US Stocks Extend Declines as Middle East Concerns Persist
US equity markets came under further pressure in trading yesterday as ongoing concerns surrounding the Middle East continued to weigh on risk appetite. The Dow Jones fell 0.22% to close at 53,434, while the S&P 500 declined 0.69% to 7,691. The technology-heavy Nasdaq again underperformed, falling 1.33% to 26,289.
US Treasury yields edged lower off recent record highs, with the 2-year yield falling 0.5 basis points to 4.171% and the benchmark 10-year yield declining 1.8 basis points to 4.704%. The US Dollar regained some ground against the major currencies, with the US Dollar Index rising 0.07% to 99.65.
Oil prices continued to push higher as uncertainty surrounding the Middle East increased further. Brent crude gained 0.46% to US$91.29 a barrel, while WTI rose 0.52% to US$84.94. The latest move was influenced by President Trump confirming that no talks were currently taking place with Iran and that none were planned, increasing concerns that the conflict could continue for longer and potentially escalate in the near future.
Gold moved lower after again approaching key resistance levels, with the precious metal falling 1.85% to US$4,333.33 an ounce.
Gold Pulls Back as Technicals Overrule Fundamentals
Gold suffered a sharp reversal overnight, falling 1.85% after running into key trendline resistance and the recent highs. The move was notable given that the fundamental backdrop arguably favoured another push higher, with renewed Middle East tensions, weaker US economic data and reduced expectations for further Federal Reserve rate hikes all providing potential support for the precious metal.
Instead, gold was rejected at an important technical area and the subsequent selling gathered momentum, taking the metal back towards the US$4,330 region. The decline also came despite gold having regained some of its safe-haven appeal during August, with prices having rallied around 9% earlier in the month.
It is a relatively rare example of the technical picture appearing to dictate the direction of the move more than the fundamental backdrop.
The immediate focus now turns to whether gold can find support around the recent breakout areas or whether yesterday’s rejection marks the beginning of a deeper correction. The US$4,500 area, which also sits close to the 200-day moving average, remains an important longer-term technical hurdle, while a sustained move back above resistance would be needed to restore the bullish momentum.
Focus Turns to UK Inflation and FOMC Minutes
The macroeconomic calendar becomes considerably busier today, with traders set to focus on several key releases across the major trading sessions. The Asian session will see attention turn to Australia’s Wage Price Index (exp +0.8% q/q) early in the day, before the focus moves to the UK near the start of the London session with CPI (exp +2.9% y/y) and PPI (exp +0.2% m/m) data released.
ECB President Christine Lagarde is also scheduled to speak during the day, while the US session will feature the weekly Crude Oil Inventory numbers (exp 0.2mio barrels) earlier in the session before the release of the now closely watched FOMC Meeting Minutes later in the day.
The FOMC Minutes are likely to attract particular attention given the recent shift in Federal Reserve expectations following a series of weaker US economic data releases. Traders will be looking for further clues around the Committee’s thinking on inflation and interest rates, particularly with higher oil prices once again creating additional inflationary risks.
Geopolitical developments are still likely to remain the primary driver of market sentiment, however, and any fresh updates from the Middle East could quickly overshadow the scheduled economic releases. With oil prices continuing to push higher and US equities under pressure, another escalation in the region could see volatility increase further across financial markets.
Explore all upcoming market events in the Economic Calendar.
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