Middle East Conflict Rocks Markets – Oil up 7%
Global financial markets were rocked on Friday after Israel launched strikes on Iran, and the conflict has escalated over the last few days with missile and drone attacks continuing over the weekend. Global stock indices were hit across the board, the three major US indices all closing the day down, the Dow leading the way, finishing off 1.79%, with the S&P and Nasdaq following in its wake, closing down 1.13% and 1.30% respectively. The dollar and US Treasury yields pushed higher as haven flows came through the market, the DXY up 0.38% to 98.18, while the 2-year yield gained 4.0 basis points to move back up to 3.947%, and the 10-year added 3.9 basis points to 4.399%. Oil was a huge mover on Friday, Brent gaining 7.02% to move up to $74.23 a barrel, and WTI jumping 7.26% to $72.98 a barrel. Gold also jumped higher through resistance levels, up 1.39% on the day to close at $3,432.19 an ounce.
Middle East Conflict to Set the Tone for the Week
The escalating conflict between Israel and Iran is likely to set the tone for the trading week ahead, as investors digest fresh updates on an almost hourly basis. Many traders are kicking themselves, as we did get a strong clue that something was brewing when President Trump announced that he would be evacuating personnel from the region in the middle of last week; however, most did not anticipate this level of conflict. Markets have already seen significant moves, and traders will be looking at recent history for clues on how prolonged this conflict will be and how far markets will move. However, for the early trading sessions of the week, most market participants are expecting more volatility across all products, with risk trades in general focus and oil products specifically. The risk clearly sits with further escalation at this point in time; however, things can change swiftly, especially in that region, and any positive indications from either side could see some sharp corrections.
Geopolitics in Focus with a Light Calendar Start to the Week
There is no doubt that geopolitics are set to dominate market talk today, with the escalating conflict in the Middle East at the forefront of market moves. However, there are a couple of key macroeconomic updates due out today, and traders will be aware that it is a busy week ahead on the calendar. The Asian session sees a big Chinese data dump midway through the trading day, and any big surprises will see moves in local markets. The main focus will be on Industrial Production (exp. 5.9% y/y) and Retail Sales (exp. 4.9% y/y) data, and the Unemployment Rate, which is expected to remain steady at 5.1%. There is little on the cards in the London session today, but the New York session does see the release of the latest Empire State Manufacturing Index data (exp. -5.9), which could add some volatility to US markets. However, anything further out of the Middle East or updates on trade talks will probably dominate flow.
