Powell’s last FOMC meeting, while Mag7 earnings dominate

European equities are struggling in early trade, as the resurgence in brent crude sees prices reach a four-year high. UK defence stocks in particular, have drifted lower following President Trump’s decision to opt for a prolonged blockade of Iran rather than re-escalating back into a military conflict. While the absence of immediate war is a relief to humanitarian concerns, the "forever blockade" scenario removes the short-term speculative premium from defence firms. Amidst this uncertainty, King Charles III has stepped into a rare diplomatic spotlight, using recent addresses to "talk up" the indispensable nature of a strong NATO. While his appeal for transatlantic unity serves as a welcome counterpoint to Washington’s isolationist leanings, it is unlikely to shift the ongoing MAGA narrative that sees the weakness of NATO allies as a core topic to shift the narrative away from the failings of this war. 

Meanwhile, in the Asia-Pacific, the ASX 200 extended its losses after a headline March quarter CPI print of 4.6%, virtually guaranteeing a third consecutive RBA rate hike next Tuesday. A softer core inflation reading of 3.3% offered a fleeting moment of optimism, but the reality of a hawkish central bank continues to weigh heavily on regional sentiment.

Energy markets are currently the primary engine of global inflation anxiety, with Brent crude surging to a four-year high. This rally is being fuelled by reports from the Wall Street Journal that the Trump administration is preparing for an "extended blockade" of Iranian exports. The perception that Iran will come to the table as the blockade threatens to shut-in and damage their energy infrastructure means the world finds itself stuck in a game of chicken to see who blinks first. However, a significant structural shift is emerging that could eventually break the price spiral: the UAE’s shock decision to exit OPEC. By severing ties with the cartel, the Emirates are positioning themselves to pump unrestricted volumes, prioritising their own "long-term strategic vision" over the collective production quotas of the Saudi-led group. With many facilities damaged in the region, the prospect of one nation ramping up output above pre-war levels does raise hope for a swift reversal in energy prices once the war is resolved. Notably, this move sees a continuation of OPEC’s declining market share, with the group having gone from over 50% of the world's oil production to less than 30% once the UAE leaves. This weakens their ability to lift prices, with members seeing less benefit to their restricted output levels. The further this continues, the more likely we are to see other members leave the cartel.

Looking ahead to the remainder of the session, all eyes are on Washington for what is expected to be Jerome Powell’s final FOMC meeting. Traders are bracing for a characteristically cautious sign-off from the Chair, likely following on from the BoJ’s hawkish pause. Many will focus more on the incoming Kevin Warsh, meaning that the hawkish leanings of Powell may fall on deaf ears. However, with stagflationary concerns growing, the ability of Warsh to influence the group to cut rates on the notion that AI will ultimately drive disinflation remains questionable. 

To a large extent the biggest market movers will come after the close, with four of the "Magnificent Seven" reporting later-on. Between them, Microsoft, Alphabet, Meta, and Amazon represent roughly 15% of the S&P 500 market cap. Coming off the back of a period where big tech has been the core driver of upside for US markets, there will be many who fear that these reports will need to be perfect to continue that recent surge. Can corporate earnings growth justify the current valuations, or will we see the wider global risk-off sentiment start to take hold in the US?