Market developments
Equities:
Heightened geopolitical risks, particularly between Israel and Iran, caused stocks to decline while safe-haven assets like bonds and the dollar surged. Equities fell sharply, with the S&P 500 with one of its worst days since January and down ~1.5% for the week. Earnings season kicked off and major banks’ results reflected the impact of persistent inflation on their earnings. While some banks missed estimates due to increasing funding costs, others benefited from corporations tapping markets for financing and consumers leaning on credit cards.
Fixed income:
Amid expectations of interest rate cuts, there were contrasting views on the Fed’s likely actions. Some expected rate cuts, while others warned of potential rate hikes if U.S. inflation rises further. The higher-than-expected inflation data caused treasury yields to climb, driving North American bond prices lower for the week.
Commodities:
Escalating tensions spurred bullish activity in the oil options market, with elevated buying of call options as implied volatility climbed. Gold prices rose this week as investors viewed it as a better hedge against geopolitical risk than government bonds, amid concerns about U.S. inflation.