Markets trade with caution but optimism prevails

 
Markets are entering the week with a more cautious tone as several narratives begin to collide.  The key driver remains the interaction between energy prices, inflation and policy expectations. Brent crude has pushed back above $110 as tensions around the Strait of Hormuz persist and negotiations between the US and Iran continue to stall.  That has fed directly into inflation fears and pushed yields higher globally, with Treasury and gilt markets both under pressure. Markets are increasingly pricing a scenario where central banks may be forced to keep policy restrictive for longer, even if growth begins to soften.
 
Despite that backdrop, US equities continue to show remarkable resilience. The Nasdaq and S&P 500 remain near highs, supported by strong earnings and AI-driven optimism. The market is effectively making a distinction between “higher inflation” and “earnings deterioration”, and so far, profits continue to win that battle. Large-cap tech has remained the dominant force, with margins and forward earnings expectations still improving despite elevated energy costs. That said, the setup is becoming increasingly asymmetric. Bond markets and commodities are flashing warning signs, while equities are still pricing a relatively benign outcome where geopolitical risks remain contained and growth remains resilient. This leaves little room for disappointment, particularly if oil prices remain elevated or inflation continues to surprise to the upside.