Markets go into Monday with one word on their mind: risk. The US and Israel’s strikes on Iran began early on Saturday, but hints had already hit the markets on Friday with a negative impact on sterling.
The main risk is oil. If the oil price spikes it will bleed into higher transport costs, inflation and a general “don’t take chances” mood.
That “risk-off” attitude usually has a familiar shape. Investors trim exposure to the more growth-sensitive corners of markets, tuck into defensive assets, and get picky about where they park cash. The dollar often benefits from that dash for safety, while currencies like sterling can feel the pressure if markets decide it’s a day for umbrellas rather than sunglasses.
Oil is the obvious transmission mechanism. The Strait of Hormuz is the market’s choke-point worry, and even a partial disruption narrative can keep a war-premium in the price. That matters for currencies because higher energy costs can revive inflation just when central banks would rather talk about easing. It also changes who looks “lucky” and who looks “exposed” in the global economy.
Away from geopolitics, the calendar ramps up quickly. Monday brings manufacturing readings across the globe, starting with Europe this morning and America this afternoon. Tomorrow we have inflation readings continuing across the eurozone, after Friday saw mixed results (above expectations in Spain and France but below in Germany) but nothing to alarm the markets too much.
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