Cautious Optimism in the Middle EastOil benchmarks – WTI and Brent – traded sharply lower on Wednesday after US President Trump said the US and Iran are in the ‘final stages’ of negotiations. WTI spot fell below US$100/barrel, with Brent closing the session around US$105. However, I am sure you will excuse me for saying that we have been here before. In typical Trump style, he added that, in the event of no deal between the two sides, there would be a resumption of military strikes. Although talk of a deal is good news, I feel the geopolitical risk premium remains firmly in place.In the cross-asset picture, equities caught a bid and bond yields fell amid the improved risk appetite. The MSCI All Country World Index added 0.5%, with Asia-Pacific equity benchmarks rallying across the board – Japan’s Nikkei 225 jumped 3.6%, Australia’s ASX 200 added 1.7%, and South Korea’s Kospi posted its biggest advance since early April, up 8.3%.Nvidia: A Beat that Failed to ImpressNvidia (NVDA) – the most valuable company in the world – delivered its widely anticipated earnings for the fiscal quarter ending April 2026 yesterday, offering another solid report. Revenue of US$81.6 billion beat consensus (US$79.2 billion), with the all-important data centre division generating US$75.2 billion against an estimate of US$73.5 billion, and forward guidance of US$91 billion topped the average estimate of US$87 billion. The company also raised its dividend to US$0.25 and announced US$80 billion in buybacks, yet its shares slipped over 1% in after-hours trading.What I found more important was the restructuring of revenue reporting, separating hyperscalers from what Nvidia now terms ACIE customers – AI clouds, industrial, and enterprise. That is Jensen Huang signalling the next leg of growth lies in physical AI and robotics, and Seoul heard the message loud and clear, with LG Electronics and Hyundai Mobis both surging over 10%, clearly adding fuel to the KOSPI’s recent run higher.Fed Minutes: Hawkish TiltThe April Fed minutes landed yesterday, and the most obvious takeaway is that the central bank has shifted to a more hawkish stance. This is almost entirely driven by the economic fallout from the conflict in the Middle East. Key among the text was that participants noted if inflation remains persistently north of 2%, rate hikes could be firmly on the table. With the Fed’s preferred measure of inflation – the PCE price index – tracking 3.5% in March at the YY headline and 3.2% for YY core, the minutes made clear that the central bank views upside inflation risks as the dominant concern right now. In terms of the labour market, members also echoed a cautious but fragile vibe.The April vote itself told a similar story. While almost all members held rates at 3.50-3.75%, three Presidents – Hammack, Kashkari, and Logan – dissented not because they wanted to move rates, but because they opposed keeping the easing bias in the statement. Only one member, Stephen Miran, wanted to cut by 25 bps, though this was widely expected. The removal of the easing bias feels like a matter of when, not if, and the June meeting looks like the likely moment for that.I feel that the USD story is two-sided. The Fed’s hawkish tilt is USD-supportive, widening rate differentials against peers. On balance, I see the minutes as modestly USD-positive in the near term, given that the Fed is not cutting anytime soon. However, I believe much depends on how the energy price story evolves, as a US-Iran resolution will weigh on the buck.Australian Jobs Report Shows Cracks EmergingThis morning’s Australian jobs data deserves attention. The unemployment rate jumped to 4.5%, marking its highest level since late 2021 and exceeding expectations for an unchanged 4.3%. Employment also dropped by 18,600, undershooting a forecast for a 15,000 gain. The AUD immediately slipped, and short-dated government bond yields also fell. Markets are now pricing in 27 bps of tightening by year-end, down from 50 bps just a month ago.The broader picture here is that the RBA has raised its cash rate by 75 bps over the last three meetings, bringing it to 4.35% to tame inflationary pressures. The central bank also noted that it would take a step back to assess the economy’s response to the war in the Middle East. Given the dismal jobs report, the economy is starting to show signs of strain amid higher borrowing costs and the energy price shock, hence the dovish RBA rate repricing.Global Flash PMIs AheadToday’s May flash PMI surveys for the US, Eurozone, and UK are the calendar highlight. Global growth shifted down a gear in March and remained subdued in April, though those figures were flattered by precautionary stockpiling. That cycle will eventually exhaust itself, and supply chain delays – now at their highest since 2022 – will constrain growth just as rising prices erode demand, particularly in consumer-facing services like travel and tourism, already the hardest-hit sector globally. The PMI message has consistently pointed to stagflation risk: prices accelerating as growth stalls.Weak PMIs would reinforce hesitancy toward further central bank tightening, pressuring the EUR and GBP in particular. The GBP faces additional headwinds from domestic political uncertainty, making it arguably the most vulnerable. A deterioration in eurozone data relative to the UK, or vice versa, would likely drive moves in EUR/GBP. In the US, stronger-than-expected PMIs would add further support to the USD’s current hawkish rate narrative, whilst a miss could briefly soften it, though the Fed’s broader tightening bias would likely limit any USD weakness.