignite inflation.
• The yield on the US 10-year Treasury rose to 4.43%, reflecting inflation fears.

Federal Reserve Policy Outlook
• The Federal Reserve is expected to leave interest rates unchanged on Wednesday.
• Markets are pricing in 48 basis points of rate cuts by the end of 2025.
• Barclays expects the Fed’s “dot plot” to reflect only one rate cut in 2025 and three in 2026.
• Investors will closely watch Jerome Powell’s comments and the Fed’s economic projections.

Rising Yields
• 10-year US Treasury yield rose 3 basis points to 4.43%.
• 2-year yield climbed to 3.96%.
• The yield curve steepened, indicating long-term inflation concerns.

Market Dynamics
• Elevated oil prices have reignited selling pressure on Treasuries.
• Historically, similar Israel-Iran clashes have pushed US yields higher for extended periods.
• Investors are balancing between safe-haven buying and inflation risk.

What’s Next?
• Markets are currently pricing in the assumption that the Israel-Iran conflict will remain contained. However, persistent geopolitical instability—especially in oil-producing regions—could keep energy prices high, putting pressure on inflation and complicating the Fed’s policy path.