Global Markets Brace for US-Iran Tensions, Fed Decision

Global stock markets opened the new trading week with mixed sentiment, as escalating tensions between the United States and Iran remained a primary focus. US Energy Secretary Chris Wright indicated that a nuclear deal with Iran might not be reached, with military action being a potential alternative. Asian markets showed a mixed performance, with Japan's Nikkei up approximately 2% and South Korea's Kospi surging around 4%, while Hong Kong and Shanghai saw slight declines. In Tel Aviv, dual-listed stocks were expected to open with a positive arbitrage gap of about 0.4%, led by chipmakers like Tower Semiconductor, Nova, and Camtek, while Nice was anticipated to weaken. The Israeli stock exchange had closed the previous week on a strong note, boosted by a Bank of Israel interest rate cut, with the TA-35 index rising 2.2%, TA-90 jumping 5.5%, and TA-125 advancing 2.9%. The construction and real estate sectors led the gains, while the insurance index continued its upward trend for a third consecutive week.

US markets are observing a shortened trading week due to the Labor Day holiday, with Wall Street returning on Tuesday. Last week, US markets closed with modest gains, the S&P 500 up 0.1%, Nasdaq 0.4%, and Dow Jones down 0.3%. Market sentiment was influenced by shifting expectations regarding the Federal Reserve's upcoming interest rate decision on September 16th. A statement from Fed Governor Christopher Waller favoring no rate hike initially boosted indices, but a strong August jobs report later caused a pullback, increasing market expectations for a rate hike to around 60%.

Bond markets saw US Treasury yields rise following the robust jobs report, with the two-year yield climbing above 4.379% and the ten-year yield nearing 4.784%. Analysts expressed concern over the disconnect between rising bond yields and the stock market's resilience, suggesting that higher yields are drawing capital away from equities. Structural factors like sticky inflation, significant government debt issuance, and investor demand for higher risk premiums are cited as drivers for the yield increase. Concerns were also raised that a sustained rise in yields could pressure stock multiples and the housing market.

The Israeli Shekel weakened by 0.45% against the dollar last week, trading around 3.01 NIS, influenced more by institutional investor flows into foreign equities than by interest rate differentials. In commodity markets, oil prices surged over 1% following a US attack on Iranian oil tankers, with Brent crude trading near $97 per barrel and WTI around $92. Gold prices declined due to increased expectations of interest rate hikes and a stronger dollar.

Looking ahead, the August Consumer Price Index (CPI) report will be a key factor before the Fed's rate decision. Economists anticipate a 0.4% rise, maintaining an annual inflation rate of 3.4%. The surprisingly strong August jobs report, which added 162,000 jobs against expectations of 53,000, has strengthened the Fed's focus on curbing inflation. President Trump commented on the jobs report, reiterating calls for the Fed to lower interest rates, though markets largely dismissed his remarks as rhetoric.

Poland's stock market is being highlighted as an attractive investment opportunity following its reclassification as a developed economy by S&P Dow Jones Indices. This upgrade is expected to attract significant investor capital, with Polish stocks potentially being included in more popular ETFs. Despite strong past performance, Polish stocks are trading at a considerable discount compared to the S&P 500. Specific attention is drawn to Poland's video game industry, particularly CD Projekt Red, and the Warsaw Stock Exchange itself.