Oil and safe-haven assets, including bonds, gold, and the US dollar, surged after Iran launched a missile attack on Israel in retaliation for Israel’s recent strikes on Lebanon. Crude oil prices rose by 1.5% in early Asian trading after gaining over 2% on Tuesday. The Israel Defense Forces intercepted many of the missiles, while Prime Minister Benjamin Netanyahu vowed retaliation.
US stocks dropped, with the S&P 500 declining by 0.9% and Wall Street’s VIX, a volatility indicator, spiking. Technology stocks were among the worst performers, with Apple and Nvidia dropping around 3%.
Kathleen Brooks, research director at XTB, noted that markets are in “wait-and-see” mode as investors assess the potential escalation of the conflict. If tensions ease, Brooks anticipates a recovery in stock markets, particularly in the tech sector.
Economic data from the US took a backseat as geopolitical tensions dominated market sentiment. The US ISM price index posted its largest drop since May 2023, while job openings in August reached a three-month high, defying other indicators of a cooling labor market. Despite this, US Treasury yields stayed lower, with the 10-year yield hovering around 3.73%.
In money markets, traders bet on a 33% chance of another Federal Reserve rate cut in November, though BlackRock CEO Larry Fink expressed skepticism about such an aggressive easing. Additionally, shares of Nike fell in post-market trading after missing quarterly revenue estimates.
Meanwhile, Asian markets, particularly in Japan, are set to follow the US declines, with trading set to resume in Hong Kong after a holiday break. Investors are closely watching how the conflict in the Middle East unfolds, as it has taken precedence over domestic economic data and market performance.
