Improved equity performance due to AI and earningsGold and oil stabilize, but the risk of US military action remains elevatedFX and equity volatility are low, ignoring geopolitics and the Trump-Powell spatJapan edges closer to an actual intervention; markets are still not convincedEquities In Better MoodThe softer rhetoric from US President Trump regarding a military strike in Iran has allowed investors to focus on more market-enticing factors, such as AI. Taiwan Semiconductor Manufacturing (NYSE:TSM) earnings and the US-Taiwan trade agreement cutting tariffs to 15% in exchange for a $250bn investment from Taiwan, helped US indices turn positive after two difficult sessions, overcoming Wednesday’s announcement about a 25% US tariff on specific advanced AI chips.This improved momentum is also contributing to the impressive start seen in cryptocurrencies, with Bitcoin being up 9% this year and altcoins enjoying heftier rallies. Not everything is awesome in the crypto world though, as the pivotal CLARITY Act has hit a bump. The power struggle between traditional banks and crypto exchanges is in full force, threatening the passage of this Act and its actual impact.Nikkei 225 Near All-time High, Yen Still Under PressureMeanwhile, Asian equity indices are carrying the torch, with the Nikkei 225 index already up by an impressive 7.5% this year. This rally is partly attributed to the snap election expected to be announced on Monday by PM Takaichi. With the LDP party leading the polls, there are strong expectations that the LDP majority in the Lower House will be restored, allowing Takaichi to implement her pro-spending agenda without relying on the support of smaller parties.Amidst these developments, the BoJ is trying to find the best timing to announce its next rate hike. While the market is fully pricing in the next hike on July 31, most analysts would agree that the key meeting will come in April, when the BoJ will have full information regarding the Shunto wage negotiations and the dust from the snap election will have settled.That is not easing the pressure on the yen, though, as dollar/yen remains near 160. Overnight, Japanese Finance Minister Katayama made a step towards actual intervention by not ruling out any options to counter excessive volatility, including a joint US-Japan operation, which is exceptionally rare.The next move will be for the BoJ to start calling investment banks for dollar/yen quotes. That said, investors are split about the success of this probable intervention. Will it be like April 29, 2025 when the dollar/yen decline proved temporary, or like July 2025 when the intervention triggered, along with other factors, a significant drop towards the 140 region?FX and Equity Markets Remain Complacent About GeopoliticsDespite the currently improved risk appetite, the risk of a US military strike against Iran remains high. A Navy flotilla is heading towards the region, giving Trump valuable time to explore other options. Oil is trying to stabilize between the 50- and 100-day simple moving averages in the $58.54-$60.40 region, while gold is trading a tad below its fresh all-time high.Understandably, both commodities are experiencing heightened one-month implied volatility, confirming investor angst about the short-term outlook. The same cannot be said, though, for FX and equity volatility. Euro/dollar volatility has edged higher in the past few sessions but remains near its four-year low level. More importantly, dollar/yen volatility is well below both its 2024 and 2025 spikes, potentially reducing the possibility of an actual intervention at this stage.Meanwhile, both the VIX and DAX 40 volatility are low, mostly ignoring the renewed Trump-Powell spat, remaining well below the mid-November 2025 market angst, and miles below their respective April 2025 spikes after Trump’s tariff announcements. Hence, are investors too complacent, or is any US military operation expected to be a one-off activity with limited reaction from IranLight Calendar Today, Fedspeak PersistsToday’s light data calendar means that investors are already looking ahead to next week’s PCE report that could affect the late-January Fed meeting rhetoric. Fedspeak continues in full force, with most Fed members being comfortable with a pause at the next gathering, shifting the focus to the March 19 Fed meeting. That said, Vice Chairman Jefferson and board member Bowman, both voting in 2026 and known doves, might add a dovish spin to current Fedspeak. The market is currently pricing in 49 bps of easing this year.