Global markets are turning more cautious after a recent rally as investors assess whether negotiations between the United States and Iran can lead to a de-escalation in tensions and the reopening of energy supply routes. Oil prices remain elevated despite slipping below recent highs, while traders are also watching economic data for clues on the U.S. Federal Reserve’s next move.
BNN Bloomberg spoke with Karl Schamotta, chief market strategist at Corpay, about how markets are pricing in a potential diplomatic breakthrough, why oil prices could remain structurally higher even if tensions ease, and how shifting U.S. Federal Reserve interest rate expectations are affecting currencies and investor sentiment.
Key Takeaways
- Investors are betting the United States will seek an off-ramp from the Iran conflict to ease economic and political pressure tied to higher energy costs.
- Brent crude remained near US$100 a barrel, signalling markets still expect elevated commodity prices and inflation risks despite recent declines.
- Expectations for stronger U.S. payrolls data are reinforcing the view that the U.S. Federal Reserve could keep interest rates higher for longer.
- The U.S. dollar has lost some safe-haven support as traders increasingly look to other currencies with attractive rate differentials.
- Canadian rate hike expectations may be overstated as higher commodity prices alone are unlikely to trigger a stronger Bank of Canada response.
Read the full transcript below:
LINDSAY: An ongoing slide in oil prices is helping to lift investors’ mood, with Brent crude futures trading below US$100 a barrel this morning. It also appears the United States and Iran are getting closer to restarting talks to end the war and reopen the Strait of Hormuz. Let’s get more perspective now from Karl Schamotta, chief market strategist at Corpay. Great to have you with us this morning. Thanks so much.
KARL: Good morning.
LINDSAY: When we’re looking at this rise in the financial markets, do you think it’s going to continue, or is this more of the volatility we’ve been seeing over the last couple of months?
KARL: I think the optimism we saw yesterday, which lifted global markets to fairly stratospheric heights, is likely to give way to a little more caution today. I don’t think we’ll see the same momentum continue. However, it’s very clear that the Trump administration is looking for an off-ramp in this conflict. They’re looking for almost any way to step away from it and resolve the blockage of the strait. Markets are anticipating some kind of breakthrough in the coming weeks, and they’re trading ahead of that. We’re still looking at more volatility, but there is cautious optimism underpinning it all.
LINDSAY: Donald Trump has said he wants this war ended before his trip to China in a couple of weeks. If that doesn’t happen, I’m assuming we could once again see markets fall and oil prices rise, depending on what happens.
KARL: Absolutely. If there’s anything we’ve learned about the Trump administration, it’s that it’s unpredictable. There could be misunderstandings or setbacks. It’s difficult to see Iran and the United States coming to terms in a fundamental way here, so we are likely to see some reversals in markets.
But the political calculus is very difficult for the president and for Republicans more broadly. The American population is not in favour of this war and does not like the economic impact being felt across the economy. There’s a huge incentive for the United States to find a unilateral way to step away from the conflict, give Iran some of what it wants and ensure energy supplies start flowing again. That’s the fundamental bet investors are making, and it’s probably the right one, even if we do see reversals along the way.
LINDSAY: On the flip side, what are your thoughts on how oil prices are behaving? We’re seeing prices below US$100 a barrel this morning. Oil seems to be dropping quite a bit.
KARL: It’s definitely a reflection of the underlying bet that supplies will resume at some point. But it also seems a little over-optimistic, given that we’re still looking at shortages for a prolonged period of time.
It’s interesting that Brent crude, the global benchmark, is still holding around US$100 a barrel and West Texas Intermediate is around US$93. That’s far higher than where we were before the war in Iran. To some extent, it seems markets are bracing for a prolonged period in which commodity prices remain more elevated than they were before this conflict. That means global inflation pressure, slower growth and essentially a step change from the type of global economy we had before all of this broke out.
LINDSAY: What about trends you’re seeing in yields, equity futures and the U.S. dollar?
KARL: Yields are holding relatively steady, particularly in the United States. We’re also seeing central banks around the world using fairly hawkish rhetoric without necessarily following through with rate hikes. Global rates are stabilizing somewhat. They’re still much higher than they were previously, but they are stabilizing.
That’s translating into some of the optimism we’re seeing in financial markets. But everything has to be viewed in the context of the artificial intelligence boom driving growth among hyperscalers. We’re seeing strong earnings and rapid appreciation in stock prices, which is leading to a situation where financial markets are becoming somewhat disconnected from the broader global economy and underlying fundamentals.
When we look at the U.S. dollar, it’s essentially back to where it was before the conflict broke out. That reflects the fact traders have stopped using it as a safe haven and are instead looking for opportunities outside the United States. Rate differentials are tilting toward currencies such as the British pound and the euro, and that’s putting pressure on the dollar.
As for the Canadian dollar, it’s not moving very much this morning.
LINDSAY: Basically flat this morning. I know you’re also watching the weekly jobless claims data. How might today’s data influence expectations for the U.S. non-farm payrolls report?
KARL: The whisper number is clearly moving higher. The official consensus collected by Bloomberg is for around 55,000 jobs created and a slight decline in the unemployment rate. But if we look at the data that’s come out over the last couple of weeks, it’s been relatively supportive.
Markets are increasingly expecting something above 80,000 jobs tomorrow, and that would reinforce expectations that the Federal Reserve stays on hold. Earlier this year, markets were expecting dramatic rate cuts, but those expectations have completely fallen apart. Now we’re looking at a prolonged period in which the Fed waits for economic data to weaken before making any major move, without worrying too much about a sharp downturn in labour market conditions.
LINDSAY: So you would expect the Fed to remain on hold? In Canada, there’s talk about possible rate hikes. Is there any similar discussion happening in the United States?
KARL: There is some discussion, depending on the day and depending on what commodity prices are doing. Occasionally we see markets price in at least one hike, but there’s not a lot of conviction behind that. There’s an expectation the Fed stays neutral, particularly given the more dovish leadership coming in and the fact the economy isn’t exactly surging.
In Canada, I do think markets may have gotten a little ahead of themselves in anticipating rate hikes. This is primarily a commodity price shock, not the type of inflation shock central bankers typically respond to. The underlying Canadian economy is still relatively weak. It does appear to be improving, but it’s not currently generating the kind of demand-driven inflation the Bank of Canada usually monitors most closely.
LINDSAY: We’ll have to leave it there. Karl Schamotta, chief market strategist at Corpay. Really appreciate your time this morning. Thanks so much for joining us.
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This BNN Bloomberg summary and transcript of the May 7, 2026 interview with Karl Schamotta are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
