The good vibes washing around global markets are proving to be very hard to shift. Overnight, the festering conflict in the Middle East went very clearly from bad to worse. Iran fired a barrage of missiles towards Israel — precisely the kind of escalation that investors say they have been fretting about for months — and still the reaction across markets has been nervy, but muted. Stocks in Europe and Asia edged down a little but largely held their ground in the morning after the attacks.
This combination of rapidly easing monetary policy and continuing resilience in the US economy pushes risky assets into the sweetest of sweet spots. Investors may still be a little optimistic about how many US rate cuts are to come in the coming year or so, but the collective judgment of market participants is that none of the news on Israel in recent days is grim enough, in cold macroeconomic terms, to overturn the exuberance.