Market Overview

• In his address, Donald Trump assured that strategic goals in Iran are near completion and the war will soon end. He announced powerful strikes in the coming weeks to “finish the job” and “bring Iran back to the stone age.” Despite assurances of success, the President bypassed the issues of ground troops and diplomacy. The speech, intended to calm the public regarding rising energy prices, triggered immediate spikes in oil and stock market declines.
• Furthermore, Trump shifted responsibility for the Strait of Hormuz to other nations, calling on them to “take the lead” and secure the route themselves. He suggested that countries dependent on that oil must “fend for themselves,” as the US plans to withdraw from the conflict, leaving a critical economic problem unresolved and fueling fears of Iranian dominance.
• Trump’s hawkish tone is driving declines in major index futures. The hardest hit are small caps in the Russell 2000 (US2000: -1.9%), followed by the Nasdaq (US100: -1.6%), S&P 500 (US500: -1.3%), and the DJIA (US30: -1.15%).
• Sentiment in Asia plummeted. The South Korean KOSPI (-3.7%) and Japanese Nikkei 225 (-2%) and TOPIXperformed worst, erasing gains from the previous session. The tech sector dragged down the Hang Seng (-1%), while the Australian ASX 200 fell 1.1%. Rising oil prices hit energy-dependent markets, sparking fears of inflation and hawkish central bank policies.
• Australia’s trade balance surged to 5.69bn AUD (forecast: 2.6bn, previous: 2.26bn). This spike was primarily driven by a sharp drop in the export of key metals and coal following massive price surges after the outbreak of war in Iran.
• In the FX market, the US Dollar dominates again (USDIDX: +0.5%), rebounding on a wave of renewed risk aversion and uncertainty regarding further US actions in Iran, particularly a ground intervention. The largest declines are seen in Antipodean currencies (AUDUSD, NZDUSD: -0.7%), the Swiss Franc (USDCHF: +0.65%), and the British Pound, which is most exposed to high imported gas prices (GBPUSD: -0.6%). EURUSD is losing 0.5% at 1.1535.
• Brent crude skyrocketed approximately 6.7% to $107, neutralizing most of the declines from the last three days. A slump is also visible in precious metals: Gold is down 2.2% to $4650 per ounce, while Silver fell 5.35% to $71 per ounce.
• Alberto Musalem of the St. Louis Fed emphasized that the Fed does not need to abruptly change its approach to monetary policy, stating that current rate levels are appropriate in light of inflation risks associated with the war in Iran.

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