Key points:

  • The missile strike on Israel from Iran has heightened investor concerns about the stability of oil supplies.
  • Investors shifted toward safe-haven assets such as gold, the Japanese yen, and the Swiss franc.
  • The CBOE Market Volatility Index (VIX) reached its highest level in several months.

During Tuesday’s trading session, there was a decline in the global MSCI stock index, along with a decrease in Treasury yields. Investors demonstrated a preference for minimizing risks, steering away from high-volatility assets. At the same time, oil futures rose, driven by concerns about the stability of crude supplies amidst missile strikes on Israel from Iran.

However, by the close of trading, Wall Street stocks managed to recover from session lows. Market participants expressed hope that further escalation in the Middle East could be averted.

Escalation in the Middle East alarms investors

On Tuesday morning, Iran launched ballistic missiles at Israel in response to Israel’s military operation against the Hezbollah organization in Lebanon, supported by Tehran. The United States condemned Iran’s actions and expressed its readiness for consultations with Israel regarding further steps, stressing that U.S. military forces assisted Israel in repelling the attack.

Amid rising geopolitical tensions, the U.S. dollar index showed growth, and gold, traditionally seen as a safe-haven asset, increased by more than 1%. Investors sought to move their funds into less risky assets. Oil prices also surged as the escalation of the conflict raised concerns about the stability of energy supplies.

In addition to geopolitical risks, U.S. investors expressed concerns over the impact of Hurricane Helen and a dockworker strike on the east and west coasts of the U.S., which paralyzed about half of the country’s maritime shipping. The expiration of the labor contract without reaching an agreement with port owners further fueled negative market expectations.

Market reaction

Oil prices increased, though they remained below their daily peak values. Clay Sigle, an independent political risk expert, noted that an Israeli attack on Iran’s oil production or export facilities could cause severe disruptions, potentially reducing production by more than a million barrels per day.

U.S. crude oil rose by 2.44% to $69.83 per barrel, while Brent finished the trading day at $73.56 per barrel, up 2.59% from the previous day. Earlier that day, both benchmark crude types showed gains of more than 5%.

On Wall Street, the Dow Jones Industrial Average fell by 173.18 points, or 0.41%, to 42,156.97. The S&P 500 lost 53.73 points, or 0.93%, to 5,708.75, while the Nasdaq Composite dropped 278.81 points, or 1.53%, to 17,910.36.

The global MSCI stock index declined by 6.09 points, or 0.71%, to 845.69. Meanwhile, the European STOXX 600 index closed the day down by 0.38%.

The CBOE Volatility Index (VIX), which measures market fears on Wall Street, rose to 19.25, its highest closing level since September 9.

In the face of geopolitical tension fueled by reports of potential attacks from Iran, the Japanese yen and Swiss franc, traditionally seen as safe-haven assets by investors, strengthened.

At the same time, the U.S. dollar also showed positive momentum, supported by Tuesday’s labor market stability data and a speech by Federal Reserve Chairman Jerome Powell, who dismissed expectations of a significant interest rate cut.

The U.S. dollar index, which reflects the value of the dollar against a basket of other currencies, including the yen and the euro, rose by 0.45% to 101.20 points. The euro, in turn, fell by 0.58% and traded at $1.1069 per euro. The dollar/yen pair showed a slight weakening of the U.S. dollar by 0.08%, with the exchange rate at 143.51 yen per dollar.