Fed Rate Decision Leaves Investors Divided as US-Iran Tensions Intensify

The Federal Reserve's interest rate decision this week has left investors divided on what to expect.

Markets are split on whether the Fed will hike rates, with a September hike having odds as high as 50%, according to the CME Group's FedWatch Tool. The US 2-year Treasury yield climbed to 4.3% last week, increasing expectations for further rate hikes. However, oil prices dropped 8% in early trading on Monday, shifting rate hike odds from 37.4% to 33.7%. This volatility is due to ongoing developments in the Middle East.

PCE inflation data on Thursday will provide fresh signals over the impact of US-Iran tensions on inflation trends. Markets are watching for signs that PCE will be moderately lower compared to May's 3.7% year-on-year tally, as predicted by IMEN. A moderate decrease in PCE would have a snap effect on risk-asset performance and potential Fed reactions.

The correlation between Bitcoin and equities remains absent on higher timeframes, with the daily correlation between BTCUSD and the S&P 500 at its lowest levels since March. This means that corporate earnings in the US will not shield the market from potential pullbacks. Several major US tech stocks saw significant drawdowns last week.