Morning Bid: Nervy markets await Israel’s response, Fed outlook

Morning Bid: Nervy markets await Israel’s response, Fed outlook

A look at the day ahead in European and global markets from Rae Wee

European shares look set to track Asia’s negative lead on Monday after a weekend dominated by news of escalating tensions in the Middle East and fears of a wider regional conflict.

The flight to safety began with talk last week of an Iranian strike on Israel and, after a raid with some 300 drones and missiles, the focus now turns to Israel’s reply. [MKTS/GLOB]

Gold and the U.S. dollar were firm, though the erstwhile safe-haven yen sank to a three-decade low – a reminder that market participants are still treating the Middle East primarily as a risk, albeit a growing one, while interest rates remain the main theme. [FRX/]

Going some way to keeping that risk capped, U.S. President Joe Biden told Israeli Prime Minister Benjamin Netanyahu the U.S. will not take part in a counter-offensive against Iran.

Still, the Cboe Volatility Index, or VIX – known as Wall Street’s fear gauge – is hovering near five-month highs.

Oil prices were trading lower in Asia, though some analysts said that was because the risk of what Iran called retaliation had already been priced in last week and as traders wait to see if worries of a wider war actually precipitate.

Brent futures hovered around $90 a barrel, after touching a roughly six-month high on Friday. It has risen 17% for the year, while U.S. crude futures have gained 19% year-to-date.

Any further increase in oil prices towards $100 a barrel is going to be unwelcome news for central bankers battling rising consumer prices, with last week’s hotter-than-expected U.S. consumer price report continuing to reverberate through markets.

Later in the day, traders will get a sense of the strength of the U.S. consumer with retail sales data for last month due.

A slew of Federal Reserve speakers are also on the docket this week, with comments from Chair Jerome Powell on Tuesday coming under the spotlight.

With U.S. inflation having topped forecasts for three successive months, it’s hard to imagine the world’s most powerful central banker sticking to his same, somewhat-dovish tone from last month.

While the geopolitical backdrop is likely to set the tone for the week, there are also plenty of economic events for traders to take cues from, from China’s first-quarter economic growth figures to British consumer prices.

The U.S. earnings season is also underway, though that got off to a lacklustre start after reports from the three big banks – JPMorgan Chase & Co, Wells Fargo and Citigroup – disappointed investors and sent Wall Street lower.

Key developments that could influence markets on Monday:

– Euro zone industrial production (February)

– U.S. retail sales (March)

– Goldman Sachs, Charles Schwab earnings

– Fed’s Mary Daly, Lorie Logan speak

(By Rae Wee; Editing by Christopher Cushing)