Early Monday trading saw US stock futures fluctuating as investors prepared for another potentially volatile session. The market instability comes as the Middle East conflict enters its fourth week with no signs of de-escalation. S&P 500 futures were nearly flat after earlier declines, while futures contracts indicated Asian markets would follow Friday's downturn on Wall Street.
Australia's 10-year government bonds extended their decline, with benchmark yields rising 13 basis points. The US dollar edged higher against most major currencies, while risk-sensitive currencies like the Australian dollar and Mexican peso led losses. Brent crude fell over 1%, trading around $110 per barrel. In other commodities, gold prices rose after their worst weekly decline in over 40 years, while silver jumped more than 2% in early Monday trading.
The market tension follows President Trump's Saturday night ultimatum giving Iran 48 hours to reopen the Strait of Hormuz or face attacks on its power plants. The deadline expires Monday evening New York time. Iran responded that any such attack would prompt it to indefinitely close the vital waterway and strike US and Israeli energy infrastructure in the region, signaling risks of escalation from both sides.
"Whether to extricate from this war isn't solely Trump's decision," said Matt Maley, chief market strategist at Miller Tabak. "Uncertainty had been rising for three weeks and has now jumped significantly. Even if people aren't selling, they're not buying either - and without buyers, a vacuum forms."
Global markets have been reeling from the Middle East conflict, with both stocks and bonds facing selloffs last week. The dual threats of rising inflation and potential growth weakness drove the S&P 500 down 1.5% on Friday, marking its fourth consecutive weekly decline - the longest losing streak in a year.
US Treasury yields climbed to multi-month highs after a third straight weekly decline, with short-term bonds leading the drop. The two-year yield rose 18 basis points last week to 3.90%, while the benchmark 10-year Treasury yield surged 13 basis points to 4.38%, its highest level since late July.
European bond markets also saw selling pressure as investors bet on rising interest rates. The US stock selloff intensified Friday as traders began pricing in potential Fed rate hikes this year amid concerns that oil prices could trigger new inflationary shocks. Markets also anticipate similar moves from the Bank of Japan, European Central Bank, and Bank of England, despite the war simultaneously weakening global growth prospects.
After Friday's market close, Trump suggested on social media that he was considering scaling back military operations in Iran, claiming the US was "very close" to achieving its objectives. However, his subsequent threat to bomb power plants - and Iran's vow of retaliation - indicated little progress toward ceasefire.
The Strait of Hormuz normally handles about one-fifth of global oil and liquefied natural gas shipments. The standoff over the strategic waterway has deepened a supply crisis that has already affected gasoline prices, fertilizer costs, and food production. Shipping through the strait has effectively been halted since the conflict began in late February.
"The dramatic escalation in rhetoric suggests we could see further risk-off moves at the open," wrote ANZ Group strategists in a client note, "as the prospect of prolonged disruption to global energy supplies becomes increasingly difficult to ignore."
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