The week-old air war between Israel and Iran has put financial markets on edge. President Donald Trump added to the uncertainty by saying outside the White House, “I may do it. I may not do it,” when asked about U.S. military involvement. According to The Wall Street Journal, Trump has approved plans to strike Iranian nuclear sites but has not yet given the final order. He is waiting to see if Iran will abandon its nuclear program.
In Europe, major stock indexes pointed to a lower opening, with Germany’s DAX futures down 0.3 percent during Asian trading hours. U.S. S&P 500 futures also slipped 0.1 percent. However, most U.S. markets were closed Thursday due to a national holiday.
“Market participants remain nervous and uncertain,” said Kyle Rodda, senior analyst at Capital.com. He added that speculation, possibly encouraged by the Trump administration, about U.S. intervention remains high. Such an intervention would significantly escalate the conflict and could provoke direct Iranian retaliation against the U.S. This could trigger a larger regional war, impacting global energy supplies and economic growth.
Much of the market anxiety stems from concerns over disruptions in crude oil supply from the Middle East. Brent crude prices eased slightly to $76.60 per barrel but stayed close to last Friday’s four-and-a-half-month high of $78.50.
Asian markets felt the impact, with Taiwan’s stock index falling 1.5 percent and Hong Kong’s Hang Seng dropping 2 percent.
Safe-haven assets gained ground, with gold prices rising 0.1 percent to $1,372.36 per ounce. The U.S. dollar strengthened against the euro, Australian dollar, and New Zealand dollar.
Overnight, the Federal Reserve sent mixed signals. It held interest rates steady, much to President Trump’s disappointment, and maintained projections for two rate cuts this year. However, Fed Chair Jerome Powell warned that inflation may rise significantly due to Trump’s aggressive trade tariffs.
MUFG strategists criticized the Fed for underestimating the economy’s weakness before the tariff impact, especially in the labor market. They said, “The longer the Fed delays easing, the more aggressive the cuts may need to be.”
Markets will now watch upcoming central bank decisions in Europe for new direction. In the UK, despite a report showing inflation cooling last month, the Bank of England is expected to hold rates steady while considering the possible energy price impact from the Middle East conflict. The British pound was stable at $1.34 ahead of the announcement.
Central banks in Switzerland and Norway are also expected to make policy decisions later in the day.
In Japan, longer-term government bond yields rose, while medium-term yields fell after Reuters reported that the government plans to reduce sales of super-long bonds by about 10 percent from previous plans.
