US Markets Drift as They Await Fresh Middle East Updates – S&P down 0.2%
US equity markets closed little changed overnight as investors paused following several sessions of heightened volatility. Ongoing developments in the conflict in the Middle East continued to dominate sentiment, with headlines around potential peace progress shifting frequently and keeping traders cautious. The Dow slipped 0.07% to close at 47,706, while the S&P 500 declined 0.21% to finish at 6,781, while the Nasdaq managed to hold just above flat for the session, edging up 0.01% to close at 22,697. Bond markets also experienced another choppy session, with US Treasury yields moving higher after pulling back the previous day. The 2-year yield rose 5.4 basis points to 3.590%, while the benchmark 10-year yield climbed 6.0 basis points to 4.156%. In currency markets, the US dollar ultimately finished higher in volatile trading conditions. The DXY gained 0.22% to close at 98.94. Oil remained incredibly volatile as it reacted to headlines on the conflict, dropping hard on news earlier that the US had escorted a tanker through the Straits of Hormuz before then rallying again when the report was retracted. Brent was up 0.97% at $91.04 per barrel, while WTI crude gained 1.05% to $86.61. Gold also moved higher on the day but remains in recent ranges, gaining 1.04% on the day to close at $5,191.98.
Gold Higher, but the Dollar Is Still King
Gold has historically been one of the primary safe-haven assets during periods of geopolitical uncertainty, but the recent conflict in the Middle East has highlighted how powerful the US dollar can be in driving market flows. Despite a sharp escalation in tensions across the region and significant volatility across global financial markets, gold has struggled to sustain strong upside momentum as investors have instead flocked to the US dollar, especially given the move higher in US yields. Gold did push towards the top of recent ranges overnight, but it is still well off levels that some market participants would have expected it to be at in the current environment. However, should the conflict intensify further, or if US yields begin to fall, the precious metal could quickly regain its traditional safe-haven appeal and experience sharper upside moves.
Geopolitics to Dominate Again Despite US Inflation Data
While the economic calendar remains relatively light otherwise, geopolitical updates are likely to remain the dominant driver of market sentiment in the near term. There is little on the cards again in both the Asian and European sessions today; however, we expect plenty of volatility in those sessions, with most markets still on tenterhooks with regard to the conflict in the Middle East and global oil supply. However, once New York opens, we see attention turning to fundamental data for at least a short time with the release of the first of two key inflation updates out of the States this week. CPI numbers are due out early in the session, and given the inflation concerns brought about by the war, anything further north in the data should see rate cut hopes from the Fed pushed to later in the year. The headline month-on-month number is expected to show a 0.3% increase, with the core number slightly lower at +0.2% and the year-on-year a +2.4% print.
