Markets — especially commodity markets — are usually driven by two forces: the global economy's health and geopolitics. Lately, neither has been particularly encouraging. But when even a glimmer of hope appears, optimism spreads quickly, and that sentiment is immediately reflected in asset prices.      

Take, for example, the recent news from Geneva: the United States and China have agreed to a temporary reduction in tariffs. Although the agreement is limited, U.S. tariffs on Chinese goods will be reduced from 145% to 30%, and China's tariffs on U.S. imports will be reduced from 125% to 10%. 

Although the pre-April 2nd tariffs will remain in place, the markets responded enthusiastically: S&P 500, Nasdaq, and Dow Jones futures opened in the green. The optimism carried over to oil: Brent prices soared above $66 per barrel. At the same time, gold, which is usually considered a safe haven, fell.     

How long this rally lasts depends on what happens next. Comments from U.S. Treasury Secretary Scott Bessent, like Washington's plans to hold more talks with Chinese officials in the coming weeks, possibly paving the way for a broader agreement, could give markets another reason to remain in risk-on mode.      

The problem is that even if a new deal is reached, the damage to the real economy is already done. The tariff reductions are estimated to halve the impact of stagflation. Still, the cumulative effect could subtract 1.5% from U.S. GDP and raise core inflation by 0.9% over the next two to three years.     

On the business side, some companies have already admitted that their revenue forecasts do not yet reflect the full impact of the new tariffs, a telling omission. Optimism is one thing, but the underlying fundamentals have changed, even if the market is currently behaving as if all the problems have been resolved.      

The second major factor influencing markets is geopolitics. India and Pakistan are cooling tensions, and Ukraine and Russia are preparing for possible direct negotiations. President Putin proposed to resume direct talks with Ukraine in Istanbul without preconditions. President Zelensky has said he is willing to attend.    

As for the latter, hopes for a breakthrough are slim. Key issues such as borders, demilitarization and the presence of foreign troops remain unresolved. The process is likely to drag on, full of stops and starts, with tough negotiations ahead. This uncertainty will fuel market volatility in the coming months.