Global markets began the first trading day of the week under the shadow of renewed tension between the US and Iran. Following mutual attacks over the weekend, the parties agreed on a ceasefire and decided to return to negotiations over the Strait of Hormuz, leading to cautious, two-way movement in asset prices.
Risk premium rises in oil prices
Iran launched missile and drone attacks on American military positions in Bahrain and Kuwait over the weekend, exposing the fragility of the temporary agreement between Washington and Tehran. The attacks came immediately 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 conflict and restart talks on the Strait of Hormuz.
In response to these developments, the price of Brent crude rose over 1 percent to $72.94 a barrel, while US crude traded around $70.44 a barrel. Prices remained above Friday's closing levels of $71.99 for Brent and $69.23 for US crude. Analysts at XM brokerage, Achilleas Georgolopoulos, said the war-related risk premium could persist until the situation in the Middle East fully calms.
Strait of Hormuz shipments recovering
The Strait of Hormuz, the heart of global energy markets, is showing surprising signs of recovery despite the military tension. 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 on Sunday at Ras Tanura that killed 14 people, the cause of which remains unknown.
According to ING analysts, while the market still faces major risks, investors are now focused on what the recovery in oil flows means for the global supply-demand balance. It is assessed that a slow recovery in supply could keep upside risks for prices alive. Brent crude had fallen 10.6 percent last week, posting its third consecutive weekly loss.
Safe-haven gold under pressure from interest rates
Despite rising geopolitical tension, gold came under pressure due to investor expectations that the US Federal Reserve may raise interest rates. Fears that rising oil prices will fuel inflation and force the Fed into tighter monetary policy prompted a shift out of the non-yielding asset.
The price of gold fell about 0.9 percent during the day to $4,013 an ounce, heading for its fourth consecutive monthly loss. KCM Trade chief market analyst Tim Waterer said the resumption of clashes between the US and Iran has increased uncertainty about whether oil prices will continue to decline and about forecasts for inflation and interest rates. Among other precious metals, silver fell to $57.72, platinum to $1,563, and palladium to $1,196.
Tech stocks recover on Wall Street
The New York Stock Exchange began the week with cautious optimism. The halt in the wave of attacks between the US and Iran and signals of a return to diplomacy boosted investor sentiment. The Dow Jones Industrial Average rose 324 points (0.6 percent), while the S&P 500 also gained 0.6 percent, approaching the 7,400-point mark. The tech-heavy Nasdaq Composite index rose about 1 percent, supported by a recovery in tech stocks following the previous week's losses.
Last week, the Nasdaq and S&P 500 had recorded five consecutive sessions of decline. The market rally was supported by signs that, despite the attacks, negotiations between Washington and Tehran have not completely collapsed.
