Markets Under Pressure as Middle East Conflict Escalates – Dow down 1%
Traders are expecting a very busy start to the week today after hostilities increased dramatically over the weekend in the Middle East. US markets closed out last week on the back foot, and traders are expecting more pressure across financial products in the days ahead. The Dow declined 1.05% to finish at 48,977, while the S&P 500 fell 0.43% to 6,878, and the Nasdaq underperformed, shedding 0.92% to close at 22,668. Fixed income markets saw strong demand, with Treasury yields moving sharply lower. The US 2-year yield fell 5.3 basis points to 3.375%, while the benchmark 10-year yield declined 6.7 basis points to 3.937%, slipping back below the 4% threshold as investors sought safety. The US Dollar Index eased 0.15% to 97.65 into the close, although early Asian trade on Monday has seen a big spike in demand for the greenback. Commodity markets reacted to rising geopolitical risk with notable gains. Brent crude advanced 2.87% to settle at $72.87 per barrel, while WTI crude rose 2.78% to $67.02 amid concerns over potential supply disruptions. Gold benefited from haven flows, climbing 1.81% to $5,278.93.
Middle East Conflict to Dominate Markets This Week
Global financial markets are beginning the week under heightened geopolitical tension following significant military escalation in the Middle East over the weekend involving the United States, Israel, and Iran. The developments are expected to weigh heavily on investor sentiment in the early part of the week, overshadowing an otherwise busy economic calendar. FX markets have already seen a surge in haven trading on the open today, and traders are expecting that there will be huge moves in commodities once the full market opens. Some retail products in oil and gold have been trading over the weekend, and they are already trading at significantly higher levels than the Friday close. Much will depend on how far the conflict escalates over the coming days, with some analysts calling for oil prices to target levels north of $100 a barrel if the war drags on for weeks rather than days, which would take gold to yet more record levels in short order. The initial target for gold will be the all-time high just under $5,600, but a prolonged conflict could see it move much higher in the coming weeks.
Geopolitics to Dominate Market Calendar Today
Looking ahead, while several key data releases are scheduled, market direction in the near term is likely to remain heavily influenced by geopolitical developments and risk sentiment. Elevated volatility should be expected as global markets fully digest the weekend’s events; however, fundamental updates will still have a part to play in market moves in the coming sessions. There is little on the agenda in the Asian session today, but traders are expecting very lively markets as they adjust to the escalating conflict in the Middle East. The European session has no tier 1 data releases scheduled, but we do hear from ECB President Christine Lagarde, which should keep euro traders on their toes. The New York session will see an initial focus on Canadian markets for the Manufacturing PMI data (last 50.4), before focus moves south to the US for the ISM Manufacturing PMI (exp. 51.7) and ISM Manufacturing Prices (exp. 60.6) data releases.
