On Tuesday, the military conflict between Israel and Iran entered its fifth day, raising concerns among investors about the potential risk of escalation. This led to a global stock market decline, along with increases in oil prices and gold prices. However, analysts also noted that the current financial markets seem to have “relative resilience.”
In the midst of escalating tensions in the Middle East, as of the time of writing, the Dow Jones Industrial Average fell by 0.78%, the S&P 500 Index dropped by 0.84%, and the Nasdaq Composite Index declined by 0.92%. Global stock markets in general experienced downturns, with the STOXX 600 Index in Europe closing at its lowest level in three weeks.
IG Group’s Chief Market Analyst, Chris Beauchamp, mentioned in a report cited by Reuters, “Investors are trying to digest this information. I believe the current situation is very challenging, and it’s understandable that people feel nervous.”
The central banks of Japan, the United States, the United Kingdom, and Switzerland are scheduled to hold meetings this week.
Beauchamp also stated, “Once the central bank meetings conclude, we may have a better understanding of their views on the situation.”
Moreover, traditional safe-haven assets benefited from the risk-off sentiment. US Treasury bonds rose on Tuesday, with the yield on the 10-year Treasury falling by 1.33 basis points, the 30-year Treasury yield decreased by 1.23 basis points, while the German Bund yield remained steady.
The White House announced on Monday that President Trump has cut short his G7 summit trip to return to Washington early in response to developments in the Middle East. Trump also posted on the platform “Truth Social,” urging all individuals in Iran to “immediately evacuate Tehran,” without specifying the exact reason.
Israeli Defense Minister Israel Katz suggested that Iranian leaders may face the same fate as the executed Iraqi dictator Saddam Hussein.
Eric Sterner, Chief Investment Officer at Apollon Wealth Management, highlighted that the market is closely watching the conflict in the Middle East. He pointed out that approximately 20% of global oil supply passes through the strategic Strait of Hormuz connecting the Persian Gulf and the Indian Ocean, with Iran situated on the northern coast. There have been no reports of disruptions in oil supply yet. However, the recent collision of two ships in the Gulf of Oman, which connects the Persian Gulf to the Strait of Hormuz, briefly impacted the oil market again.
US Crude Oil prices continued to surge, closing up by 4.92% at $74.97 per barrel, while Brent Crude rose by 4.524% to $76.54 per barrel.
Analysts indicated that the financial markets do not appear to be experiencing significant volatility due to geopolitical tensions.
The VIX volatility index, which symbolizes investor panic levels, witnessed a slight increase last week and currently stands at around 21, well below the highs of over 60 seen in April and the record levels of over 80 reached during the 2008 financial crisis.
Danske Bank’s Cross Asset Strategy Director, Bjarne Breinholt Thomsen, remarked during a webinar on Tuesday, “This situation is happening at a time when we are not very sensitive, firstly because oil prices are still falling this year, and secondly, given the macroeconomic conditions… showing that the financial markets currently possess relative resilience.”