Tom Westbrook looks ahead to European and global markets.
A tough week for financial markets has come to an end due to tensions in the Middle East. Barring a reversal, global stocks are on track for their biggest weekly decline since September, and the dollar is at a year-to-date high.
Even before Asian markets turned decisively risk-averse following reports of explosions in Iran and Israeli attacks, investors were spooked by disappointing earnings and hawkish Fedspeak.
Reports of Iran’s attack on Isfahan then pushed gold above $2,400 an ounce and Brent crude above $90 a barrel, driving demand for the dollar and yen. Stocks fell and bonds rose.
The lack of details about the damage in early shipments caused traders to partially back off their flight to safety, but the volatility heading into the weekend was less than comforting.
The situation is worrying as it coincides with other negative developments for the market this week, with another rally in commodities likely to increase inflationary pressures.
Iran is OPEC’s third largest oil producer, pumping 3% of the world’s total production. Oil rose 16% in 2024, and copper, an industrial metal, rose 14%.
On Thursday, New York Fed President John Williams spoke out about the risks the market is not ready for, saying, “If we have data that says we need to raise interest rates to meet our goals, then of course we would want to do that.” Said.
U.S. Treasury yields fell sharply on Friday, but the benchmark 10-year Treasury yield rose more than 35 basis points for the month as hopes for rate cuts this year faded.
Shares in Taiwanese semiconductor manufacturing giant TSMC fell 6% as the company downgraded its outlook for the sector, disappointing investors and pushing down technology and semiconductor manufacturing stocks globally.
The sharp rise in the yen and Swiss franc, especially in crosses, suggests the market is ripe for unwinding carry trades that can deteriorate quickly in volatile conditions.
Tier 2 data released later in the day is likely to be overshadowed by geopolitics.
Key developments that may impact the market on Friday:
german producer price
UK retail sales
US revenue.American Express, Procter & Gamble
(Edited by Jacqueline Wong)
