S&P and NASDAQ index close down near 1%Trump: DFC to provide political risk insurance and guarantees to all Maritime TradePres. Trump speaking from the White House: Felt strongly Iran was going to attack firstFeds Kashkari: Iran war impact could have monetary policy impactECB’s Kazaks: Current rates are appropriate based on what I am seeingFeds Williams: Long-term inflation expectations have remained remarkably stableMore from Feds Williams: AI will change productivity growth, demand for laborFeds Schmid: No room to be complacent on inflationGold Technicals: In a surprise move, gold is racing to the downside. What next?Fed’s Williams: If inflation ebbs, further reduction in policy rate would be warrantedCrude oil is a surging. What needs to happen to give the sellers control?What now? A technical look at the EURUSD, USDJPY and GBPUSD to kickstart the NA sessioninvestingLive European FX news wrap: Day 4 of US-Iran war keeps markets in risk-offInflation fears reemerge as markets digest higher energy prices from US-Iran conflict
Financial markets were gripped by geopolitical volatility on Tuesday as escalating conflict in the Middle East drove oil higher stocks lower, and the USD higher, though a late-day intervention by President Trump helped pull crude oil off its highs and provided a floor for equities.
Market Performance Summary:
Equities: US indices closed firmly in the red, though off their worst levels of the session. The Dow Jones (DJI) fell 0.83%, the S&P 500 (SPX) dropped 0.94%, and the Nasdaq (IXIC) lost 1.02%. Small caps bore the brunt of the selling, with the Russell 2000 (RUT) sliding 1.79%.
Fixed Income: Treasuries saw two-way trade, ultimately settling mostly flat as investors weighed safe-haven demand against inflationary fears. The 10-year yield finished around 4.06%.
Commodities: US Oil (WTI) surged nearly 5.5% to $75.08 per barrel following reports of Iranian strikes and the temporary closure of the Strait of Hormuz. Conversely, Gold experienced a massive liquidation, plunging 4.45% (it’s worse day since February 2) to break back below the $5,100/oz level ($5,095). The low price of gold fell just below the $5000 level to $4996.36 before rebounding. Silver crashed -8.17% or Monday $7.26 to $81.98
Crypto: Bitcoin (BTCUSD) followed the broader risk-off trend, declining $-834 or -1.21% to $68,000
Geopolitical Flashpoints
The primary driver of price action was the broadening conflict between Israel, Iran, and the US. Later in the day, reports indicated that Iran targeted the US consulate in Dubai, and the UAE is reportedly considering military action to intercept Iranian missiles.
Market anxiety peaked with the closure of the Strait of Hormuz. However, sentiment stabilized slightly after President Trump announced the US would provide political risk insurance for maritime trade and that the US Navy would begin escorting tankers through the Strait “as soon as possible” (as if they didn’t have enough to do).
Fed Commentary: Balancing Inflation and Geopolitical Shocks
Despite the chaos in the Middle East, several Federal Reserve officials provided updates on the economic outlook, maintaining a cautious but steady tone regarding monetary policy.
Neel Kashkari (Minneapolis Fed President):
Kashkari acknowledged the direct threat the conflict poses to the Fed’s dual mandate. He noted that while it is too early to fully assess the impact of the Iran conflict on inflation, it “could have an impact on monetary policy” if energy price spikes become persistent. He characterized current policy as being in a “good place” for now.
John Williams (New York Fed President):
Williams focused on the long-term structural health of the economy, offering a more stabilizing message:
Inflation Anchors: He noted that “long-term inflation expectations have remained remarkably stable,” suggesting the Fed does not yet see a de-anchoring despite recent volatility.
Policy Path: Williams reiterated that further rate cuts would only be warranted if inflation continues to ebb, describing current policy as “well-positioned.”
The AI Factor: Looking ahead, Williams highlighted that AI is expected to significantly change productivity growth and the demand for labor, though the full transition remains a work in progress.
Thomas Schmid (Kansas City Fed President):
Taking a more “hawkish” stance, Schmid (a 2028 voter) stated he currently opposes further interest rate cuts, signaling a preference for restrictive rates until the inflationary impact of the Middle East conflict is clearer.
Looking Ahead
Traders remain on high alert for further escalations in the Gulf. Tomorrow’s calendar is packed with critical data, including Australian GDP, Chinese PMIs, and US ISM Services PMI, which will test whether the domestic economy can remain resilient in the face of soaring energy costs and global instability.
This article was written by Greg Michalowski at investinglive.com.