Nifty 50 and Sensex Join Global Markets Tumble Amid Middle East Geopolitical Uncertainty and Fed Rate Cut Speculation
Indian equity markets continued their decline for the sixth consecutive trading session on Friday amid unconfirmed reports of explosions in Iran, Iraq, and Syria. The reports emerged alongside expectations of potential retaliatory actions from Israel following attacks attributed to Iran over the previous weekend.
However, Iran has denied reports of a missile attack, and Israel has not confirmed launching airstrikes on Iran. Explosions were heard near Isfahan’s airport, not Tehran, with no confirmation of retaliation.
The escalating conflict in the Middle East contributed to a downturn in stocks, while safe-haven assets like Treasury bonds and the dollar experienced gains. Tensions between Israel and Iran have intensified, notably after Iran’s alleged launch of drones and missiles on April 13 in response to an attack attributed to Israel. This geopolitical uncertainty has kept global markets on edge.
Asian Markets React
Asian markets saw significant losses at Friday’s opening, with Japan’s Nikkei 225 declining by 3.3% and the broader Topix index falling by 2.78%. South Korea’s Kospi index dropped by 2.83%, and the Kosdaq index plummeted by 3.25%. Hong Kong’s Hang Seng index decreased by 1.49%, and mainland China’s CSI 300 index slipped by 0.68%.
Reflecting the downturn in Asian markets, India’s Nifty 50 opened 134 points lower at 21,861 points and hit an intraday low of 21,777.65 points, down 0.99%. The Sensex also plummeted by 0.92% to hit an intraday low of 71,816 points.
Among sectoral indices, the Nifty IT index slumped 1.74% due to weak earnings posted by Infosys.
Impact of Fed Comments
Additionally, the markets were impacted by diminishing expectations of a near-term rate cut by the U.S. Fed, as indicated by New York Fed President John Williams. Williams expressed that he does not perceive any “urgency” to reduce interest rates and emphasized that rate adjustments would be contingent upon economic conditions aligning with the Fed’s objectives.
US Fed chair Jerome Powell noted a lack of progress towards inflation goals and signaled a persistent tight policy until inflation trends closer to 2%.
Oil Prices Surge
Oil prices surged amid escalating tensions in the Middle East, with Brent crude futures up by 2.77% at $89.33 per barrel and WTI futures up by 2.23% at $84.87 per barrel. Analysts warned that crude oil prices could quickly rise to $100 per barrel if tensions escalate further.
Indian Rupee’s Decline
In today’s trading session, the Indian rupee fell to a new low of 83.83 against the US dollar driven by the strengthening US dollar index following an increase in US Treasury yields.
Safe-Haven Assets
Amid escalating geopolitical tensions, investors turned to safe-haven assets like gold, which rallied 0.9% on Thursday despite robust US economic data reducing immediate interest rate cut expectations.
Conclusion
The geopolitical tensions in the Middle East have significantly impacted global financial markets, causing a downturn in equities and a flight to safety toward assets like bonds, the dollar, and gold. The uncertainty surrounding the reported incidents and the potential for further escalation have heightened market volatility.
Investors are closely monitoring developments in the Middle East and the response from key players like Israel and Iran. Any confirmed escalation could lead to more pronounced market movements, particularly in oil prices and safe-haven assets.
Additionally, comments from US Federal Reserve officials indicating a tempered outlook on interest rate cuts based on economic data have influenced market sentiment, contributing to shifts in currency valuations and bond yields.
Also Read: The 2024 Iran-Israel conflict is impacting market sentiment: How should you adjust your strategy? Here are some key tips.
Overall, the combination of geopolitical tensions and central bank policy signals is shaping market dynamics, with investors navigating a complex landscape of risks and opportunities. The coming days will be crucial in determining how these factors continue to influence global financial markets and investor sentiment.
