Stocks tumble, safe havens gain as Middle East conflict flares
TOKYO/LONDON :Global stocks fell and the dollar rose on Thursday as investors, concerned over the United States' possible entry into the Israel-Iran air war, sought safe haven assets and ditched riskier ones.
President Donald Trump kept the world guessing about whether the United States would join Israel's bombardment of Iranian nuclear sites, telling reporters outside the White House on Thursday, "I may do it. I may not do it."
The Wall Street Journal reported that Trump had told senior aides he approved attack plans on Iran but was holding off on giving the final order to see if Tehran would abandon its nuclear programme.
In Europe, stocks fell for a third day, leaving the STOXX 600 down nearly 2.5 per cent on the week, set for its biggest week-on-week decline since the tariff-induced turmoil of April.
U.S. S&P 500 futures fell 0.6 per cent, although most U.S. markets - including Wall Street and the Treasury market - will be closed on Thursday for a public holiday.
"Market participants remain edgy and uncertain," said Kyle Rodda, senior financial markets analyst at Capital.com.
Speculation was rife "that the U.S. will intervene, something that would mark a material escalation and could invite direct retaliation against the U.S. by Iran," he said. "Such a scenario would raise the risk of a greater regional conflict, with implications for global energy supply and probably economic growth."
Much of the recent nervousness in markets has been centred around crude supply shocks from the Middle East, which has driven the price of crude oil up by 11 per cent in a week. Brent crude rose nearly 1 per cent to $77.40 a barrel, close to its highest since January.
Gold, which tends to struggle when the dollar gains, pared earlier losses to trade at $3,366 an ounce.
The dollar itself rose broadly, leaving the euro down 0.1 per cent at $1.1466 and the Australian and New Zealand dollars - both risk-linked currencies - down 0.7 per cent and 1 per cent, respectively.
CENTRAL BANK POLICY
Overnight, the Federal Reserve delivered some mixed signals to markets. Much to Trump's displeasure, policymakers held rates steady as expected and retained projections for two quarter-point rate cuts this year.
However, Fed Chair Jerome Powell struck a cautious note about further easing ahead, saying at his press conference later that he expects "meaningful" inflation ahead as a result of Trump's aggressive trade tariffs.
Strategists at MUFG said the Fed "is underestimating the weakness in the economy that was present before the tariff shock, specifically, almost ignoring the cracks that have been visible in the labor market for years."
"We maintain our view that the longer they wait to ease, the more they may need to do."
Markets will now look to a string of central bank policy decisions out of Europe for any possible catalysts.
The Swiss National Bank cut interest rates to zero, as expected, leaving the franc to drift as markets had priced in a roughly-20 per cent chance of a half-point cut.
"The SNB's main concern may not be avoiding the impression of being a currency manipulator – still it is politically wise not to appear too trigger-happy to go negative with the policy rate," Karsten Junius, chief economist at J Safran Sarasin, said.
The franc, which has been a major beneficiary of safe-haven buying this year, was last steady against both the dollar, at 0.819 francs, and the euro at 0.9395 francs.
The Bank of England is up next and is expected to keep UK rates unchanged. Data on Wednesday showed inflation cooled as expected last month, although food prices shot up and policymakers will be considering the potential impact from higher energy prices in light of the Israel-Iran war.
Sterling edged 0.1 per cent lower to $1.341.
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