Anna Hartz
Inflation, interest rates, and the rise of artificial intelligence have driven markets around the world. But geopolitics can still change the mood of investors very quickly.
This week, the conflict involving Iran, the United States, and Israel reminded financial markets how fast uncertainty can spread.
Biggest weekly drop since Trump’s “Liberation Day”
European stock markets closed the week under pressure on Friday. It was the first full trading week since the outbreak of the new and most serious phase of the conflict between Iran, writes El Economista, the United States, and Israel. From the beginning of the week, investors reacted with caution. Major stock exchanges across Europe ended the week with losses of more than 6.5%. It was the biggest weekly drop since the shock markets experienced after Donald Trump announced his “Liberation Day” policies in April.
The situation has been even worse in Asia. Several major indices recorded sharp declines during the week. South Korea’s Kospi dropped more than 11% since Monday. Japan’s Nikkei and the Taiwan Stock Exchange both fell about 5%. The MSCI index, which tracks companies across the region, had its worst week since the start of the Covid-19 pandemic.
Rising oil prices have also increased tension in financial markets. Oil has climbed about 15% this week. That is its strongest weekly rise in four years. Higher energy prices often create worries about inflation and economic growth. Investors are also concerned about possible disruptions to oil shipments through the Strait of Hormuz.
Rising fear index
Market volatility has increased as a result. Stock markets have moved sharply up and down during the week as rumors of possible peace talks appeared and then faded. The VIX, often called the fear index, has risen steadily and is now close to its highest level in four months.
Analysts say the length of the conflict will be the key factor for markets. “What matters now is whether the war will last days, weeks, or longer,” said Marco Oviedo, senior strategist at XP Investments, in comments reported by Bloomberg.
So far, many investors still believe the conflict could be short. But tensions remain high. Iran launched a new wave of missile and drone attacks across the Gulf on Thursday night. Strikes were reported in the United Arab Emirates, Bahrain, Qatar, and Kuwait. Iran’s foreign minister Abbas Araghchi also said his country had not asked for a ceasefire and was not planning negotiations.
These developments have kept global markets on edge. Investors are watching the situation closely as the new trading week approaches.
