The dominant macro force across global markets remains the US-Iran conflict now entering its third month, with overnight Pentagon strikes on southern Iranian missile sites and vessels underlining the fragility of the ceasefire framework despite White House assurances that negotiations are 'proceeding nicely.' The Senate confirmation of Kevin Warsh as Fed Chair, combined with Governor Waller's hawkish declaration that 'a rate cut is no more likely than a rate increase,' has driven futures markets to price nearly 70% odds of at least one Fed rate hike by year-end — a stark pivot that has compressed the S&P 500 earnings yield spread over 10-year Treasuries from 0.70 to just 0.17 in three months. Headline US CPI has accelerated to 3.8% year-over-year, with energy the primary driver, while Q1 S&P 500 earnings have surged 27% year-over-year — the strongest growth since 2004 outside recession recoveries — creating a split market where fundamental momentum and policy risk are pulling in opposite directions.
For Asia-Pacific markets opening today, the key tension is between local relief — Australia's April CPI headline printing at 4.2%, below the 4.4% forecast — and the global headwind of a more hawkish Fed and sticky energy prices with Brent crude still near USD $99-105 per barrel. The ASX 200 found support on the CPI beat, with rate-sensitive sectors leading, but the trimmed mean rising to 3.4% annually means the RBA's June decision is not the clean hold that equities are currently pricing. The Nikkei faces pressure from a yen languishing at 158.95 against the dollar and a Bank of Japan holding at 0.75%, while Chinese and Hong Kong equities remain under pressure from energy-cost pass-through into manufacturing margins and ongoing Middle East uncertainty.