According to ETO Markets analysis, global markets remain highly sensitive to geopolitical risk as negotiations between the United States and Iran continue to stall. Iran’s Foreign Minister left Pakistan without a deal, while President Donald Trump extended the deadline for further action. The extension buys time, but it also signals that trust remains fragile and that a clear diplomatic breakthrough has yet to emerge.
Markets have continued to lean optimistic, with US equities hovering near record highs on expectations that Middle East energy exports may gradually normalise. However, that positioning appears increasingly vulnerable. Oil has moved back toward USD 110 per barrel, while Tehran has submitted a revised proposal to Washington. The International Energy Agency has also warned of a potential supply shock alongside rising demand risks, reinforcing the view that energy markets remain far from stable.
Inflation and Demand Risks Build
The macro backdrop remains difficult. Year-ahead inflation expectations have accelerated to a seven-month high of 4.7%, while consumer sentiment has weakened its lowest reading on record. This suggests households are facing growing pressure from elevated prices and uncertainty.
China provides a more constructive counterweight. Industrial profits rose 15.5% year on year in the first quarter of 2026, supported by a confirmed 2.7% increase in fiscal spending. While this offers support to global growth expectations, it does not fully offset broader concerns around demand, inflation, and geopolitical risk.
Australia Budget Comes Into Focus
This week’s ETO Markets Buzz turns the focus to Australia. The Australian dollar has been trending higher since reaching lows near USD 0.5912 in April 2025, while domestic equity markets reached record highs of 9,221 in March. The move reflects improving sentiment and resilient risk appetite.
Attention now shifts to the Federal Budget, scheduled for 12 May at 7:30pm AEST. The budget is expected to be one of the more challenging in recent years, as policymakers balance cost-of-living relief, fiscal discipline, productivity growth, housing affordability, energy security, defence spending, and global uncertainty.
Rates and AUD Remain Key Channels
The budget is likely to affect markets mainly through interest rate expectations, sector rotation, and currency dynamics. If fiscal policy leans toward stronger household support and higher spending, consumer-exposed sectors may receive short-term support.
However, this approach could also keep inflation elevated. If the budget is seen as inflationary, the Reserve Bank of Australia may need to maintain a restrictive stance for longer. Rate cuts could be delayed, and further tightening cannot be ruled out if inflation remains above target.
For the Australian dollar, the near-term impact could be supportive. Higher rate expectations and improved yield differentials may attract capital inflows. However, if investors view the budget as overly stimulatory or fiscally loose, concerns may rise around policy credibility and the sustainability of inflation control.
US Earnings and Policy Signals
The US-Iran conflict, now entering its eighth week, is expected to remain a key driver of sentiment. At the same time, US earnings season is entering a critical phase, with Microsoft, Amazon, Apple, Alphabet, and Meta Platforms due to report. Market focus will centre on AI-related capital expenditure and forward guidance.
Central banks will also remain in focus. The Federal Reserve is expected to announce its latest policy decision in what is likely to be Jerome Powell’s final meeting as Chair. Policy updates from the ECB, Bank of England, and Bank of Japan will also shape global rate and currency expectations.
Wheat Supply Risk Adds Inflation Pressure
Wheat is becoming an important commodity focus. The United States produces roughly 6% to 8% of global wheat output, while Australia contributes around 3% to 5%. However, both countries account for around 10% to 15% of global wheat exports, making them critical marginal suppliers.
Drought risks across the US Great Plains and Australian growing regions could tighten export supply and push wheat prices higher. The Russia-Ukraine War showed how quickly wheat markets can reprice when key suppliers are disrupted. Higher wheat prices can also feed into bread, cereals, meat, and dairy, reinforcing cost-push inflation pressures.
Outlook
Looking ahead, ETO Markets expects geopolitical developments, energy prices, inflation expectations, Australia’s Federal Budget, major US earnings, and central bank communication to remain the dominant drivers of market direction. Markets are pricing a relatively constructive geopolitical outcome, but downside risks continue to build.
Without a clear breakthrough in US-Iran negotiations, current risk-on positioning appears vulnerable. In this environment, ETO Markets continues to emphasise close monitoring of geopolitical risk, energy markets, inflation signals, and policy expectations.
Disclaimer
The information contained herein is for general reference only and does not constitute investment advice, a solicitation, or an offer to buy or sell any financial products. ETO Markets does not guarantee the accuracy, completeness, or timeliness of the information and shall not be liable for any losses incurred from reliance on such content.