Fears of imminent escalation in the middle east war plus its inflationary impact so far are driving stocks and bonds firmly lower, while the precious metal Gold is also sinking.
- The war in the middle east looks likely to escalate very soon, as more than 24 hours has passed since President Trump made a threat that he would begin destroying Iranian power stations if Iran did not open the Strait of Hormuz. Iran is extremely unlikely to do that and has threatened to hit power and desalination facilities in the Gulf and Israel. This is generating fear of instability and inflation, sending stock and bond markets notably lower. Iran also demonstrated its missile range capability might be much further than was thought, potentially bringing Europe into range, although it is very unlikely that Iran has anything it could meaningfully fire at Europe. The S&P 500 Index is trading below its area of former key support at 6500 which is also well below its 200-day moving average, making a new 6-month low price. Asian markets are especially hard hit, with regional indices entering correction territory (down more than 10% from the high). The KOSPI Composite is down by more than 6% today, and the Japanese Nikkei 225 Index is down by more than 3%. These are large falls.
- For the same reasons stocks are falling, bonds are getting sold too, with global yields now the highest seen since 2024. The US 10-Year Treasury Yield and the 2-Year Treasury Yield have risen powerfully to reach new 1.5-year high prices. This should keep the relative strength of the US Dollar high.
- The oil price shock has raised fear of inflation, and this plus the sharply increasing yields have sent precious metals strongly lower, which is typical. Gold is down by more than 4% on the day to give up all its gain of 2026 while Silver has given up even more, down by over 6% and trading as low as $62.80. Short precious metals could work as a very short-term trade for experienced traders, but will probably be a dangerous trade for newer traders.
- Crude Oil looks bullish but is holding steady as markets wait to see whether oil facilities in the Gulf will begin to be destroyed as part of the likely escalation. Brent looks more bullish than WTI as the crude oil which is more exposed to Iran and what happens with the Strait of Hormuz. Gasoline is also looking very bullish, with its RBOB future making a major long-term high price last Friday. Some trend traders will be long of the energies, while others will fear rapid price movements fully linked to unpredictable geopolitical developments.
- In the Forex market, the strongest major currency since today's Tokyo open has been the Japanese Yen, while the weakest has been the Australian Dollar, putting the risk barometer currency cross AUD/JPY in focus. The USD/JPY currency pair is holding up after making a new long-term high price last week but has not yet tested the big round number at 160, although it looks increasingly likely that this will happen soon. The US Dollar is also strong, just slightly weaker than the Yen.