Markets Under Pressure on Conflict Concerns into the Weekend – Nasdaq down 2%
Global financial markets closed the week under pressure, with risk sentiment continuing to deteriorate as developments in the Middle East showed little sign of easing. Ongoing uncertainty around the conflict kept investors cautious, driving a broad-based sell-off across US equities into Friday’s close. The Dow Jones fell 1.73% to 45,166, while the S&P 500 declined 1.67% to 6,368, while the tech-heavy Nasdaq led losses, dropping 2.15% to finish at 20,948. In currency markets, the US dollar remained well supported, with the DXY rising 0.29% to 100.19, closing near annual highs as safe-haven demand continued to underpin the greenback. US Treasury markets were mixed; the 2-year yield fell 7.4 basis points to 3.912%, while the 10-year yield edged 1.6 basis points higher to 4.428%. Commodity markets were a key focal point, with energy prices surging again. Brent crude jumped 4.22% to $112.57 per barrel, while WTI rose 5.46% to $99.64, closing within touching distance of the key $100 level. Gold also attracted strong demand, rising 2.69% to $4,494.09, as haven flows outweighed the typically negative impact of a stronger US dollar.
Investors Looking for Key Updates on the Middle East War
Investors are now keenly focused on several key updates on the conflict in the Middle East, and markets are clearly pointing to the fact that they want to see positive moves towards peace before there is any chance of a sustained relief rally. The Strait of Hormuz is clearly the major sticking point in this conflict, and if we do start to see shipping move through the strait in good numbers in the coming days and weeks, then this would be a major catalyst for markets. Also, the fear that the US will use ground troops in the conflict would be a major step in the wrong direction for any positive market moves, and while the movement of troops to the region has been well signposted, there is a massive difference in how the market will react to how exactly those troops are deployed. If they are merely moved to a base in the area, then most traders feel the impact will be minimal; however, if we do see US troops hit Iranian soil, then expect further risk-off moves in the market and oil to drive higher to fresh annual highs.
Quiet Calendar Day to Kick off a Big Trading Week
Looking ahead, the macroeconomic calendar is relatively light to start the week; however, markets are expected to remain highly reactive to geopolitical headlines, with volatility likely to persist. Traders are again expecting to see some gapping on the Monday open as the market adjusts to further updates on the conflict in the Middle East over the weekend, with news that Iranian-backed Houthis have been attacking Israel likely to hit risk early in the day. The London session will see a focus on European data during the day, with the German preliminary CPI numbers due out. As always, these will be spread across the session, with individual states reporting separately, the month-on-month number expected to show a big increase to 1.1%, up from just 0.2% last month. There is little of note in terms of data releases in the New York session today; however, we do hear from Fed Chair Jerome Powell early in the session when he speaks at an event at Harvard University, which could see some moves in the market. But again, these are likely to be superseded by any major geopolitical updates.
