Oil Rallies, Stocks Retreat as Iran Conflict Escalates

Geopolitical risk and volatility increased over the weekend after the US and Israel launched air strikes against Iran, which retaliated against several countries. Reports also indicated internal unrest following the loss of several of its former leaders. Amid a growing risk of oil supply disruptions, OPEC+ announced a 206K bbl/d production increase starting in April.

The price of oil is rallying sharply today, with US Crude up 8.7% and trading above $72.50/bbl, and Brent Crude up 9.1%, trading just below $80.00/bbl. Following an initial gap higher when futures reopened last night, prices have been relatively steady overnight. Natural Gas is up 6.2%.

Action in metals is mixed. Benefiting from capital seeking defensive havens, Gold and Silver are up 3.1% and 2.4% respectively. In contrast, Platinum is essentially flat and Copper is down 0.5%, which may suggest concerns that the conflict could disrupt the global economy. The US Dollar is surging, with gains of 0.8% to 0.9% against the Yen and the Euro. The Loonie is holding relatively steady, down 0.1%.

Equity markets around the world are under pressure this morning. US index futures are down 1.0% to 1.4%. Overseas, the DAX is down 2.4%, the FTSE is down 1.3%, the Nikkei fell 1.4%, and the Hang Seng declined 2.1%.

Although geopolitical developments are dominating headlines, several economic reports are scheduled this week. Today is highlighted by Manufacturing PMI data, followed by Services PMI reports on Wednesday. ADP payrolls are also due Wednesday, with Nonfarm Payrolls scheduled for Friday. There are no major central bank meetings this week.

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