This is a segment from the Forward Guidance newsletter. To read full editions, subscribe.
Markets Volatility Soars Amid Fears of Escalating Middle East Conflict
FRANKFURT (Reuters) – Worry that Israel’s strikes on Iranian nuclear facilities could spark a wider war pushed oil prices sharply higher while dragging global stock indexes lower Friday morning.
Benchmarks Brent crude gained over 8% in early European trading as uncertainty mounted. U.S. West Texas Intermediate crude climbed as much as 14% before paring gains, following Iranian reports that overnight Israeli airstrikes had not damaged key oil infrastructure.
Gold prices edged closer to an all-time peak as investors flocked to haven assets. The S&P 500 index was down approximately 0.8% while the Nasdaq Composite dropped nearly 0.9% by late ET afternoon. Trading activity saw riskier assets falter, with Bitcoin also declining marginally for the day.
The rise in volatility pushed U.S. Treasury yields higher, though preliminary figures suggest prices initially moved higher as Treasuries typically gain amid geopolitical uncertainty. However, persistent concerns about higher energy costs inflating global prices and potentially delaying the Federal Reserve’s anticipated interest rate cuts weighed heavily.
Markets were reassessing the Federal Open Market Committee’s (FOMC) outlook. Favorable odds for a 25-basis-point rate cut starting in September dropped from 59% on Thursday to 56% early on Friday, according to CME Group data. This suggests investors acknowledged potential downside risk to Fed action if oil prices remain elevated.
The situation on the ground remains unstable. Initial reports indicate Iran has vowed “severe” retaliation and has suspended its planned nuclear talks with the U.S. Israeli President Donald Trump confirmed foreknowledge of impending strikes but suggested a possible point of friction in mid-week guidance to Israeli leaders.
The prevailing uncertainty underscores how complex geopolitical developments are shaping current financial markets ahead of crucial U.S. central bank meetings, leaving investors anxious for clearer resolution.
