ORLANDO, Florida, June 20 (Reuters) -

- TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

I'd love to hear from you, so please reach out to me with

comments at . You can also follow me at @ReutersJamie and

@reutersjamie.bsky.social.

Cautious optimism around a possible de-escalation in the

week-long war between Israel and Iran helped foster a relatively

positive tone across world markets on Friday, lifting most stock

markets and sealing oil's biggest decline in over a month.

You'll note a high degree of equivocation there. President

Donald Trump taking up to two weeks to decide on America's

involvement offers no immediate clarity, even if he is open to

direct talks, and negotiations between Iran's foreign minister

and his European counterparts in Geneva are at the early stage.

However, Wall Street didn't feel much of the earlier

optimism on Friday.

Tehran insists it will not talk directly to Washington about

a new nuclear deal until Israel ceases its attacks. The bombing

and retaliatory strikes continue.

It's a fluid and fragile situation, but compared to a week

ago when the conflict started, it's perhaps less bleak, which

explains why many markets have regained their footing. It's

worth remembering that Wall Street and world stocks earlier this

week were a whisker away from their record highs.

Developments in the war and on the diplomatic field over the

weekend will go a long way to setting the tone for markets on

Monday. And investors will continue to digest what was, in many

ways, a pretty monumental week for central banks.

To recap, the Federal Reserve took a hawkish turn in its

projected interest rate path even though Chair Jerome Powell

signaled policymakers are flying blind, while the Bank of Japan

took a dovish turn in its balance sheet reduction plans.

The Swiss National Bank cut rates to zero and admitted,

albeit reluctantly, that rates could go negative, Norway's

central bank delivered a surprise rate cut, and Brazil's central

bank defied expectations by raising rates to the highest since

2006 and signaling it could tighten policy further.

A raft of Fed officials are on the stump next week, and

investors will be looking through the blizzard of headlines to

see how the consensus stacks up against the new, less dovish

'dot plots'. Top of the bill will be Powell's semi-annual

testimony to Congress on Tuesday and Wednesday.

Fed Governor Christopher Waller told CNBC on Friday that a

rate cut should be on the table next month because inflation is

tame and unlikely to be boosted on a lasting basis by import

tariffs.

But Richmond Fed President Thomas Barkin told Reuters in an

interview there's no rush to cut rates because tariffs could

indeed fuel inflation. What's more, the economy and labor market

are holding up well right now.

It's gone pretty quiet on the trade front, an indication

that the Trump administration is finding it harder than it

imagined to secure the dozens of trade deals it promised - Trump

himself has said that China and Japan are "tough" in their

negotiations.

China is not blinking, and why should it? As CIBC economists

point out, China holds all the cards when it comes to global

rare earths and pharmaceuticals supply, the U.S. is a much

smaller market for its exports than it used to be, and Beijing

has a wider array of retaliatory tools at its disposal than it

did in 2018.

Last but not least, "the tolerance to pain in autocratic

China is notably higher than in the (still) democratic US," they

note.

The next few weeks will be pivotal for markets as investors

eye the half-year point, the July 9 expiry of Trump's pause on

'reciprocal' tariffs, and Trump's two-week window to decide on

the level of U.S. involvement in the Iran-Israel war.

This Week's Key Market Moves

* European stocks underperform. The pan-euro zone STOXX 50

slides

nearly 2%, Britain's FTSE 100 loses nearly 1%, for their worst

weeks in two months.

* The Japanese yen slides more than 1% against the dollar

after

the BOJ's dovish tilt on its balance sheet reduction and

government's plan to cut super-long bond sales. That's the yen's

worst week of the year.

* The Norwegian crown falls 2.5% vs the dollar, one of its

biggest

weekly declines in the last few years, after Norges Bank's

surprise rate cut reverses oil-related gains. The crown hit a

two and a half year high last week.

* A rollercoaster week for oil, with Brent crude trading in

a $10

range of around $70-$80/bbl. Friday's slide cuts the weekly gain

to 3.5%, but Brent is still up 20% this month, which would be

its biggest monthly gain since November 2020.

* Platinum rises 3%, not a huge move but intra-week

it

hits its highest level since September 2014 at $1,348/oz on huge

Chinese demand. It's up 20% this month, putting June on track

for the third-best month on record.

Chart of the Week

Two charts again, and they are related.

The first is from Goldman Sachs and shows wage pressures in

the developed G10 countries noticeably cooling (admittedly from

elevated levels). This helps explain the second, from economist

Phil Suttle, which shows developed and emerging market interest

rate paths are diverging sharply - interest rates are coming

down in DM, not so in EM.

How long will that divergence last?

Here are some of the best things I read this week:

1. The economic consequences of the second Trump

administration: A preliminary assessment

2. Should We Have Faith in Markets?

3. The Sources of Global Economic Uncertainty

4. Disentangling trade policy uncertainty and equity

market

performance

5. Trump's economic 'golden age' meets Fed's brass

tacks

What could move markets on Monday?

* Israel-Iran conflict

* Singapore inflation (May)

* June flash PMIs from Australia, Japan, India, euro zone,

UK, and

U.S.

* Chicago Fed President Austan Goolsbee speaks

Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.

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(Writing by Jamie McGeever; Editing by Nia Williams)