The latest military developments between the US and Iran in the Middle East caused fluctuations in global energy markets and reignited US inflation concerns. US Central Command (CENTCOM) announced it struck military coastal surveillance and air defense facilities, naval forces, and missile and unmanned aerial vehicle storage areas in Iran. Iran, meanwhile, stated that the US targeted the under-construction Darhovin Nuclear Power Plant, describing the attack as a "dangerous attempt."
The Strait of Hormuz, a critical oil transit point, remaining under threat of war triggered a sharp rise in oil prices. Brent crude rose to $88.9 per barrel, its highest since June 12. The decline in tanker traffic through the strait and reports of attacks on oil vessels fueled global supply concerns.
Impact on US Monetary Policy
The rise in oil prices brought the Federal Reserve's (Fed) inflation-fighting policy back to the forefront. In money markets, expectations that the Fed will raise the policy rate by 25 basis points in September are priced at 70 percent, while the bank is forecast to deliver two rate hikes over the next 12 months. Cleveland Fed President Beth Hammack said, "Inflation is too high. The labor market, for me, is very close to maximum employment."
The US 10-year Treasury yield stood at 4.55 percent, while the dollar index edged down 0.1 percent to 100.7. Gold prices fell 0.2 percent to $4,010 per ounce. Claims that US President Donald Trump sent a message to mediator countries to be prepared for an escalation if a ceasefire with Iran cannot be reached also heightened geopolitical risk perception in markets.
Developments in European and Asian Markets
In Europe, index futures started the week on a mixed note. While UK Prime Minister Andy Burnham is expected to make his first speech today, the European Central Bank (ECB) is forecast to keep rates unchanged at this week's meeting and to raise interest rates at its September meeting.
In Asian markets, Chinese and Hong Kong stocks traded higher, while South Korea's Kospi index turned negative due to declines in technology shares. SK Hynix fell 2.3%, Samsung Electronics dropped 4%, LG Electronics lost 4.9%, and Hanmi Semicon plunged 8.7%. China kept its loan prime rates unchanged, with the one-year rate at 3% and the five-year rate at 3.5%. Near the close, South Korea's Kospi was down 2.8%, while the Shanghai Composite rose 1.2% and the Hang Seng index gained 2.2%.
Domestic Markets and Data Calendar
In Borsa Istanbul, the BIST 100 index closed Friday down 1.90% at 13,981.05 points. The US dollar/Turkish lira traded at 47.1750. Fitch Ratings affirmed Turkey's credit rating at 'BB-' with a 'stable' outlook. Analysts said that today's TCMB market participants survey, international investment position, and foreign PPI; and abroad, Germany's PPI and US leading index will be followed. In the BIST 100, 13,900 and 13,800 points are seen as support, and 14,100 and 14,200 points as resistance.
