Geopolitical developments, rather than Federal Reserve interest rate hikes, are the key factor behind recent market rallies, as the release of positive geopolitical signals has provided support, according to a research report from Guotai Haitong Securities Co., Ltd.. With President Trump facing multiple pressures such as midterm elections, tariff damage, high inflation, and a U.S. debt "crisis," the geopolitical landscape has become a crucial bargaining chip. New opportunities for U.S.-Iran talks are emerging, and the firm advises close monitoring of geopolitical trends in the near term.
The investment bank believes that the recent market rebound is not a result of Fed rate hikes, but rather stems from the release of short-term geopolitical de-escalation signals. As analyzed in previous reports, a rate hike is unlikely to provide effective support for asset prices, as refraining from a hike would cause an even greater shock by raising doubts about the Fed's credibility and the independence of Chairman Warsh. A hike would also tighten short-term liquidity. Consequently, the asset price rally following the rate increase cannot be attributed to the Fed's action. The recent flow of positive U.S.-Iran news, in contrast, has benefited liquidity and markets, particularly after the Fed's September 16 meeting, when all three major U.S. indices fell in the absence of any price support from the rate decision.
Where the pressure lies
Trump is currently navigating a complex array of challenges, including midterm elections, the devastating effects of tariffs, persistently high inflation, and a U.S. debt "crisis," making geopolitical factors a key strategic asset. Predictions on Polymarket as of September 20, 2026, show traders broadly expect Democrats to retake the House of Representatives, while control of the Senate remains highly competitive, with odds recently shifting toward the Democratic Party. U.S. inflation has proven stickier, more persistent, and broader than expected. Surging Treasury yields and fiscal strain are complicating coordination between U.S. fiscal and monetary policy.
The U.S.-Iran situation has become a critical variable, with the market logic clearly pointing to a cause-and-effect chain: U.S.-Iran de-escalation leads to lower oil prices, which cools inflation expectations, loosens expectations for Fed hikes, and ultimately drives down Treasury yields. Therefore, the firm argues that the current U.S. administration has a strong incentive to reduce U.S.-Iran geopolitical risks, making this issue the core anchor for asset pricing in the near term.
Why new opportunities for U.S.-Iran talks are emerging
Multiple factors are converging to create fresh possibilities for dialogue. Iran has already presented ceasefire conditions to the U.S., laying the groundwork for a new round of negotiations. Additionally, President Trump is expected to meet with leaders or foreign ministers of the Gulf Cooperation Council member states during the United Nations General Assembly in New York on September 22, where discussions will focus on the next steps in the Iran war and post-war strategic visions. With Trump under significant internal and external pressure, a new window for U.S.-Iran de-escalation may be opening. If tensions ease, oil prices would fall relatively, lowering U.S. inflation expectations and pushing Treasury yields down, which would benefit liquidity-driven assets like U.S. equities and gold, leading to improved global liquidity. Conversely, if the conflict persists, markets are likely to remain range-bound.
Last week's global asset performance
During the week of September 11-18, 2026, crude oil declined while gold advanced, with global equity markets showing mixed results. Brent crude futures settled at $103.87 per barrel, down 0.71% from the previous week. COMEX gold futures closed at $4,385.90 per ounce, up 0.17%. The U.S. dollar index rose 1.14% to 100.22, while the 10-year U.S. Treasury yield climbed 5 basis points to 5.01%. Among major global indices, the top performers were Taiwan's Taiex Index at 2.16%, the Hang Seng Tech Index at 1.97%, and Tokyo's Nikkei 225 at 1.57%. The laggards were the U.S. Dow Jones Industrial Average at -1.69%, Paris's CAC40 at -1.40%, and São Paulo's IBOVESPA at -1.06%.
Economic outlook and risks
U.S. employment and inflation data have exceeded expectations, suggesting the Fed may continue hiking rates. In August 2026, U.S. non-farm payrolls grew by 162,000, far surpassing the market forecast of 55,000, while the unemployment rate held steady at 4.1%. Core CPI rose 0.3% month-over-month, up 0.1 percentage points, exceeding the 0.2% threshold that markets considered tolerable for the Fed to pause. On September 16, the Fed implemented a 25 basis point hike, and the latest dot plot indicates one more increase may occur within the year. Key risks include the high uncertainty surrounding the U.S.-Iran conflict and the potential for market shocks if the Fed hikes more aggressively than expected.