US Markets Hit as War Continues – Nasdaq down 1.8%
US stock markets came under heavy selling pressure overnight as geopolitical tensions intensified in the Middle East after Iran signalled it would continue fighting and maintain the closure of the Strait of Hormuz, a critical artery for global energy shipments. The escalation in tensions drove a broad risk-off move across financial markets, pushing the US Dollar higher, lifting Treasury yields, and sending oil prices sharply higher. On Wall Street, all three major indices finished firmly in the red. The Dow fell 1.56% to close at 46,677, while the S&P 500 dropped 1.52% to finish at 6,692. Technology stocks also struggled, with the Nasdaq Composite sliding 1.78% to end the session at 22,311.In currency markets, the US Dollar extended its recent rally as investors sought safety and US yields pushed higher. The DXY rose 0.50% to 99.74, reaching fresh highs for the year as demand for the greenback strengthened yet again. Bond markets also saw yields drive higher across the curve. The US 2-Year Treasury yield jumped 8.9 basis points to 3.742%, while the US 10-Year Treasury yield added 3.1 basis points to 4.261%.The biggest moves were seen yet again in energy markets. Brent Crude jumped 9.87% to settle at $101.10 per barrel, moving back above the $100 mark, while WTI rallied even more strongly, climbing 10.37% to $96.30 per barrel. Despite the heightened geopolitical uncertainty, the stronger US Dollar weighed on precious metals. Gold fell 1.88% to $5,077.96, highlighting how the surge in the dollar and rising US yields continued to dominate safe-haven flows.
Central Banks on Hold as Gulf Conflict Continues
The ongoing war in the Middle East is creating shocks across financial markets, and the news overnight only seems to heighten expectations that it may continue for a lot longer than many had anticipated. The longer it goes on, the more it will complicate central bank policy around the world. While inflation pressures continue to rise, the risk of sudden economic shocks or market volatility will make central banks more cautious, potentially keeping interest rates on hold until the path of the conflict and its economic impacts become clearer.This could delay planned easing cycles, the most notable from the Fed, and make monetary authorities adopt a “wait and see” approach, balancing inflation concerns against the risk of destabilising growth during uncertain times. This creates a delicate balancing act: central banks must navigate the inflationary impact of energy and supply shocks while avoiding hasty moves that could worsen market instability amid geopolitical uncertainty. Traders will be paying close attention to all central bank updates in the coming days and weeks, and we could see more volatility on the back of fresh updates.
Another Busy Trading Day to End the Week
Looking ahead, markets will remain highly sensitive to developments in the Middle East as the trading week draws to a close. However, attention will also briefly shift back toward economic fundamentals later today, with several key data releases due, including UK GDP (exp +0.2% m/m) during the European session and a heavy slate of US data in the American session.The highlight is the Fed’s favoured inflation indicator, the Core PCE Price Index (exp +0.4% m/m, +2.9% y/y), but we also have preliminary GDP (exp +1.4% q/q) and Durable Goods Orders (exp +1.1% m/m). Investors will also watch Canadian employment figures (Employment Change exp +10.3K, Unemployment Rate exp 6.6%), which could see some strong moves in the loonie. Later in the day, the JOLTS Job Openings data (exp 3.76mio) is due out along with the latest University of Michigan Consumer Sentiment Index and inflation expectations data for further clues on the strength of the global economy and the outlook for monetary policy.
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