Financial markets begin the new trading week with calmer tones prevailing, albeit perhaps a little uneasily, amid a lack of any significant escalation in geopolitical tensions over the weekend, allowing equity futures to recover some ground, as the S&P comes off what was its worst week of the year so far, and the Nasdaq 100 looks to recover from its biggest one-week decline since April 2022.

A more positive tone is also seen in the G10 FX space, with the AUD & NZD outperforming, as havens such as the USD, JPY and CHF face modest selling pressure.

While this week’s data docket is somewhat quieter than the last, with Thursday’s Q1 US GDP, and Friday’s PCE figures the calendar highlights, a busy calendar of corporate earnings awaits.

This includes 4 of the so-called ‘magnificent seven’, while in total just over 40% of the S&P 500 by market cap are set to report over the coming five days: Tesla, Meta Platforms, Misrosoft and Alphabet.

With geopolitical risk apparently fading into the background of market participants’ minds, despite the situation remaining incredibly fluid and ever-changing, focus is likely to quickly turn back to these fundamental market drivers, with investors looking not only for strong earnings growth, but also relatively upbeat guidance, in order to spark a turnaround in equities.

Nevertheless, with the policy backdrop remaining supportive, as the next move from the Fed remains almost certain to be a cut, just later than most had expected, and with the economy continuing to grow at a solid clip, the medium-term path of least resistance continues to lead to the upside, with the aforementioned ‘Fed put’ likely to continue to give investors confidence to seek to buy the dip, and increase exposure, particularly as geopolitics becomes less of a market driver.

Market analysis on behalf of Michael Brown Senior Research Strategist at Pepperstone