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Israel and Iran continued to exchange missile strikes over the weekend and the question at the back of everyone’s mind is whether or not the US will be dragged into the conflict. Markets are on the back foot as developments emerge and will likely remain so until the dust settles.
The conflict is certainly working in gold’s favour. The precious metal pushed to a record weekly close of $3,433 an ounce last Friday and pushed marginally higher still this morning in the Asian session. The flight to safety is an obvious move in light of potential escalation in the troubled region, as is the surge in crude oil over the last few days. Oil prices pushed 10% higher at the end of last week, with Brent Crude peaking around $75 a barrel.
With the exception of gold and oil, warfare in the Middle-East has not been kind to financial markets. US stock indices took a hammering last Friday, particularly the Dow, which closed the day 1.8% lower. Things were not much prettier for the S&P 500 and Nasdaq Comp, which lost 1.1% and 1.3% respectively. Further afield, the situation was much the same, with stock markets from Europe to Asia reacting poorly.
While developments in the Middle East will likely be the main driver behind market movements this week, a number of items on the economic calendar still hold some weight. No fewer than three interest rate decisions are scheduled over the next few days. First in line is the Bank of Japan, which is expected to hold rates on the Yen at 0.5% tomorrow morning. The Fed is up next on Wednesday and is also expected to keep rates steady at 4.5%. Last but not least, the Bank of England will chime in with its own decision on Thursday, which will most likely result in a rate hold on the Pound at 4.25%. There is also the overlooked matter of the G7 meeting in Canada this week, which will focus on Israel, Ukraine, but also international trade and tariffs.
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