Fundamental Analysis

Geopolitical Unrest Weighs on Stocks, Oil Soars

April 12, 2018
US Equities
Wall Street weakened on Wednesday as geopolitical unrest is on the rise. President Donald Trump tweeted yesterday about a possible missile attack on Syria, challenging Russia. Major US indices dropped on woes pricing in the developments in this matter. Also, stocks were affected by the FOMC meeting minutes where all members agreed that gradual interest rate hikes are appropriate, but confirmed that the household spending is slowing down. Majority of the members confirmed that the rising trade war concerns will establish downside risks for the US economy.

The dollar index, DXY, dropped for the fourth consecutive day but, slightly, relative to the previous days. FOMC minutes of the March 20-21 meeting confirmed the tightening stance of the Fed reserve, and expected inflation to rise Year on Year and stay at the price target of the Fed. But some members hinted that inflation alone should not be the only factor for deciding on interest rate hikes. In terms of data, the US economic calendar is shy today with only Jobless claims awaited. Any statements from the white house regarding trade war or geopolitical concerns will be a reason for volatile markets.

EUR/USD traded at the highest in two weeks, on positive comments from European Central Bank president, Mario Draghi. He confirmed his confidence that inflation will rise to the price target of the ECB. Moreover, he urged the Eurozone for more integration in order to face all economic headwinds such as trade spat.

The British pound tackled the highs posted since Brexit vote, despite soft manufacturing output data. The mounting expectations of an interest rate hike next month and the positivity from the transition deal are boosting demand for the cable.

Gold prices rallied to threaten the highs of 2018, as geopolitical unrest developed. Gold traded at $1365 as traders favored gold due to the current situations. The rise in gold prices was offset by the hawkish tone of the FOMC minutes that confirmed more interest rate hikes. Gold backed off the highs to trade steady near $1350 level.

Oil prices climbed to fresh highs, boosted by the rising tension in the Middle East crisis despite the growth in US supplies. Both WTI and Brent traded at the highest levels since late 2014, after missile interception in Saudi Arabia and the warning of a military action in Syria by Trump. A report from the Energy Information Administration showed yesterday that the US crude oil inventories rose by 3.3 million barrels to 428.64 million barrels. United States now comes in second, behind Russia and ahead of the Kingdom of Saudi Arabia, in crude oil production.
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