US Markets Drop as Gulf Tensions Increase – Nasdaq down 0.9%
Global financial markets adopted a more cautious tone in the latest session, as rising geopolitical tensions in the Middle East weighed on investor sentiment. Increased naval activity from both the United States and Iran around the Strait of Hormuz heightened concerns over potential supply disruptions, prompting a broad-based risk-off move across asset classes. US equity markets closed lower, with all three major indices finishing in negative territory. The Dow declined by 0.36% to close at 49,310, while the S&P 500 fell 0.41% to 7,108. The technology-heavy Nasdaq underperformed, dropping 0.89% to 24,438, reflecting a pullback in growth-oriented sectors.
In fixed income markets, US Treasury yields moved higher across the curve. The 2-year yield rose by 3.5 basis points to 3.833%, while the benchmark 10-year yield increased by 2.2 basis points to 4.325%. In currency markets, the US dollar strengthened modestly, with the DXY advancing 0.21% to 98.80. Oil benchmarks rose again, with Brent crude up 4.40% to settle at $106.39 per barrel, while West Texas Intermediate (WTI) gained 4.36% to $96.99 per barrel. In contrast, gold prices declined by 0.96% to $4,694.14 per ounce, as the firmer US dollar exerted downward pressure on the precious metal.
Oil on the Rise as Middle East Tensions Increase
Crude oil prices rallied sharply yesterday amid renewed concerns over supply constraints linked to developments in the Gulf region. It has been another volatile week for financial markets; however, the one consistent move that we have seen since the Monday open has been the rise of oil prices. Oil has been the main barometer for the conflict in the Middle East ever since the US and Israel commenced strikes against Iran at the end of February, and whilst we have seen other markets, particularly stocks, looking more resilient with regard to the geopolitical risks presented by the conflict this week, it has been one-way traffic for oil. WTI has seen a 13% rise from its Monday low just above $87 a barrel to its peak above $98 a barrel yesterday, and with news of more ship seizures from both sides seeming to increase over the past 24 hours, unless we see a dramatic turnaround in the Strait of Hormuz, we should see it back through the $100 mark again, with any outright resumption of hostilities likely to see moves back to highs just under $120 a barrel.
Another Volatile Friday to Close Out the Trading Week
Looking ahead, the macroeconomic calendar remains relatively light, suggesting that market direction is likely to remain driven by geopolitical developments yet again. However, several data releases and central bank commentary are scheduled and may provide incremental direction. In the European session, attention will be on UK Retail Sales data (exp 0.0% m/m), followed by remarks from Swiss National Bank Chairman Martin Schlegel, which could see some moves in the franc. In the US session, markets will focus on Canadian Retail Sales (exp +0.9% m/m) and Core Retail Sales (exp +0.8% m/m) early in the day, before we then have the revised readings of the University of Michigan Consumer Sentiment (exp 48.5) and University of Michigan Inflation Expectations (last 4.8%) to close out the calendar week. Overall, with geopolitical risks elevated and limited macroeconomic catalysts, markets are expected to remain sensitive to incoming headlines, particularly those relating to developments in the Middle East, with the final session of the day—and week—particularly vulnerable to sharp moves if fresh news coincides with thinner liquidity.
