Markets Cautious on Middle East Developments – S&P up 0.4%
US equity markets began the week on a cautiously positive note, with all three major indices closing higher as investors continued to assess the evolving situation in the Middle East. Hopes of a potential ceasefire provided some underlying support; however, recent commentary from both sides suggests the conflict is likely to persist, particularly with a US-imposed deadline fast approaching, keeping a degree of caution in play. The Dow rose 0.36% to close at 46,669, while the S&P 500 gained 0.44% to finish at 6,611. The Nasdaq outperformed slightly, climbing 0.54% to settle at 21,996, as risk sentiment held relatively steady despite the geopolitical backdrop. In currency markets, the US Dollar Index was largely unchanged on the session, slipping marginally by 0.04% to 99.99. Treasury markets also saw limited movement, with the 2-year yield edging up 0.8 basis points to 3.848%, while the 10-year yield eased 1.0 basis point to 4.331%, leaving the curve little changed overall. Commodity markets saw choppy price action, particularly in energy again. Brent crude rose 0.44% to $109.51 per barrel, while WTI gained 0.87% to $112.56. In contrast, gold prices drifted lower, falling 0.58% to $6,649.85 by the close.
Dollar to Dominate FX Moves on Middle East Updates
The US dollar has been trading in a tight but sensitive range, with price action increasingly dictated by headlines out of the Middle East rather than traditional macro drivers. Recent sessions show the dollar holding relatively steady as markets balance escalation risks against intermittent ceasefire hopes. Earlier in the conflict, the greenback pushed higher as investors moved into safe-haven assets amid rising geopolitical uncertainty and surging oil prices. However, those gains have been uneven, with periods of consolidation or pullback emerging whenever de-escalation rhetoric surfaces. At its core, the move remains a classic risk-off/risk-on dynamic:
• Escalation (military threats, supply disruptions, higher oil) → supports the USD via safe-haven demand and inflation-driven rate expectations
• Ceasefire or de-escalation signals → reduce risk aversion, prompting USD pullbacks as capital rotates back into risk assets
In short, the dollar bias remains to the upside while conflict risks persist, but the move is not one-directional. Any credible shift toward a ceasefire or resolution is likely to see the USD quickly retrace, reflecting how headline-driven and reactive current FX markets have become. A lot will depend on updates that the market receives in the coming sessions, with the propensity for big moves high.
Geopolitics to Dominate Sentiment Again Today
Looking ahead, market participants will remain highly sensitive to further developments out of the Middle East, which continue to act as the primary driver of sentiment. Asian markets are set to open on a cautious note today, with no data releases scheduled; all eyes will be on newswires as the day progresses, but the skew seems to be to the downside at the moment. The London session is also quiet on the calendar front; however, we do have the first of some big US data once New York opens, which will distract attention away from the Middle East, however briefly. Durable Goods Orders data (exp. -1.1% m/m) and Core Durable Goods (exp. +0.5%) are due out early in the session, while later in the day Canada’s Ivey PMI (exp. 55.9) numbers are due out. Again, traders are expecting the short-term impact to be minimal in the current conditions; however, further down the track they will have a bearing on market moves.
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