Financial markets opened cautiously as the conflict involving Iran intensified anew, sending oil higher and leaving U.S. equity futures little changed. President Donald Trump announced a brief postponement of planned military strikes on Iran’s power grid, but fresh attacks across the region and Tehran’s rejection of the White House’s account of talks kept investors on edge.
By 04:20 ET (08:20 GMT), futures tied to the major U.S. indices were broadly muted. The Dow futures contract had fallen 25 points, or 0.1%, while S&P 500 futures and Nasdaq 100 futures were largely unchanged as market participants weighed the course of the conflict and its potential economic ripple effects.
Wall Street’s main averages had risen in the prior session after Mr. Trump said the U.S. had engaged in “productive” talks with Tehran. Iranian officials, however, disputed that account and accused the U.S. president of overstating progress in discussions, remarks that helped sustain skepticism about any near-term resolution.
Analysts at Vital Knowledge captured that cautious mood, noting that "[T]here is a ton of skepticism about the conflict coming to an end anytime soon." They added that while the rally in equities may have further to run, the benchmark S&P 500 faces a "hard ceiling" in the 6,900 to 7,000 range. The S&P 500 had closed at 6,565.55 on Monday.
New strikes across the Middle East keep supply routes under strain
Despite the temporary delay announced by the U.S. president, the violence spread to multiple locations across the Middle East. Media reports indicated several sites in Israel, including in Tel Aviv, came under bombardment. The Wall Street Journal reported that Kuwait and Saudi Arabia were struck with drones and missiles. Israel said it had carried out strikes on targets linked to Iran-backed Hezbollah in Lebanon.
Of particular concern for global energy markets has been the Strait of Hormuz, the narrow waterway to Iran’s south through which roughly one-fifth of the world’s oil flows. The strait has been rendered effectively closed to tanker traffic amid the hostilities, a development that has become a core flashpoint in what the report described as a joint U.S.-Israeli assault on Iran. The near-shutdown of this vital route is constraining the shipment of crude to energy-dependent regions, notably heavy importers in Asia.
Market reaction to the disruption has pushed crude prices higher as traders factor in the potential for tighter supply. That move in energy has revived concerns that a fresh jump in oil could contribute to a wave of global inflation, pressuring central banks to contemplate renewed interest rate hikes.
Brent crude futures, the global benchmark, briefly slipped below the $100 per barrel threshold after the announcement of the delay - a level it had not breached in weeks - but remains elevated compared with pre-conflict prices near $70 a barrel. At 04:34 ET, the May Brent contract was up 1.6% at $101.58 a barrel.
Gold steadies as markets reassess inflation and rates
Precious metals saw some stabilization in European trading as the retreat in oil prices allowed gold to pare earlier losses. The metal had come under pressure in recent sessions as rising energy costs fanned fears that inflation could remain persistently high, prompting markets to scale back expectations for monetary easing and to price in the prospect that central banks, including the Federal Reserve, will maintain higher interest rates for longer.
Higher policy rates typically weigh on gold since it is a non-yielding asset compared with interest-bearing instruments like government bonds. Spot gold was last reported down 0.1% at $4,403.98 an ounce by 04:52 ET.
Dollar holds gains amid mixed signals and renewed risk aversion
The U.S. dollar firmed as investors processed contrasting statements from U.S. and Iranian officials alongside the resumption of attacks. The mixed messaging and the renewal of fighting have supported the dollar’s safe-haven appeal.
After sliding to almost a two-week low following the president’s social media post on Monday, the dollar index - which measures the currency against a basket of international peers - was higher by 0.3% at 99.25 at 04:48 ET.
ING analysts summed up the caution in currency markets: "The dollar continues to be bounced around by the latest headlines on the war in the Middle East. Traders will be eager to hear, particularly from the Iranian side, whether there is any realistic chance of ceasefire negotiations getting started. Until then, any further rally in risk assets and sell-off in the dollar will prove limited."
Economic calendar: flash PMIs and weekly labor gauge in focus
Investors are preparing for a series of U.S. data releases that could give an early read on how the conflict is affecting business activity. The flash purchasing managers index (PMI) for March is due to be published and is expected to offer some of the first indicators of the conflict’s economic impact, according to analysts at Vital Knowledge.
Federal Reserve Chair Jerome Powell has cautioned that it is "too soon to know the scope and duration of the potential effects on the economy" from the hostilities but acknowledged that higher energy prices will push up overall inflation in the near term.
In addition to the flash PMIs, a weekly employment gauge compiled by payroll processor ADP is scheduled for release. A slowing U.S. labor market, together with the risk that Iran-related energy shocks may rekindle inflationary pressure, poses a key challenge for Fed policymakers attempting to fine-tune interest rate policy.
Across asset classes, the immediate outlook remains hostage to headlines from the region and forthcoming U.S. data. Traders and portfolio managers are positioning for possible volatility in energy markets, the dollar, and risk assets as they await clearer signals on whether the current uptick in violence will broaden or subside.