The escalation of the Middle East conflict has shaken the market, causing a decline in the stock market and a rise in crude oil prices, which has prompted investors to reduce their exposure to risks.
Asian stocks fell by 1.3%, while U.S. stock futures dropped by 0.6%, narrowing their earlier losses. This came after U.S. President Trump told The New York Times that he would be willing to lift sanctions on Iran if the new Iranian leadership is pragmatic. The news helped ease some of the market declines. The Wall Street Journal reported that Iran has also made another push to resume dialogue with the United States.
As the Strait of Hormuz has effectively been closed, this conflict has thrown the global crude oil market into turmoil, with the price of Brent crude oil surging by 13% at one point – although the increase has since moderated.
The market remains focused on the situation in the Strait of Hormuz, which is crucial for global oil transportation. As investors lower their risk appetite, some safe-haven assets are in demand. The price of gold rose by 1% to around $5,335 per ounce, retreating from its intraday high. However, the gains of the US dollar narrowed, and US Treasuries also gave back some of their early gains.
“The market currently has high expectations for this limited conflict. Unless the situation continues to escalate, its impact on broader investment remains controllable,” Adam Hetts, global head of multi-asset at Janus Henderson, wrote in a report. “As always, diversification and a long-term perspective are crucial when uncertainty peaks.”
Stock market valuations, already at historic highs amid fresh concerns over artificial intelligence and a potential credit crisis, now have to contend with escalating military actions in Iran and its surrounding areas, which threaten global shipping stability and restrict the movement of people. The impact on oil prices and inflation is the most closely watched issue in the market. Last month, the US stock market experienced its biggest decline since April.
Bloomberg Economics said that if the Strait of Hormuz were to be closed, oil prices could soar to $108 per barrel. About one-fifth of global oil flows pass through this waterway, making it a vital energy chokepoint.
Digital signals show that tanker traffic through the Strait of Hormuz has almost come to a standstill, and three vessels were attacked near the mouth of the Persian Gulf, heightening concerns that oil supplies may tighten.
Barclays strategists have warned investors against rushing to buy when share prices fall. Ajay Rajadhyaksha, the head of global research at the bank, pointed out that investors have become accustomed to geopolitical conflicts that quickly subside, but this one may last longer due to factors such as US casualties, possible attacks on the Iranian leadership, and disruptions to traffic through the Strait of Hormuz.
“The risk-reward doesn’t seem attractive,” he said. “If the stock market corrects to a certain extent (for instance, the S&P 500 drops more than 10%), there might be a buying opportunity. But it’s not the time yet.”
Technical analysis:
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Gold: Affected by geopolitical factors, the gold price rose sharply at the end of Friday. On Monday morning, it opened with a gap up and is now gradually falling to test the 5300/5330 area for support. If it can hold above 5300/5330 during the day, a buying opportunity should be sought; or wait for another dip near 5280 before placing a buy order. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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Nasdaq: The advice given for the plugin last Friday was to wait and see. As a result, the price continued to show the characteristics of a downward probing for a phase low. Today, we will continue to wait for a long signal after a low liquidity sweep to catch the rebound wave. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: The price gapped up by nearly $10 at the opening, but then fluctuated and fell back, seeking to fill the gap. Our assessment of the geopolitical situation is that it will not end soon. Therefore, we suggest waiting for the gap to be filled and then looking for new bullish signals to try. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key financial data and events to focus on:
23:00 US ISM Manufacturing Purchasing Managers’ Index for February
