US Stocks Fall as Middle East Conflict Rolls On – Nasdaq down 0.9%
Global markets started the week on the back foot, with U.S. equity markets finishing lower as optimism surrounding a potential Middle East peace agreement faded following President Trump’s rejection of Iran’s latest proposal. The Dow Jones declined 0.67% to close at 51,481, while the S&P 500 fell 0.77% to 7,683. The Nasdaq recorded the largest decline of the major indices, dropping 0.92% to finish at 26,820.
U.S. Treasury yields moved sharply higher as investors continued to assess the inflationary and monetary policy implications of elevated energy prices and ongoing geopolitical uncertainty. The policy-sensitive 2-year yield rose 7.9 basis points to 4.931%, while the benchmark 10-year yield climbed 7.6 basis points to 5.236%, reaching its highest level in 19 years during the session.
The rise in Treasury yields provided further support for the U.S. dollar, with the Dollar Index gaining 0.16% to close at 101.20. The dollar strengthened against most major currencies amid increased market volatility, although the Japanese yen was a notable exception. USD/JPY moved lower during the day following renewed commentary from Japanese officials aimed at supporting the currency, keeping the possibility of further policy action firmly in focus.
Oil prices extended their recent gains as markets continued to price in the risk of further supply disruptions from the Middle East. Brent crude rose 1.78% to $106.18 per barrel, while WTI edged 0.21% higher to $92.60. The continued strength in energy prices remains an important concern for markets, particularly given the potential impact on global inflation and the outlook for central bank policy.
Gold came under significant pressure as the combination of rising U.S. Treasury yields and a stronger dollar weighed heavily on the precious metal. Gold fell 4.01% to close at $4,114.27, highlighting the continued dominance of interest rate and currency moves over traditional safe-haven demand despite elevated geopolitical uncertainty.
Yen to Remain Volatile in the Days Ahead
Yen traders are expecting to remain busy in the coming days as, once again, Japanese officials warned against yen weakness during trading yesterday, which resulted in a sharp move down in USD/JPY as intervention fears raised their heads once again.
We have now seen multiple officials, including President Trump, advising against yen weakness against the dollar. However, the simple truth for the market is that fundamentals are pointing clearly in one direction for the pair, and that is up. U.S. yields continue to rise at a sharper rate than Japanese yields, and experienced traders, and the charts, point to the ineffectiveness of recent intervention from both the Bank of Japan and the Fed.
So now, it looks like a straight battle between the market and fundamentals, and the combined official forces of Japan and the U.S. Experienced traders will tell you that fundamentals will always win out in these circumstances, so it should be an interesting time ahead for the market in general and USD/JPY in particular.
Economic Calendar Kicks in from Today for Investors
Attention now turns to a busy macroeconomic calendar. The Reserve Bank of Australia’s interest rate decision will be the major focus during the Asian session, where they are firmly expected to raise rates by 25 basis points. This will be followed by the RBA press conference an hour later, which could provide more volatility as traders seek forward guidance for the next meeting. In Europe, ECB President Christine Lagarde is scheduled to speak midway through the session in front of the European Parliament. The North American session will feature Canadian GDP data (exp. 0.0% m/m) early in the day, followed by U.S. JOLTS Job Openings (exp. 7.23 mio) and CB Consumer Confidence figures (exp. 89.2).
With Treasury yields at multi-year highs, oil prices elevated, and geopolitical tensions remaining firmly in focus, markets are likely to remain sensitive to both economic data and geopolitical headlines throughout the trading day.
Explore all upcoming market events in the Economic Calendar.
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