On most global stock exchanges, stock prices fell last week as the crisis in the Middle East continues, causing investors to fear that elevated oil prices will spur inflation and slow global economic growth.
On Wall Street, the Dow Jones index fell 0.9 percent last week to 45,166 points, while the S&P 500 slid 2.1 percent to 6,368 points, and the Nasdaq dropped 3.2 percent to 20,948 points. These indices have sharply declined for the fifth consecutive week, with the Dow Jones and Nasdaq diving into correction territory, more than 10 percent below their record levels. European exchanges also traded uncertainly last week, but most of them did see slight gains. The London FTSE index strengthened by 0.5 percent to 9,967 points, while the Paris CAC rose 0.4 percent to 7,701 points. The Frankfurt DAX, on the other hand, weakened by 0.4 percent to 22,300 points.
This is a consequence of large fluctuations in oil prices at elevated levels as the crisis in the Middle East continues. U.S. President Donald Trump stated last week that Iran must agree to a deal to end the war or the attacks from the U.S. and Israel will be even harsher. The Iranians, however, have indicated that the U.S. proposal for a ceasefire is ‘one-sided and unfair’ and, with rare exceptions, still do not allow tankers to pass through the Strait of Hormuz, which supports oil prices at elevated levels.
Rising then Sharp Decline
As the situation is no clearer than before, stock indices rise significantly one day, thanks to investors’ hopes for a de-escalation of the conflict, only to sharply decline the next day.
– The market is experiencing ups and downs due to many contradictory signals. Additionally, it is unclear who Trump is negotiating with, so the market is uncertain – says Doug Beath, a strategist at Wells Fargo Investment Institute.
Investors are most concerned that elevated oil prices will trigger inflation, which central banks have already warned about. As a result, investors’ hopes that the U.S. Fed will lower interest rates this year have diminished.
No Rate Cuts
Before the U.S. and Israel’s attacks on Iran, investors expected that the Fed would cut rates twice this year by 0.25 percentage points each time, which was the main lever for rising stock prices. However, now there is no longer any expectation of a Fed rate cut this year.
In global markets, the dollar strengthened last week against a basket of currencies as the crisis in the Middle East supports oil prices at elevated levels, making it increasingly unlikely that the U.S. Fed will lower interest rates this year. The dollar index, which shows the value of the U.S. dollar against six major world currencies, rose 0.7 percent last week to 100.19 points, putting it on track for a gain of about 2.6 percent this month. Meanwhile, the dollar strengthened by 0.5 percent against the European currency, causing the euro exchange rate to slide to 1.1510 dollars. The U.S. currency also strengthened against the Japanese yen by 0.7 percent, reaching a price of 160.30 yen. Due to the conflict in the Middle East, investors are seeking safer havens for capital, which supports the strengthening of the dollar.
