Global financial markets are in turmoil again, this time following a new attack by the United States on Iran. Oil prices surged, bonds plunged, and the Dollar strengthened against almost all major currencies.
What's Happening in the Markets
Brent crude rose more than 3% to USD78.50 per barrel, on concerns about global oil supply disruptions. The US launched a new wave of strikes on Sunday, specifically to weaken Iran's ability to attack civilian ships passing through the Strait of Hormuz.
The attacks followed Iran's own drone and missile attacks on US allies, including Kuwait, Jordan and Qatar. Confirming that the situation is getting more tense and uncertain.
To make matters worse, Iran claims that it has completely closed the Strait of Hormuz. But the US Navy and maritime authorities say shipping can still pass through the southern route of the strait. When two sides give different stories like this, the market becomes more anxious.
The Impact on Bonds, Gold & Wall Street
US government bonds also fell, with the 10-year yield rising two basis points to 4.58%. Australian and Japanese bonds also fell, both falling.
Interestingly, gold and silver also fell, with gold down 0.8% to around USD4,085 an ounce. This is quite unusual because gold is usually a “runaway” place during a crisis, but this time high oil prices and inflation concerns have investors expecting interest rates to rise again, making gold less attractive.
Nasdaq 100 futures fell slightly, 0.1%, and all eyes are on the upcoming corporate earnings season, with giants like Goldman Sachs and JPMorgan expected to announce results this week.
The Impact on Our Dollar & Ringgit
When geopolitical tensions like this hit, the usual pattern in the forex market is for the US Dollar to strengthen, even though the irony is that the US itself is involved in the conflict. This is because global investors still consider the Dollar to be the main “safe haven” during uncertain times.
Rising oil prices can also directly pressure the currencies of oil-importing countries like us, as energy import costs become more expensive. This is one reason why the Ringgit needs to be closely monitored during this period.
Furthermore, market traders have now started placing higher bets that the Federal Reserve will raise interest rates by up to 40 basis points by December, a sharp increase compared to just 15 basis points in early June. Higher US interest rates usually make the Dollar stronger, and this effect is also felt in currency pairs such as USD/MYR.
Key Takeaways
Brent oil prices rose more than 3% to USD78.50 per barrel following the new US attack on Iran.
Confusion over the status of the Strait of Hormuz, with Iran claiming to be completely closed, but the US saying shipping is still running smoothly, added to market uncertainty.
US, Australian and Japanese government bonds fell sharply, while the Dollar strengthened against almost all G10 currencies.
Gold and silver fell despite the geopolitical crisis, on concerns that interest rates will rise again.
Traders now expect the Fed to raise interest rates by up to 40 basis points by December, a sharp increase from early June.
Stay alert as any new headline can change direction in the blink of an eye.
