The rising tensions between Israel and Iran create market uncertainty which drives up oil prices at a time when central banks must make multiple rate decisions this week.
The ongoing conflict between Israel and Iran reached its fifth day when U.S. President Donald Trump asked people to leave Tehran while he cut his G7 summit visit short. Defense officials in Israel predicted that Iran might experience a regime change similar to the removal of Saddam Hussein from power.
Markets responded swiftly. The price of U.S. crude oil increased by 2.3% to reach $73.39 per barrel and Brent oil prices rose 2.5% to $75.09 per barrel. The market demand for safe-haven assets caused both gold prices to rise and U.S. Treasury yields to decrease.
The Dow Jones index declined by 0.2% while the S&P 500 index dropped 0.26% and the Nasdaq index fell by 0.36%. The STOXX 600 index in Europe dropped almost 1% to reach its lowest point in three weeks.
The Federal Reserve along with the Bank of Japan and Bank of England and Swiss National Bank will announce their interest rate decisions during this time of market turmoil. The market remains volatile because investors seek monetary policy clarity while geopolitical risks continue to affect market stability.
Analysts point out that the VIX index shows lower levels than crisis points even though market volatility has increased due to the current unrest.
