Futures linked to Canada’s main equity benchmark ticked down on Tuesday while crude oil resumed its ascent, as market participants reassessed the outlook for the Iran conflict in light of fresh strikes across the Middle East.
By 08:13 ET (12:13 GMT), the S&P/TSX 60 index standard futures contract had eased by 8 points, or 0.4%. The pullback followed a sizeable Monday rally, when hopes for a near-term reduction in hostilities had underpinned the strongest one-day gain for the Canadian benchmark in five weeks.
On Monday, the broader S&P/TSX composite had climbed 1.8% to 31,883.81, marking its largest advance since February 13 and recovering from a three-month closing low recorded on the prior Friday. Despite that rebound, index futures moved to the downside again as news of new strikes reverberated through energy and risk-sensitive markets.
U.S. futures also softer
Across the border, futures for major U.S. stock benchmarks were trading lower. At 08:25 ET, Dow futures were down 118 points, or 0.3%; S&P 500 futures had dipped 16 points, or 0.2%; and Nasdaq 100 futures were lower by 47 points, or 0.2%.
Equities had firmed in the prior session after President Donald Trump announced a temporary postponement of planned U.S. strikes on Iranian power facilities, a move he framed as the result of “very strong” conversations. That development had bolstered risk appetite briefly, but commentary from Iranian officials pushing back on the president’s statement helped temper optimism.
The speaker of Iran’s parliament rejected the U.S. claim and accused the president of using the announcement to calm volatile financial markets. The exchange underscored how market sentiment is swinging between fragile optimism and the potential for renewed escalation.
“Markets are walking a tightrope between fragile optimism and escalating geopolitical risks. The Middle East remains the dominant driver, with oil prices highly sensitive to any supply disruption. As tensions persist, volatility is likely to stay elevated, keeping investors cautious,” Lukman Otunuga, Senior Market Analyst at FXTM, said.
Analysts at Vital Knowledge added that while many investors remain skeptical the war will end soon, the rally in the benchmark S&P 500 may still have “further to run.”
Oil climbs again as strikes widen
Energy markets tightened further on Tuesday as Brent crude futures for May delivery rose 2.9% to $102.87 a barrel. Since the conflict began in late February, oil prices have been a central focus for traders and policymakers, given the potential for supply disruptions tied to the region.
Authorities in Israel said that a barrage of missiles from Iran struck Tel Aviv and other parts of the country, according to reporting. At the same time, accounts indicate Kuwait and Saudi Arabia have been targeted by drone and missile strikes, while Israel reported strikes on targets linked to Iran-backed Hezbollah in Lebanon.
Perhaps most consequential for global energy flows, the Strait of Hormuz - the narrow waterway south of Iran through which about one-fifth of the world’s oil transits - has been all but closed to tanker traffic. The effective shutdown of that passage has emerged as a critical flashpoint in the joint U.S.-Israeli campaign against Iran, constricting shipments to major energy importers, particularly in Asia.
Reporting also suggests both Saudi Arabia and the United Arab Emirates are edging closer to deeper involvement in the conflict. Sources cited in those accounts said Saudi Arabia has permitted U.S. forces to use an air base on the western side of the Arabian Peninsula, and that Crown Prince Mohammed bin Salman is close to deciding to join in the attacks. The UAE has reportedly begun cracking down on Iranian-owned assets.
Gold drifts lower as rate expectations firm
Gold sold off in European trade, reversing some of the metal’s prior-session gains. Spot gold was last quoted down 0.8% at $4,369.58 an ounce by 08:39 ET. The precious metal has been under sustained pressure as the surge in energy prices linked to the Iran conflict has lifted prospects for persistent inflation, prompting markets to scale back bets on imminent monetary easing.
Higher interest rates reduce the opportunity cost of holding non-yielding assets such as gold relative to fixed-income instruments, and growing expectations that central banks - including the Federal Reserve - will keep policy rates higher for longer have weighed on the bullion market.
Economic data to watch
Traders will be watching the U.S. flash purchasing managers index readings for March, which offer an early snapshot of business activity and may provide clues about how the conflict is filtering into the economy. Analysts at Vital Knowledge noted the initial PMIs could be among the first tangible indicators of the conflict’s economic impact.
Last week, Federal Reserve Chair Jerome Powell cautioned that it is “too soon to know the scope and duration of the potential effects on the economy” from the Iran war, while also warning that higher energy costs are likely to push overall inflation higher in the near term.
With oil once again above $100 a barrel and geopolitical uncertainty elevated, markets appear set for continued volatility. Investors and portfolio managers will be weighing the trade-off between recent risk-on moves and the potential for renewed escalation to produce further price swings in energy and equity markets.