The total threat temper leans extra defensively as we get into European buying and selling as we speak

The US-Iran conflict continues to drag on and at this stage, it looks like nothing will change for at least another week. After keeping somewhat steadier yesterday, markets are starting to run into a bit of nerves today as we see a more defensive risk posture take shape.

Oil prices are climbing back up with WTI crude now up near 2% on the day and touching the $100 mark once more. This comes as the bond market continues to signal inflation worries with 30-year Treasury yields clipping the 5% mark again. The latter traded down to around 4.91% at one point last week but have been rather sticky as concerns continue to mount on the global inflation picture.

Besides that, we’re starting to see US futures also feel exhausted with S&P 500 futures dropping back by 0.4% on the day. That comes as tech shares lead the drop now, with Nasdaq futures down 0.6% currently.

The signal from US futures is starting to reverberate more broadly and that’s prompting risk trades to step back ahead of European trading.

In the major currencies space, the dollar is leading gains across the board now as such. EUR/USD is down 0.3% to 1.1750 and GBP/USD down 0.4% to 1.3547 on the day. Meanwhile, AUD/USD is down 0.4% to 0.7215 and USD/JPY is up 0.2% to 157.45 after a brief drop to 156.75 earlier amid some volatile selling.

As for precious metals, we’re seeing gold down 0.8% to $4,696 and silver down 2.7% to $83.75 on the day.

All signs point to a more risk-off mood amid a lack of fresh progress or optimistic headlines from US-Iran developments. As things stand, traffic along the Strait of Hormuz remains at a standstill with no clear timeline on when things will improve.

Looking to the days ahead, US president Trump will be sidelined by his visit to China from tomorrow until Friday. So, that will keep markets on edge as the US-Iran conflict continues to rage on in the background.

That being said, I wouldn’t be surprised if Trump used the visit to tee up an opportunity to announce something like “China has agreed to help resolve situation with Iran.. BIG NEWS coming!!!”. It would be very on-brand of Trump to do so and try to gas up the stock market again, even if China didn’t quite give any confirmation.

If that were to happen, one can reasonably expect China to just say something along the lines of “we agreed to try and step up mediation efforts to the Middle East situation”. Yet, we will see Trump make a big deal out of it and markets will once again turn in hopes of something better to come.