Investing.com – The outcome of a soon-to-expire ceasefire between the U.S. and Iran is in focus as the new trading week gets underway, after fresh tensions were ignited over the weekend. Oil prices resume their march higher, keeping questions over inflation in play ahead of a key Congressional hearing with Kevin Warsh, President Donald Trump’s nominee to be the next Federal Reserve Chair. Elsewhere, more economic data and a series of earnings report could shed some light on the ramifications of the Iran war.
1. U.S.-Iran ceasefire expiration ahead
As it has for much of the past two months, developments in the war between the U.S. and Iran will likely dominate the debate in markets this week.
Uncertainty surrounded the longevity of a temporary ceasefire on Monday, following a U.S. seizure of an Iranian-flagged vessel trying to run an American blockade over the weekend.
A two-week halt to hostilities is set to expire later this week, with President Trump saying that envoys from Washington will be arriving for a new round of peace talks with Iran in Pakistan.
However, Iran has rejected participation in a second round of talks with the U.S., citing what it described as Washington’s “excessive demands” and shifting positions, state news agency IRNA reported.
Tehran said its decision was driven by “unrealistic expectations,” “constant shifts in stance,” and “repeated contradictions” from the U.S., as well as the ongoing blockade, which it considers a violation of the ceasefire. Axios also reported that Iran suspects the U.S. is preparing a surprise attack.
2. Oil prices whipsaw
Against this backdrop, oil prices climbed, yet sat below the $100 a barrel threshold, after Iran also claimed that the Strait of Hormuz was once again closed.
Late last week, crude slumped on announcements from both Iran and the U.S. that the narrow chokepoint for a fifth of the world’s oil had opened to commercial vessel traffic. The strait has been all but shuttered since the outbreak of the war in late February, sparking a sharp jump in oil prices to as high as nearly $120 a barrel at one point, compared to pre-war levels of around $70 a barrel.
The surge has been one of the main focal points for financial markets during the conflict, providing the impetus for warnings over a spike in inflationary pressures and slowing economic growth around the world.
As a result, swings in crude due to developments in the Middle East have had a cascading effect on a wide-range of assets. Gold, for instance, partially retraced a recovery last week, as investors fretted that an energy-driven inflation jump could lead to a higher-for-longer interest rate environment, which does not bode well for non-yielding bullion.
“Uncertainty remains the dominant force in global markets as investors navigate an increasingly complex geopolitical landscape. The situation around the Strait of Hormuz has amplified volatility, particularly in oil markets where prices are highly sensitive to supply disruptions,” Lukman Otunuga, Head of Market Research at FXTM, told Investing.com.
3. Warsh confirmation hearing
The path ahead for interest rates will be in the spotlight on Tuesday, when Kevin Warsh, Trump’s nominee to be the next Chair of the Federal Reserve, is due to appear for a Congressional hearing.
Lawmakers are facing a tight deadline to confirm Warsh as the replacement for current Fed Chair Jerome Powell, whose term at the helm of the U.S. central bank is set to end in less than a month.
How Warsh chooses to lay out how he expects rates to evolve over the coming months may be closely scrutinized, particularly after Powell has engaged in a longstanding battle with Trump over the president’s demand for steep and aggressive rate cuts aimed at boosting the economy.
However, given the Iran war’s already apparent impact on inflation, it is not clear how Warsh would calibrate borrowing costs in the face of potential pressure from the White House. Markets have effectively ruled out the notion of any rate drawdowns this year.
4. Flash U.S. PMIs
On the economic data front, a fresh look at business activity during April could provide a glimpse into how American companies are grappling with price pressures from the Iran conflict.
S&P Global’s flash purchasing managers’ index for this month is set to unveiled on Thursday.
In March, the PMI gauge slipped to 50.3, down from 51.9 in the prior month. It was the weakest reading since September 2023.
Writing in a statement at the time, S&P Global’s Chief Business Economist, Chris Williamson, said the figures showed “the U.S. economy buckling under the strain of rising prices and intensifying uncertainty, as the war in the Middle East exacerbates existing concerns regarding other policy decisions in recent months, notably with respect to tariffs.”
5. Earnings deluge
A slew of corporate results scheduled to be released this week could also shed more light on how the war is impacting the outlook for some of the biggest names in corporate America.
Analysts will be keeping tabs on earnings from groups like credit-card provider American Express, chipmaker Intel, healthcare giant UnitedHealth, defense player RTX Corporation, and electric vehicle manufacturer Tesla.
“Looking ahead, a combination of geopolitical developments, key U.S. data, and major earnings releases – particularly from Big Tech – could set the tone for markets and potentially trigger sharp moves across asset classes,” Otunuga said.
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