European stock markets are poised to follow Asia's downturn on Monday, influenced by the weekend's news highlighting growing tensions in the Middle East and the potential for an expanded regional conflict.
The shift towards safer investments was sparked by last week's discussions of an Iranian attack on Israel. Following an assault involving around 300 drones and missiles, attention has now shifted to Israel's potential response.
Despite the geopolitical tensions, gold and the U.S. dollar remained strong, while the yen, traditionally a safe-haven currency, dropped to its lowest in three decades. This suggests that while the situation in the Middle East is considered a risk, the primary focus for market participants continues to be on interest rates.
In an effort to limit the escalation, U.S. President Joe Biden assured Israeli Prime Minister Benjamin Netanyahu that the U.S. would not engage in a counter-offensive against Iran.
Meanwhile, the Cboe Volatility Index (VIX), often referred to as Wall Street's fear gauge, is near its highest in five months, indicating heightened market anxiety.
Oil prices in Asia saw a decline, with analysts attributing the drop to the anticipation of Iran's threatened retaliation already being factored into last week's prices, and the market's wait-and-see approach to the actual unfolding of events.
Brent crude hovered around $90 a barrel after reaching a six-month peak on Friday, marking a 17% increase for the year. Similarly, U.S. crude futures have seen a 19% rise year-to-date. Any further surge towards $100 a barrel would pose additional challenges for central banks already grappling with rising consumer prices, especially in light of the recent U.S. consumer price report which exceeded expectations.
Today, the market's attention will turn to the U.S. retail sales data for the previous month, providing insights into consumer strength. Additionally, remarks from Federal Reserve Chair Jerome Powell on Tuesday are highly anticipated, given the consistent overshooting of U.S. inflation forecasts over the past three months.
While geopolitical developments are expected to influence market sentiment this week, economic events, including China's first-quarter economic growth figures and British consumer prices, will also be closely watched. The U.S. earnings season, which began on a subdued note with disappointing reports from JPMorgan Chase & Co, Wells Fargo, and Citigroup, will continue to be a point of interest for investors.
Key market-influencing events to watch on Monday include Euro zone industrial production for February, U.S. retail sales for March, earnings from Goldman Sachs and Charles Schwab, and speeches by Fed's Mary Daly and Lorie Logan.
