The conflicts in the middle east took a turn for the worse over the weekend as Iran launched an attack against Israel. Of course there has been some turmoil in the region ever since the October 7th attack on Israel committed by Hamas. Howe er, these latest actions have been seen as a significant escalation and has many worried that this will drag into a larger conflict. There is worry that allied countries may be pulled into the current conflict if deescalation measures are not taken.
Given the fact that most financial markets are closed on the weekend it can be tough to get a gauge on how investors may react. Many traditional investors will look to futures markets to get a feel for whether or not the news will be absorbed well, or if selloffs should be expected.
Crypto Market’s Initial Reaction Is Bearish
Of course, the cryptocurrency market operates 24/7 365, which means it too can be used to judge investors initial reactions. The crypto market’s initial reaction was a significant dip in prices almost immediately. Bitcoin (BTC) had been experiencing a month-long pullback that appeared to be ending. However, prices went south one more time, and at its low point on Saturday BTC dipped by as much as 10% in a 24 hour period.
By no means is that a massive dip, especially in crypto standards, however it should worry traditional markets. The initial reaction seems to show that investors are very cautious and worried at the moment. It will be vital to keep an eye on “riskier” assets on Monday. Should we see a significant pullback in risk assets and tech stocks there may be cause for concern.
Signs Of Conflict Can Be Seen In Financial Markets
Monday’s action will go a long way towards giving signs of whether or not this may have lasting effects on the market. Should commodities prices rise, that could be seen as a sign that inventors expect prolonged conflict and trouble in trade and markets.
Geopolitical tensions, especially in regions prone to conflict like the Middle East, often trigger speculation in financial markets. Investors closely monitor such events, as they can have significant implications for various asset classes. In times of heightened geopolitical risk, investors tend to flock to safe-haven assets such as gold, government bonds, and the Japanese yen, seeking protection from uncertainty. There’s an argument to be made that recently investors have been using Bitcoin as a safe haven asset in times of crisis as well. Conversely, risk assets like stocks and high-yield currencies may experience selling pressure as investors adopt a more risk-averse stance.
Commodities, particularly oil, are also closely watched during geopolitical tensions, especially when they involve major oil-producing regions. Conflicts in the Middle East, for example, can disrupt oil supplies, leading to spikes in crude oil prices. Additionally, geopolitical tensions can impact supply chains and trade routes, affecting the prices of other commodities such as metals and agricultural products.
Financial markets often react swiftly to geopolitical developments, with sharp movements in asset prices reflecting investor sentiment. Signs of escalating tensions, such as military mobilizations, diplomatic breakdowns, or hostile rhetoric, can trigger market volatility even before any actual conflict occurs. Moreover, geopolitical risks can influence central bank policies, with some institutions opting for more dovish monetary stances to cushion their economies from potential shocks.
Monday’s price action will be critical in gauging investor’s worry and medium term outlook.
Overall, monitoring financial markets can provide valuable insights into investor sentiment and expectations regarding geopolitical tensions. If crypto has given us any signs it is that we may be entering a pause of sorts. The crypto market now has a neutral short to medium term outlook. After months of bullish price action, expect a bit of a pause in action over the next few weeks, perhaps the next couple of months.
