Global stocks captured by MSCI's all-country index, up more than 7% for the year-to-date, surged to record highs early on Wednesday.
The ceasefire between Iran and Israel appears to be holding into Wednesday, as debate swirls about just how much damage was done to Tehran's nuclear program. President Donald Trump joins other NATO leaders in The Hague for an annual gathering of the alliance that will underscore a big boost to defense spending.
But perhaps the market's big takeaway from the last two weeks of Middle East tensions is that the region is no longer the game changer it once was in global energy markets.
Over the course of the near two-week conflict, global crude oil prices never hit the sort of danger zone that would shift the dial on inflation rates. And U.S. crude prices, back down at $65 per barrel on Wednesday, are now more than 20% lower than they were this time last year.
That matters for central banks and the Federal Reserve trying to balance the outlook between rising import tariffs, a slowing economy, an ebbing workforce and - now falling oil prices.
Even though Fed boss Jerome Powell remained non-committal on the timing of the next Fed rate cut at the first of his two-day congressional testimony on Tuesday, markets have latched on to more dovish soundings from other Fed policymakers.
Fed futures now fully price a quarter-point rate cut by the September policy meeting, with previously hawkish Fed board governor Michelle Bowman indicating this week she may vote for a cut as soon as July.
Futures pricing now sees some 60 basis points of cuts by year-end and the so-called "terminal rate" in the Fed's easing cycle has fallen close to 3.0% for February 2027 - almost 40bp lower than it was just a month ago and more than 130bp below current rates.
While the oil price relapse has helped, emerging splits among Fed policymakers have intensified speculation about what happens when Powell ends his term as Chair in May next year.
Incoming economic news is also fueling the rate chatter, with consumer confidence readings for June unexpectedly plunging and housing markets starting to wobble too.
The Federal Housing Finance Agency showed single-family house prices fell 0.4% in April, the first decline since August 2022. That lowered the annual increase to 3.0% in April, the smallest rise since May 2023.
And with pressure mounting on the Senate to pass Trump's fiscal bill as soon as this week, U.S. Treasuries have lapped up both the oil retreat and Fed talk - even as they negotiate more than $200 billion of new debt sales this week.
Adding to the mix, Treasury Secretary Scott Bessent said the date for the nation to reach its debt ceiling could change if courts interfere with Trump's tariff policies.
Two and 10-year Treasury yields fell to six-week lows on Wednesday regardless.
And the dollar is bearing the brunt of the easier rate horizon. The euro hit new three-year highs on Tuesday and held above $1.16 today as Germany outlines details of the big spending, borrowing and defense push this week.
Wall Street stocks caught the tailwinds of easier energy, rates and the dollar - rallying more than 1% on Tuesday and futures held those gains overnight.
The gains in Asian and European stocks over the past two days have been just as impressive, leading the global index to new all-time highs. The twin impact of easier oil and the dollar is a major relief for crude importers.
And with NATO aiming to lift defense spending targets to some 5% of GDP, European defence stocks that already up almost 50% this year added another 1% on Wednesday.
In company news, FedEx shares dropped nearly 6% in pre-market trading after the logistics giant sounded caution for the full year and forecast current-quarter earnings below expectations as it battles pressures from U.S. tariffs.
Tesla's new car sales in Europe fell 27.9% in May from a year earlier even as fully-electric vehicle sales in the region jumped 27.2%.
And Worldline fell over 20% after an investigation by 21 European media outlets alleged the French digital payments company covered up client fraud to protect revenue.
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