This Week
The major focus of the markets which is expected to continue to dominate market sentiment is the US Iran war, which shows no signs of slowing. Signs of a deepening or longer lasting war is likely to cause significant volatility. However, the major economic event will be Wednesday’s year on year US CPI Inflation figure (2.4% exp), which will provide cues on when further Fed rate cuts may be considered.
Stocks
CHEVRON
Chevron’s stock price rose 0.8%, with the stock hitting an all-time high on Friday as rising geopolitical risks and surging oil prices benefitted the energy company. As oil prices rise the value of Chevron’s oil increases, lifting expected future revenue. The disruption to shipping routes has tightened global supply and investment banks expect oil companies like Chevron to profit. Bank of America thus raised its price target on Chevron, further boosting its stock price The bank outlined that the company is well placed if global oil prices continue to rise.
DELTA AIR LINES
Delta Air Lines stock price sank 5.4%, with the air company falling to its lowest level since November. The move reflected the decline in airline stocks which have been hit hard by rising oil prices since jet fuel prices typically rise in response to high oil prices. For Delta this means higher operating costs and therefore higher ticket prices for customers amid a likely decline in profit margins. Flight disruptions in the Middle East due to potential drone strikes have also negatively impacted the sector, driving travel stocks lower, creating uncertainty and discouraging travelers.
Commodities
Crude Oil
Crude oil prices soared 26.94%, recording their best weekly performance since records began and reaching their highest level since September 2023. Oil skyrocketed after the US Iran war intensified and following the closure of a vital shipping lane, the Strait of Hormuz. Some 20% of global oil trade is carried through this area and some vessels have been hit by Iranian drones. Saudi Arabia’s largest oil refinery was struck and closed, while other Gulf producers such as UAE have said they may cut production due to storage limits.
Gold
Gold prices slumped 3.9% despite rising geopolitical tensions in the Middle East, with the conflict now described by the US administration as potentially lasting months, rather than days or weeks. The precious metal sank after traders moved to the dollar as its safe haven instrument of choice. A strong greenback made gold more expensive for gold for foreign currency traders, driving it lower. Inflation risks from higher oil prices also lifted bond yields, making non yielding gold less attractive.
NATURAL GAS
Natural Gas prices jumped 10.84% to a three week peak after gas exports from the Persian Gulf were blocked by the Strait of Hormuz closure. Around 20% of global Liquefied Natural Gas is transported through the strait with much coming from Qatar, the largest LNG exporter in the world. The disruption is causing shortages in the global market as freight costs rise, creating fears of a potential global energy crunch, driving prices higher.
USD/CAD
The USD/CAD fell 0.76% despite high demand for the US dollar for most of the week as investors piled into the US safe haven asset during geopolitical turmoil. Traders also assumed that the US economy might be less damaged by a global energy shock since the US is a major oil and gas producer. However, the commodity linked Loonie surged late in the week when oil prices rose even more sharply, due to Canada’s status as a major oil exporter.
Recap
Last week the S&P 500 dropped 2.0%, the Nasdaq lost 1.20% and the Dow Jones fell 3%.
US stock indices fell sharply as traders fretted about the potential negative economic impact of a long lasting and escalating Middle East conflict. Below expectations NFP data (-92k vs 50k expected) on Friday added to the uncertainty.
Crude oil prices surged to their largest weekly gain on record as traders began to panic about supply constraints due to the conflict in the Middle East and the closure of the Strait of Hormuz. Natural gas prices also jumped to their highest level since December. Gold and silver prices declined, pressured by a stronger dollar. Palladium and platinum prices fell after China revised its longer term economic growth target lower, alongside worries over geopolitical tensions.