Markets are opening today under heavy pressure following a dramatic overnight escalation in the Middle East. The tone has shifted entirely from cautious optimism earlier in the week to heightened risk aversion, triggered by news of an Israeli military strike on Iranian territory. Prime Minister Netanyahu confirmed that the operation is ongoing, stating that it will continue “for as many days as it takes.” With that, market sentiment turned on a dime.
Thursday itself started as a textbook reaction to softer U.S. inflation data. The Producer Price Index (PPI) came in lower than expected, echoing the previous day’s softer CPI numbers. This reinforced the market’s belief that the Fed could pivot toward rate cuts later this year. Stocks rallied. Risk appetite was firm. Gold climbed. The dollar weakened. For most of Thursday, the mood was risk-on.
But the geopolitical headlines changed everything.
Overnight, as details of the Israeli strike surfaced, market participants scrambled to reprice risk. Safe haven flows intensified. The Japanese yen and Swiss franc strengthened notably. Gold spiked sharply, gaining over 2% within hours, as traders rushed for cover. Oil surged as well — Brent crude jumped past key resistance levels, putting in one of its strongest sessions in weeks.
Index futures, which had been trading higher through most of the U.S. session, reversed course. European indices are now pointing to a significantly lower open on Friday morning, following the sharp drop in U.S. futures overnight. Tech-heavy names and cyclical stocks appear particularly vulnerable in this climate of rising uncertainty.
Currency markets are mirroring the defensive tone. The U.S. dollar has clawed back recent losses, not on economic strength this time, but as a safe haven. Risk-sensitive currencies like the Australian dollar, New Zealand dollar, and British pound are all under pressure.
Commodities remain the big story. Gold is trading near multi-week highs and oil continues to build on its gains from earlier in the week, now up more than 10% in just five sessions. This geopolitical catalyst has reignited inflation concerns and brought fresh volatility to an already delicate macro landscape.
Looking ahead, the only key item on Friday’s economic calendar is the University of Michigan consumer sentiment data from the U.S. But realistically, it will likely be overshadowed by ongoing developments out of the Middle East.
Markets have clearly entered a new phase — driven less by data and more by headlines. As we head into the final trading day of the week, the central question for traders is not about inflation or rate cuts, but about how deep and prolonged this latest conflict might become.