Premarket: Stocks dip, oil rallies as Middle East tensions keep investors on edge

Globe and Mail

5 hours ago

Stocks fell, while oil and gold rose on Tuesday, as fighting between Israel and Iran entered a fifth day, raising investor concerns over the risk of a broader regional conflict in a week packed with key central bank decisions.
U.S. President Donald Trump urged everyone to evacuate Tehran and cut short his visit to the Group of Seven summit in Canada, while a separate report said he had asked for the National Security Council to be prepared in the situation room.
S&P 500 futures initially dropped 0.7 per cent before paring some of those losses, while crude prices rose as much as 2.2 per cent to a high of US$74.85 a barrel, bringing gains in the last week to around 11 per cent.
Adding another layer of complexity for investors this week is a raft of central bank meetings, starting with the BOJ and including the Federal Reserve, Bank of England and Swiss National Bank.
'Investors are trying to take all this on board. It is very difficult at the moment, I think. And there's an understandable degree of nervousness. Should I really be holding on to these stocks now at these levels?' Chris Beauchamp, chief market analyst at IG, said.
'Once the central bank parade is out of the way, then we might get a better sense of where they view things.'
The heightened uncertainty kept investors flocking to traditional safe-haven assets, as a rise in U.S. Treasuries pushed yields lower across the curve, while gold prices edged up 0.3 per cent.
Stocks in Europe sagged, leaving the STOXX 600 down 0.7 per cent on the day and around its lowest in three weeks, while euro zone government bond yields held steady.
The major concern for investors with the conflict between Israel and Iran is the potential for it spill over into the broader Middle East, home to a large portion of the world's oil supply.
No disruptions to crude supply have been reported yet, although news of a collision between two ships in the Gulf of Oman sent another brief jolt through the oil market overnight.
The Bank of Japan, the first major central bank to decide on monetary policy this week, left short-term interest rates unchanged at 0.5 per cent as expected. The central bank said it would slow the pace at which it is unwinding its massive holdings of government bonds to avoid disrupting the market.
Weak demand for Japanese government bonds (JGBs) at recent auctions, along with concern about the country's finances, sent longer-dated borrowing costs spiralling to record highs last month.
The yen strengthened modestly, leaving the dollar down 0.1 per cent at 144.725, while yields on 10-year bonds rose 2.5 bps to 1.475 per cent, as the BOJ's outlook suggested there would be less support for shorter-dated paper.
'The slower pace of bond tapering was what the market had hoped for and it help prevent long-term interest rates from shooting up,' Saisuke Sakai, a senior economist at Mizuho Research and Technologies said.
Meanwhile, the Federal Reserve is expected to hold rates steady on Wednesday but the focus yet again will be on the path Fed Chair Jerome Powell charts for future rate cuts as policymakers try to navigate Trump's tariff policies and their global impact.
Traders are pricing in two cuts by the end of the year.
Investors also monitored developments on trade deals with Trump's early July deadline on tariffs fast approaching.
Tariff talks between Japan and the United States on the sidelines of the G7 summit fell short of a breakthrough, while a deal with Britain left unresolved the issue of steel and aluminium duties.
Gold, which has gained 30 per cent so far this year, was up another 0.1 per cent at US$3,385 an ounce.
Reuters