US Stocks Drop into Weekend as War Continues – Nasdaq down 0.9%
US markets closed the week on a softer note on Friday as the conflict in the Middle East entered its third week, with little indication that tensions are about to ease. Ongoing geopolitical uncertainty kept investors cautious, with all three major US equity indices finishing the session lower. The Dow slipped 0.26% to close at 46,598, while the S&P 500 fell 0.61% to 6,632, and the Nasdaq dropped 0.93% to end the week at 22,105. Currency markets saw the US Dollar continue its recent run higher, with the DXY climbing 0.76% to reach 100.50 and mark fresh annual highs. US Treasury yields were mixed on the session. The 2-year yield eased by 2.4 basis points to 3.717%, while the benchmark 10-year yield edged 1.6 basis points higher to 4.277% after mixed data results out of the US. Energy markets remained firmly in focus as oil prices pushed higher once again. Brent crude rose 2.67% to settle at $103.14 a barrel, while US WTI crude climbed 3.11% to $98.71. The gains come as the Strait of Hormuz effectively remains closed to shipping due to the ongoing threat of Iranian strikes, keeping concerns around global supply disruptions front and centre for traders. Precious metals moved the other way, with Gold falling 1.17% to close at $5,019.49 as the stronger US Dollar continued to weigh.
Central Banks in Focus this Week
There are no fewer than five major central bank rate decisions this week, with the Federal Reserve, as usual, likely to be the most keenly diagnosed. However, with the Reserve Bank of Australia, the Bank of England, the Bank of Japan, the Bank of Canada, and the Swiss National Bank all also making calls, there is the possibility of big moves across markets and in FX in particular, especially if there looks to be major changes in interest rate differential expectations. There is no doubt that the war in the Middle East is going to play a large part in the decision, with many likely to remain on hold due to the uncertainty created by the conflict, and in the consequent messages that we receive from the various committees in how they see their rate paths progressing in the coming months. Given the conflict and the large number of key updates scheduled in the coming days, this week could shape up to be one of the most volatile — in an already volatile year so far.
Geopolitics to Dominate a Quiet Calendar Day
Looking ahead, geopolitical developments are likely to dominate market sentiment at the start of the new week, with investors closely monitoring any updates from the Middle East. The economic calendar is relatively light today, though attention will turn later in the week to a series of key economic releases and central bank rate decisions that could add further volatility to an already nervous market environment. So far, markets have been relatively steady on the open in the Asian session, but traders will remain cautious as the day progresses. There is some data due out of China later in the day, with Industrial Production (exp +5.3% y/y) and Retail Sales (exp +2.6% y/y) numbers being released; however, traders are expecting the impact to be minimal in the current environment. The London session is also relatively quiet; however, we do have the first tier 1 data releases of the week due shortly after the New York open. Canadian CPI data is due out, with the market expecting the month-on-month data to show a 0.7% increase and the year-on-year numbers a 2.4% increase for both the Trimmed and Median data sets. The US Empire State Manufacturing Index numbers are out at the same time (exp 4.0), but overall, again expect news updates to dictate moves.
