Global financial markets experienced renewed volatility as the conflict between Israel and Iran entered its fifth day. The geopolitical instability sent shockwaves through investor sentiment, driving a sell-off in equities while boosting demand for safe-haven assets like oil and gold.
U.S. President Donald Trump, cutting short his attendance at the G7 summit, urged an evacuation of Tehran and hinted at direct U.S.-Iran diplomatic engagement, seeking a “real end” to the nuclear dispute. These developments amplified concerns that the conflict could escalate further and disrupt global energy supplies.
Oil Surges, Stocks Slide as Geopolitical Tensions and Policy Uncertainty Shake Markets
Equity markets responded negatively, with S&P 500 futures dropping 0.6% amid heightened investor caution. In contrast, crude oil prices surged by as much as 2.2%, reaching $74.85 per barrel, adding to an 11% weekly gain. Gold also advanced 0.3% as investors turned to traditional safe havens.
The European STOXX 600 index fell nearly 1%, hitting a three-week low, while bond yields across the euro zone remained steady. Fears of a broader Middle East conflict, a region central to the global oil supply, dominated market sentiment, especially after an overnight collision between two ships in the Gulf of Oman.
Markets Sway as Israel-Iran Conflict Deepens and Central Banks Weigh Critical Rate DecisionsThis geopolitical tension comes during a crucial week for monetary policy, as several major central banks, including the Bank of Japan (BOJ), Federal Reserve, Bank of England, and Swiss National Bank, are set to announce rate decisions. Analysts noted that investors are grappling with uncertainty on multiple fronts, making it difficult to hold onto riskier assets like equities.
Chris Beauchamp of IG highlighted the unease, stating investors are questioning whether to maintain their stock positions in this unstable environment.
Market Volatility Stays Contained Amid Rising Tensions and Central Bank Policy Moves
Despite the geopolitical flare-up, overall market volatility remained contained. The VIX index rose to 20.8—higher than last week but far below the extremes seen in April or during the 2008 crisis. Analysts like Bjarne Breinholt Thomsen from Danske Bank pointed out that markets are relatively resilient due to still-manageable oil prices and a stable macroeconomic backdrop. While the oil market responded sharply to the unfolding events, broader financial markets have not shown panic-level volatility so far.
The Bank of Japan kept interest rates steady at 0.5% on Tuesday and signaled a slower pace in reducing its government bond holdings to maintain market stability. This decision followed recent weak demand for Japanese government bonds, which had pushed long-term yields higher.
Meanwhile, the Federal Reserve is expected to maintain its rate stance on Wednesday, with investors eagerly awaiting updated economic projections, particularly regarding the impact of tariffs. On the sidelines of the G7 summit, U.S. trade negotiations with Japan and the U.K. yielded limited progress, leaving key trade issues unresolved. Gold prices continued their upward trend, rising another 0.4% to $3,395 an ounce, further reflecting investor caution.
