Stocks Hit as Middle East Conflict Escalates – S&P down 1%
Global financial markets experienced a broad-based selloff overnight as escalating tensions in the Middle East dampened hopes of a swift resolution and reignited inflation concerns. Risk sentiment deteriorated throughout the session, with equity markets finishing firmly in negative territory despite a late attempt at stabilisation. During the US session, Donald Trump stated that the United States would escort commercial shipping through the Strait of Hormuz, offering some reassurance to markets. The Dow Jones declined 0.83% to finish at 48,501, while the S&P 500 fell 0.94% to 6,816. The technology-heavy Nasdaq Composite led the retreat, shedding 1.02% to close at 22,516. In currency markets, the US Dollar strengthened significantly, with the DXY rising 0.71% to 99.08 as investors sought liquidity and priced in higher inflation risks. Fixed income markets also reflected these concerns, with US Treasury yields moving higher across the curve. The 2-year yield rose 3.5 basis points to 3.510%, while the benchmark 10-year yield increased 2.9 basis points to 4.063%. Energy markets remained at the centre of volatility. Brent crude surged 5.72% to $82.19 per barrel, and West Texas Intermediate gained 5.42% to $75.07, with both benchmarks reaching their highest levels since January 2025 amid fears of supply disruptions through key shipping routes. In contrast to the broader risk-off tone, Gold declined sharply, falling 4.27% to $5,099.27. The pullback appeared driven primarily by the stronger US dollar, which offset traditional safe-haven demand.
Gold Sinks Despite Growing Geopolitical Concerns
Gold prices took a big hit in trading yesterday despite an escalating conflict in the Middle East. It was all pretty much one-way traffic for Gold yesterday, as the world’s favourite precious metal fell over 6% from high to low and settled down around 4.3% by the close. Many traders were caught out by the move, as most were expecting that, given the escalation of the war in the Gulf, safe-haven flows would have flooded in to take pricing up to challenge all-time highs set earlier in the year. Some commentators are attributing the move to the resurgent dollar, and given the extent of the moves that we have seen in 2026, the extent of the fall probably makes sense, but it certainly didn’t from a global growth concern point of view. Traders are now preparing for more flow-driven moves in the days and weeks ahead, with some fundamentals likely to take a back seat.
Another Big Day Ahead for Traders
Looking ahead, markets are likely to remain highly sensitive to geopolitical headlines. Nevertheless, attention will also turn to key macroeconomic releases across sessions. Australian markets will again be in focus early in the Asian session, with GDP data due for release early in the day. The market is expecting to see a quarter-on-quarter increase of 0.7%, up from 0.4% on the last print, which may support yesterday’s hawkish comments from RBA Governor Michele Bullock. The London session sees the latest release of Swiss CPI data (exp +0.5% m/m), which could see a short-term reaction in the franc; however, most traders are expecting haven factors to have a greater influence while the conflict in the Middle East continues. The New York session sees the first US employment data of the week, in the form of the ADP Non-Farm Employment Change data (exp 50k), followed by the ISM Service PMI (exp 53.5) number. Later in the session, we also hear from Bank of Canada Governor Tiff Macklem, which could add yet more volatility to the loonie; however, traders are expecting all macroeconomic updates to be largely overshadowed by events in the Middle East in the short term.
