Oct

Iran-Israel Conflict Escalates, ADP Non-Farm Employment Change

02/10/2024 - 07:10 UTC

The US currency traded higher against most of its major peers on Tuesday, with the US dollar index up by 0.44% and recovering from multi-month lows. The move came amidst escalating tensions in the Middle East, where safe haven currencies such as the U.S. dollar, the yen and the swiss franc, tend to gain value. Iran's missile strikes on Israel, in response to Israeli operations against Hezbollah contributed to this market shift.

The missiles were fired in retaliation for Israel's campaign against Tehran's Hezbollah allies in Lebanon. In response, U.S. President Joe Biden directed the U.S. military to aid Israel's defense and shoot down missiles aimed at Israel, the White House National Security Council said.

Later today, some price action could be seen, when speeches from several U.S. Federal Reserve officials' are due. Their comments on the Fed's monetary policy stance will be closely analyzed to gauge whether the aggressive pace of interest rate cuts is likely to continue.

The market is currently expecting a 50-basis point rate cut by the Federal Reserve in November, with a 39.3% probability according to the CME's FedWatch tool. However, a smaller 25-basis point cut is considered as more likely, with odds standing at 60.7%.

Major U.S. indexes had a negative session on Tuesday, as markets tend to shift away from risky assets at times of geopolitical turmoil, with the US 500 down by 0.99% from record highs, the US 30 losing 0.63% and the US tech 100 down by a sharp 1.56% by the end of the session. Market participants will most likely be focusing on the situation in the Middle East, as Israel has vowed to retaliate against Iran's missile attack.

On the energy front, the two main crude oil benchmarks WTI and Brent surged by 3.65% and 3.42% respectively on Tuesday, due to concerns about disrupted supply following Iran's biggest ever military blow against Israel. The direct involvement of Iran, an OPEC member, raises the prospect of disruptions to oil supplies, ANZ as the country's oil output rose to a six-year high of 3.7 million barrels per day in August.

In addition to the ongoing tensions between Iran and Israel, investors anticipate market fluctuations due to several upcoming events. These include speeches by Federal Reserve members, the release of the Eurozone unemployment rate, the ADP Non-Farm Employment Report, and the EIA Crude Oil Inventory data.

EUR/USD

The EUR/USD pair declined by 0.65% on Tuesday, briefly finding support near the 1.1050 level.

In September, the European Harmonized Index of Consumer Prices (HICP) fell more than expected. Core HICP inflation slowed to 2.7% year-over-year, while headline inflation dropped to 1.8% on a monthly basis, down from 2.2% in August and below the anticipated 1.9%.

In September, the US ISM Manufacturing PMI remained unchanged at 47.2, missing forecasts for a slight rise to 47.5. The ISM Manufacturing Prices Paid index also signalled contraction, falling to 48.3 from 54.0. Meanwhile, JOLTS Job Openings for August rose sharply to 8.04 million, surpassing the revised 7.7 million figure from July.

Investor sentiment has shifted towards rising geopolitical risks in the Middle East, with reports of Iran launching missile strikes on Israel in response to recent Israeli actions in Lebanon.

Gold

Gold prices rallied almost 1% on Tuesday, driven by escalating tensions in the Middle East. Israel’s attacks on Hezbollah prompted a response from Iran, which launched nearly 200 missiles, providing strong support for the safe-haven metal.

Reports indicated that Iran launched 240-250 missiles toward Israel, while Israel’s air force continued targeting sites in Lebanon. US National Security Adviser Jake Sullivan warned of "severe consequences" in response to the attack, adding to the geopolitical risk that has buoyed gold.

WTI Oil

Oil prices surged more than 3% on Tuesday as Iran launched ballistic missiles at Israel, retaliating for Israel’s military campaign against Hezbollah in Lebanon. The escalating conflict in the region heightened concerns over potential disruptions to global oil supplies.

In the Red Sea, Iran-backed Houthi rebels from Yemen claimed responsibility for attacks on vessels near the port of Hodeidah. The Houthis, aligned with Iran, have been attacking international shipping since November in support of Palestinians in the Israel-Hamas conflict.

Before the missile strikes, oil prices had been trading near a two-week low due to expectations of increased supply and tepid demand. Libya’s potential output recovery and an upcoming OPEC+ meeting, where no policy changes are expected, also weighed on the market.

US 500

U.S. main indexes closed lower on Tuesday, as investors grew wary following Iran's missile attack on Israel. In response, U.S. President Joe Biden ordered the U.S. military to assist Israel’s defense and intercept any missiles targeting the country, according to the White House National Security Council.

Despite Tuesday's losses, the major U.S. indexes had posted strong gains in September and for the quarter.

Economic data released earlier showed U.S. job openings rebounded in August, while the Institute for Supply Management’s (ISM) manufacturing activity report came in at 47.2 for September, slightly below expectations of 47.5.

Investors were also on edge ahead of key U.S. labor data, including jobless claims on Thursday and the monthly payrolls report on Friday.

Iran-Israel Conflict Escalates, ADP Non-Farm Employment Change

EUR/USD

Gold

WTI Oil

US 500

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