Global Markets React to Iran-US Tensions as Wall Street Earnings Season Begins
The global financial markets opened this week amid escalating military tensions between Iran and the United States, coinciding with the start of the second-quarter earnings season on Wall Street. Over the weekend, the US military launched extensive airstrikes against 140 Iranian targets in response to an Islamic Revolutionary Guard Corps attack on a commercial container ship in the Strait of Hormuz. Iran retaliated by striking US military facilities in the Middle East and announced the closure of the Strait of Hormuz, though US officials and maritime intelligence confirmed the strait remains open but warned of heightened security risks. This conflict threatens the temporary peace agreement signed on June 17 and raises concerns over global supply disruptions, pushing oil prices up over 4% and triggering sharp declines in Asian stock markets, notably an 8.2% plunge in South Korea's Kospi index.
In Israel, the Tel Aviv Stock Exchange ended the week sharply lower, with major indices entering correction territory after falling more than 10% from recent highs. Despite short-term negative sentiment, the TA-35 and TA-125 indices maintain positive annual returns of approximately 11.6% and 9.4%, respectively. Sector-wise, cleantech, construction, and defense stocks suffered significant losses, while banks showed resilience, gaining 2.7% amid supportive interest rate conditions. Meanwhile, US futures indicate a red opening, with Nasdaq futures down 1.3%, reflecting ongoing geopolitical concerns.
The US bond market saw broad yield increases, with the 10-year Treasury yield rising to 4.58% and expectations growing for a Federal Reserve rate hike to 4% by September. In Israel, government bond yields showed mixed movements, with short-term yields rising and long-term yields stable or slightly declining. Economists warn that despite anticipated rate cuts by the Bank of Israel later this year, the potential for yield declines is limited due to global trends and currency fluctuations.
Currency markets saw the Israeli shekel weaken against the US dollar, trading above 3.02 shekels per dollar amid geopolitical tensions and expectations of further rate cuts by the Bank of Israel. Energy prices surged, with Brent crude rising over 4.2% to $79.25 per barrel and US WTI crude up 4.3% to $74.51, driven by supply concerns linked to the Middle East conflict. Natural gas prices in Europe also jumped over 6% weekly. Conversely, gold prices fell about 1%, pressured by fears of sustained high interest rates due to inflation risks from rising energy costs.
Market participants are closely watching upcoming consumer price index releases in Israel and the US, expected this week, which will influence inflation outlooks and monetary policy decisions. Analysts highlight the shekel's exchange rate as a key risk factor for Israeli inflation.
The US earnings season is entering a critical phase with about 28 S&P 500 companies reporting this week, including major banks and technology firms. Analysts note an unusual trend of rising earnings estimates ahead of reports, driven by strong performance in energy and technology sectors, particularly AI-related companies like Nvidia and Micron. Investors will focus on growth forecasts and the impact of AI investments, with cautious attention to geopolitical risks that could disrupt the current market rally. Key reports include those from Goldman Sachs, Morgan Stanley, Bank of America, JPMorgan Chase, Johnson & Johnson, UnitedHealth, and Netflix, the latter facing concerns over subscriber growth amid recent price hikes.
