Fragile Sentiment, Geopolitical uncertainty, Volatile Oil prices
- Market sentiment fragile on geopolitical risk
- Oil benchmarks remain around triple digits
- Gold sees its biggest weekly loss since 1983
- UK under pressure ahead of key data
A strong sense of caution returned to markets on Tuesday as fragile hopes around a potential de-escalation in the Middle East dwindled further.
Trump’s five-day truce proposal initially sparked a relief rally, but sentiment was dampened by Iran's rejection of talks with the US. The Wall Street Journal also reported that Gulf states were edging toward joining the fight against Iran, further eroding investor confidence.
Asian shares were mixed, European markets are pointing to a tepid open along with US equity futures.
This was reflected across financial markets with Brent lingering near $100 after tumbling over 10% in the previous session. The closure of the Strait of Hormuz presents a major oil shock that may keep oil bulls in a position of power. Given how Israel has started a new wave of strikes targeting infrastructure across Iran, the path of least resistance for oil points north.
After experiencing its biggest weekly loss since 1983, gold prices tumbled as much as 8.5% to below $4100 before aggressively rebounding on Trump’s comments. Despite the sharp rebound, the precious metal remains pressured by fears about conflict-induced inflation, rising Treasury yields and rising bets over higher US rates. Looking at the charts, gold remains under pressure despite the aggressive rebound. Weakness below $4450 encourage a decline back toward $4300 and $4200. A move back above $4250 may see prices test $4600.
It’s a relatively quiet week data-wise, but the conflict in Iran will keep the volatility taps wide open.
In the United Kingdom, CPI and retail sales reports may provide fresh insight into the health of the economy. Last week, the Bank of England stated it “was ready to act” against a surge in inflation triggered by conflict in the Middle East. A stronger pound and expectations around higher UK interest rates could mean fresh pain for the FTSE100 which has shed over 9% month-to-date.