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Monday’s rebound in US stock futures comes as welcome relief following last week’s sharp selloff driven by mounting concerns over economic growth. The recent downturn, highlighted by the Dow’s 2.51% drop—the worst weekly performance since October—along with declines in the S&P 500 and Nasdaq Composite, was largely triggered by disappointing guidance from Walmart and data signaling weakening consumer sentiment amid persistent inflation worries.

Investors have now shifted their focus to the upcoming PCE price index report, the Federal Reserve’s preferred inflation gauge, which, along with key earnings from major retailers like Home Depot and Lowe’s, will provide critical insights into US consumer spending trends. Additionally, the impending earnings announcement from artificial intelligence leader Nvidia, its first since the emergence of China’s DeepSeek, adds further anticipation, as market participants assess how technological innovation might counterbalance the broader economic headwinds.

In parallel, currency markets are reflecting evolving trade and fiscal policy dynamics. The dollar index dropped 0.4% to around 106.2 on Monday, reaching an 11-week low as the euro surged in response to the conservative victory in Germany’s general election. With Friedrich Merz expected to form a coalition government that could accelerate fiscal reforms, the dollar has come under additional pressure, reinforcing investor expectations that the current US economic slowdown might prompt the Federal Reserve to consider further rate cuts.

Data released last Friday, which showed near-stagnation in US business activity and a contraction in the services sector, along with subdued consumer sentiment driven by inflation concerns and the lingering effects of President Trump’s tariffs, have only compounded these expectations. The market now awaits this week’s PCE report and the second estimate of fourth-quarter GDP growth, which are expected to confirm an annualized GDP expansion of around 2.3%, and will play a pivotal role in shaping the Fed’s policy outlook.

On the fixed income front, the yield on the 10-year US Treasury note has stabilized at around 4.4%—the lowest level since mid-December—despite ongoing uncertainties regarding trade policies and fresh economic data. The stable yields reflect a cautious reassessment by investors who are balancing mixed signals from various economic indicators. Last week’s flash S&P Global PMI data showed an unexpected contraction in the services sector, even as manufacturing growth accelerated.

However, rising input prices and weakening business expectations have left market participants concerned about the overall economic trajectory. These factors have increased bets on potential Fed rate cuts, particularly if upcoming inflation data continue to suggest a softening price environment. Consequently, the interplay between a recovering equity market and a potentially dovish monetary policy stance is shaping a more nuanced risk landscape.

Energy markets, too, are contributing to the broader picture of economic uncertainty. WTI crude oil futures have dipped to around $70.2 per barrel on Monday, nearing their lowest levels in two months, amid expectations of resumed exports from Kurdistan’s oilfields. The recent announcement from Iraq’s oil ministry—that all necessary procedures have been completed to resume crude exports through the Iraq-Turkey pipeline—suggests a potential resolution to a long-standing supply disruption. At the same time, traders remain vigilant as talks to end the war in Ukraine continue, with any progress toward a peace deal potentially easing sanctions on Russian oil and increasing global supply. These developments underscore the delicate balance between supply disruptions and recovering demand, especially in the context of uncertain geopolitical tensions in the Middle East, where challenges to the Gaza ceasefire and protracted regional disputes persist.

In the precious metals space, gold continues to command investor attention as a safe-haven asset. Trading above $2,940 per ounce on Monday and hovering near its all-time highs, gold is being supported by strong safe-haven demand and the relatively softer US dollar. Concerns over President Trump’s evolving tariff plans—which could escalate global trade tensions—further bolster gold’s appeal, as a weaker dollar also makes the metal more attractive to foreign buyers.

Despite robust domestic economic data, gold’s sustained strength reflects the market’s enduring caution and its willingness to hedge against economic uncertainty. However, physical demand in key markets like China and India remains subdued due to record-high prices, indicating that any significant upward pressure on gold might be limited to financial market flows rather than broad-based consumer demand.

Meanwhile, copper futures have held steady at approximately $4.55 per pound on Monday, recovering from last week’s weakness thanks to ongoing concerns about tightening supply conditions. Although copper has been largely insulated from the latest tariff threats—despite President Trump’s rhetoric—the recent phone call between Washington and Beijing has sparked optimism that a trade deal between the two countries may soon be within reach.

Adding to this, China, the world’s largest copper consumer, has unveiled an ambitious 2025 action plan designed to attract more foreign investment, signaling an effort to stabilize its domestic industrial base amid rising geopolitical tensions. This dual dynamic of potential trade resolution and robust long-term demand could provide support for copper prices, even as near-term uncertainties persist.

Potential trading and investment scenarios emerge from this complex mosaic of economic signals and geopolitical developments. In one scenario, if the upcoming PCE report confirms continued softening in inflation and consumer sentiment remains subdued, the Federal Reserve could adopt a more accommodative monetary policy. This environment would likely support a rebound in risk assets, particularly in sectors such as technology and consumer discretionary, where robust earnings might offset broader economic concerns. In this case, institutional investors could seek to build positions in high-quality equities with strong balance sheets, while potentially extending duration in fixed income markets to capture gains from anticipated rate cuts.

Alternatively, should the PCE report reveal unexpected inflationary pressures—bolstered by rising import prices or renewed tariff concerns—the Fed may delay easing measures, thereby sustaining a cautious investment climate. In this scenario, defensive sectors such as utilities, healthcare, and consumer staples could outperform, and investors might pivot toward shorter-duration bonds or inflation-protected securities to mitigate further downside risk. Additionally, a more hawkish Fed stance could spur continued strength in the US dollar, prompting market participants to hedge currency exposures more actively.

A third scenario involves the potential resolution of geopolitical tensions, particularly in the energy markets. Should the conflict in Ukraine see signs of de-escalation and Kurdistan’s oil export resumption stabilize supply flows, combined with a possible trade agreement between Washington and Beijing, we might witness a realignment in commodity markets. Energy stocks and industrial metals such as copper could benefit from a recovery in global demand, while improved geopolitical stability would also bolster investor sentiment across risk assets. In this environment, a diversified portfolio that balances exposure to equities, commodities, and fixed income—adjusted for currency risk—would be well positioned to capture a broader recovery.

Overall, the current landscape is defined by a careful balancing act between easing inflation signals, mixed corporate performance, and the potential for significant policy shifts driven by both domestic economic data and international geopolitical developments. As investors prepare for critical upcoming reports such as the PCE price index and Q1 GDP estimates, along with earnings from key companies, institutions are advised to maintain a flexible and diversified approach. This strategy should emphasize resilience in high-quality equities and defensive assets while remaining nimble enough to adjust fixed income and commodity positions as new data emerge. The coming weeks will likely be pivotal, determining whether the market’s recent rebound will signal a sustained recovery or if lingering economic uncertainties will prompt further volatility.

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