As Middle Eastern conflict persists, traders worldwide steel themselves for another week of intense volatility, shifting their attention to traditional safe-haven assets and reassessing global interest rate trajectories.
Come Monday, with markets kickstarting at 5 a.m. in Sydney, all eyes will be on the US dollar, Japanese yen, and Swiss franc, known refuges during geopolitical strife. The Australian dollar and other risk-sensitive currencies may encounter selling pressure, mirroring last week’s market behavior. Notably, gold witnessed its sharpest rise since March last Friday, highlighting its appeal in uncertain times.
In the wake of recent market upheaval, where bonds experienced remarkable highs and lows, investors are poised to meticulously dissect oil price movements and Treasury behaviors. Adding to the global apprehension, Israel’s TA-35 index fell further on Sunday amidst intensifying conflict.
According to a report by Mining.com, the escalation in Israel, marked by the military’s readiness for substantial ground maneuvers in Gaza, looms large over the markets. Concurrently, the US engages in discreet discussions with Iran, advocating for de-escalation, while Secretary of State Antony Blinken schedules another visit to Israel following his extensive Middle East tour.
Economic experts warn that an expanded Middle Eastern conflict could plunge the global economy into recession, amplifying investor anxiety. This development compounds existing concerns about the Federal Reserve’s interest rate policies and the US Congress’s direction amidst a potential governmental standstill.
“The escalating macroeconomic risks, together with drastic interest rate fluctuations, are priming the global stage for heightened volatility,” explained Ed Al-Hussainy, a senior rates strategist at Columbia Threadneedle. The international investment community remains vigilant, monitoring the potential spill-over effects of the regional conflict, with currency markets particularly attuned to the Federal Reserve’s moves.
While overall market volatility metrics haven’t skyrocketed, the Swiss franc’s value soared, achieving a peak against the euro unseen in over a year, and the US dollar continued its upward trajectory. Concurrently, fluctuations within the S&P 500 suggest increasing unease.
Domestic uncertainties in the US add fuel to the fiscal unease. A recent spike in inflation reports has ignited predictions of further Federal Reserve rate hikes, triggering a significant selloff in 30-year bonds — the most substantial since the pandemic began. Anticipated market oscillations in key Treasury representations surpass stock fund estimates, a trend not observed since 2005.
The political landscape is equally precarious, with the US House of Representatives caught in a leadership vacuum. The nomination of Jim Jordan, backed by ex-President Donald Trump, faces opposition within party ranks, reflecting apprehensions regarding his stringent policy views.
Nevertheless, the evolving Middle Eastern crisis is a paramount concern for global investors. “The market’s collective breath is held, awaiting the conflict’s trajectory, especially implications for oil supply,” stated Jane Foley, chief of currency strategy at Rabobank.
