The markets opened the week reacting to interest rate hike possibilities in the US following Federal Reserve (Fed) Chair Kevin Warsh's address at the Jackson Hole Economic Symposium on Friday as well as the first known US military strike against Iran since late July.
"In a statement that resonated with unease, Warsh warned that inflation has not begun to meaningfully slow down and indicated that the Fed still has considerable work ahead. His comments sent pre-existing worries about rising interest rates into overdrive, lifting the odds of a rate hike in September to about 50/50," Bianca Botes, Managing Director at Citadel Global said.
The US on Sunday said it struck two Iranian launchers on Iran's Larak Island, while Tehran responded with an assault on two US bases in Jordan, while the army said it struck the UAE's Al Minhad air base early on Monday.
The UAE's defence ministry said that its air force engaged a drone over its territorial waters that had come from Iran.
US President Donald Trump took to social media on Sunday posting that the Iranian energy hub Kharg Island was being attacked. In response, an Iranian official dismissed Trump's post as "laughable" and said conditions Kharg Island were "calm"
Kharg handled 90% of Iran's oil exports before the war launched by US and Israeli attacks on February 28, and attacking it would severely disrupt energy trade and put huge pressure on the economy.
The NASDAQ Composite emerged as the most affected, closing the day down 0.70%.
Tech stocks, notoriously sensitive to interest rate fluctuations, were particularly hard hit as investors recalibrated their expectations. The S&P 500 followed suit, relinquishing 0.25%, while the Dow Jones Industrial Average held mostly steady with a mere decline of 0.02%.
"Meanwhile, the broader geopolitical landscape has added a layer of complexity to market sentiment. Brent crude prices have surged back above $90 per barrel, soaring by 4.7%, following military actions in the Strait of Hormuz," Botes added.
On Monday, the Brent Crude was at $90.73 per barrel.
Gold, on the other hand, saw a decline of 0.7%, settling at $4,424 per ounce, reflective of the strengthened US dollar in the wake of Warsh's remarks.
The renewed confidence in the dollar has weighed heavily on the South African rand, which traded at R16.18 against the dollar, R18.75 to the euro, and R21.91 to the British pound on Monday.
"The currency’s slip can be attributed to a fusion of apprehension around global sentiments and the climb of the dollar amid growing risk aversion. As markets brace themselves for the potential implications of the Fed’s strategy moving forward, investors remain on alert, closely monitoring all developments that could signal shifts in economic policy and market dynamics in the coming weeks," Botes said.
Frank Blackmore, lead economist at KPMG said that following the address by Warsh, there was a depreciation in the rand.
"This was to be expected based on what was said in that meeting, which indicated that US interest rate increases remained possible. Therefore, providing more return to dollar-based investments and less return to foreign investments and hence the depreciation that we experience there," Blackmore said.
ashley.lechman@nationalmg.co.za