Global markets started the first trading day of the week under the shadow of renewed tensions between the US and Iran. After mutual attacks over the weekend, the parties agreed on a ceasefire and decided to return to negotiations on the Strait of Hormuz, leading to cautious two-way movements in asset prices.
Risk premium rises in oil prices
Iran's missile and drone attacks on American military posts in Bahrain and Kuwait over the weekend exposed the fragility of the temporary agreement between Washington and Tehran. The attacks came shortly after US President Donald Trump issued harsh threats targeting the Iranian leadership. An American official said the parties had agreed to halt the latest wave of clashes and restart talks on the Strait of Hormuz.
As a result of these developments, Brent crude rose more than 1% to $72.94 per barrel, while US crude traded around $70.44. Prices remained above Friday's closing levels of $71.99 for Brent and $69.23 for US crude. Achilleas Georgolopoulos, an analyst at brokerage XM, said the war-related risk premium could persist until the situation in the Middle East fully calms down.
Strait of Hormuz shipments recovering
The Strait of Hormuz, the heart of global energy markets, is showing surprising signs of recovery despite the military tensions. Saudi state oil company Aramco resumed crude oil loading operations at the Ras Tanura terminal west of the strait on Friday after a roughly four-month hiatus. These operations continued despite a company helicopter crash of unknown cause on Sunday that killed 14 people at Ras Tanura.
According to ING analysts, while the market still faces significant risks, investors are currently focused on what the recovery in oil flows means for the global supply-demand balance. A slow recovery in supply is seen as keeping upside risks for prices alive. Brent crude had fallen 10.6% last week, posting its third consecutive weekly loss.
Safe-haven gold under interest rate pressure
Despite rising geopolitical tensions, gold came under pressure as investors expected the US Federal Reserve (Fed) to raise interest rates. Concerns that rising oil prices would fuel inflation and force the Fed into tighter monetary policy led to outflows from the non-yielding metal.
Gold fell about 0.9% during the day to $4,013 per ounce, heading for its fourth consecutive monthly loss. Tim Waterer, chief market analyst at KCM Trade, said the resumption of US-Iran clashes increased uncertainty about whether oil prices would continue to fall and about inflation and interest rate forecasts. Among other precious metals, silver fell to $57.72, platinum to $1,563, and palladium to $1,196.
Tech stocks recover on Wall Street
Wall Street started the week with cautious optimism. The halt in the wave of attacks between the US and Iran and the signal of a return to diplomacy improved investor sentiment. The Dow Jones Industrial Average rose 324 points (0.6%), while the S&P 500 also gained 0.6%, approaching the 7,400-point mark. The tech-heavy Nasdaq Composite rose about 1%, supported by a recovery in tech stocks after the previous week's losses.
Last week, the Nasdaq and S&P 500 had fallen for five consecutive sessions. The market rally was supported by signs that negotiations between Washington and Tehran had not completely collapsed despite the attacks.
