Daily Market Review

Closing Recap

Wall Street staged a “Miracle Reversal” on Monday, recovering from a deep, war-driven selloff to finish mixed. Despite U.S. strikes on Iran sending oil prices ripping over 6% higher, the “Buy the Dip” machinery kicked into overdrive. The S&P 500 and Nasdaq erased early losses of over 1% to close virtually flat, while the Russell 2000 surged nearly 1% as traders bet the conflict would be contained. However, the mood soured in the final hour as Iran threatened to close the Strait of Hormuz and “set ships on fire,” reminding investors that the geopolitical risk premium is far from priced out. The real carnage was in the bond market, where yields spiked on inflation fears, and in FX, where the Dollar crushed the Euro and Yen,  and gold rallied back above $5,300, while Bitcoin found some footing after a weekend plunge.

Key Takeaways

• War in the Middle East: U.S. strikes on Iran triggered a violent reaction. WTI Crude surged over 6% to $71.23, and Brent hit $77.74. The Strait of Hormuz (20% of global oil) is now a military zone, with Iran threatening total closure.
• Stocks Erase Early War-Driven Losses: U.S. equities demonstrated incredible resilience, erasing a sharp opening sell-off triggered by the U.S.-Iran conflict to finish mixed.The Nasdaq erased a 1.2% gap-down to close positive (+0.36%).
• Oil Prices Explode on Middle East Escalation: WTI crude surged over 6% to top $71 a barrel after the U.S. and Israel attacked Iran, sparking fears of a prolonged conflict and disruptions in the critical Strait of Hormuz.
• Defense and Energy Stocks Outperform: The geopolitical turmoil fueled strong buying in defense contractors (NOC, LMT), drone stocks, and energy giants (XOM, CVX).
• Strong ISM Data Complicates Fed Outlook: The U.S. ISM Manufacturing PMI came in stronger than expected at 52.4, challenging the narrative of a cooling economy and potentially delaying Fed rate cuts.
• Dollar Surges on Safe-Haven Demand and Strong Data: The U.S. Dollar Index (DXY) rallied sharply on a flight to safety and the solid ISM print, crushing the euro and the pound.
• Gold Rallies as Silver Plunges: Precious metals were mixed; gold rallied over 1% to settle above $5,310 on haven demand, while silver reversed course and plunged nearly 5%.
• Bitcoin Recovers from Weekend Crash: After tumbling to near $63,000 over the weekend on the initial news of the strikes, Bitcoin rebounded to around $68,000, tracking the recovery in the Nasdaq.
• BoJ May Delay Rate Hike Due to Conflict: Reports suggest the Bank of Japan may hold off on a March rate hike as it assesses the economic fallout from the U.S.-Iran conflict, unless forced to act by a plunging yen.This dovish pivot sent the Yen tumbling, with USD/JPY breaking above 157.50.
• Bond Market Puke: Treasuries were hammered. The 2-year yield spiked 11bps to 3.49%, and the 10-year rose nearly 9bps to 4.05% as the “War Inflation” trade took hold. Janet Yellen warned the conflict could push inflation higher and delay Fed cuts.
• UK Political Crisis: Labour lost a key by-election seat, piling pressure on PM Starmer. Sterling collapsed to 11-week lows near 1.3310 before a dead-cat bounce.
• Gold Inflows Record: Global Gold funds saw +$6.2 Billion in inflows last week. Year-to-date inflows are annualizing to a record $148 Billion. The “Fear Trade” is structural.
• Iran Conflict Threatens Key Market Trades: UBS warned that the escalating conflict and potential disruptions in the Strait of Hormuz could upend major market bets, including expectations for a weaker dollar and Fed rate cuts.

Market Overview

The market is in a “Schizophrenic” state. Monday’s session was a true test of the market’s mettle, and the bulls largely passed with flying colors. The trading day began under a heavy cloud of geopolitical anxiety following the unprecedented U.S.-Israeli strikes on Iran over the weekend. The immediate reaction was a classic “risk-off” panic: equity futures plunged, safe-haven assets surged, and crude oil prices exploded on fears that the conflict could choke off the Strait of Hormuz, a vital artery for global energy supplies. Equity traders are betting on a quick resolution or that “War is Inflationary = Nominal Stocks Up,” while Bond traders are terrified of a 1970s-style energy shock. The spike in ISM Prices Paid to 70.5 is a flashing red light for the Fed; they cannot cut rates if inflation expectations un-anchor.

Index	Up/Down	%	Last
DJ Industrials	-73.69	-0.15%	48,904
S&P 500	2.69	0.04%	6,881
Nasdaq	80.65	0.36%	22,748
Russell 2000	23.58	0.90%	2,655

However, the initial panic proved to be short-lived. By mid-morning, the familiar “buy the dip” mentality had re-emerged, driving a powerful recovery that erased the bulk of the early losses in the S&P 500 and Nasdaq. This astonishing resilience suggests that investors are betting the conflict will be contained and its inflationary impact temporary. Furthermore, a stronger-than-expected ISM Manufacturing PMI report reinforced the underlying strength of the U.S. economy, providing fundamental support for equities even as it complicated the outlook for Federal Reserve rate cuts. The day’s price action highlights a market that is deeply bifurcated, caught between the undeniable strength of the U.S. economy and the escalating tail risks of a major regional war in the Middle East.The most dangerous chart is USD/JPY. The break above 157.00 is significant. With oil at $78 (Brent), Japan’s trade balance is getting wrecked, and the BOJ is backing away from tightening. This creates a feedback loop of Yen weakness that exports inflation globally.

Economic Calendar

Today’s focus will remain squarely on geopolitical developments, though Eurozone inflation data is also on the docket.

Data Released Yesterday / Overnight:

• U.S. ISM Manufacturing PMI (Feb): A strong beat, coming in at 52.4 (vs. 51.8 exp), indicating ongoing expansion in the factory sector. The prices paid component also surged to 70.5.
• Japan Unemployment Rate (Jan): Ticked up slightly to 2.7% from 2.6%.
• German Retail Sales (Jan): Fell -0.9% m/m, though this followed a large upward revision to December’s data.

Today’s Economic Calendar:

• European Session: The main highlight is the Eurozone Flash CPI (Feb). The headline rate is expected to hold steady at 1.7% y/y, with the core rate at 2.2%.
• U.S. Session: The U.S. data calendar is empty. The focus will be on speeches from several Fed officials (Williams, Kashkari).
• 14:55 GMT – Fed’s Williams Speaks (Dove).
• 16:45 GMT – Fed’s Kashkari Speaks (Hawk).
• All Day: Watch for headlines on the Strait of Hormuz.

Asset Class Spotlight: FX, Commodities, Bonds & Crypto

Oil is the only game in town. The commodity complex was rocked by extreme volatility. Crude oil exploded higher, with WTI settling up 6.28% at $71.23 a barrel on fears that the conflict could shut down the Strait of Hormuz. Gold climbed over 1% on safe-haven demand, settling at $5,311.60. However, silver was slammed back down, falling nearly 5% as speculative bids from earlier in the week faded quickly.

Asset	Up/Down	Unit / % Change	Last
WTI Crude	4.21	6.28%	71.23
Gold	63.70	1.19%	5,311.60
EUR/USD	-0.0111	-0.94%	1.1702
USD/JPY	1.65	1.06%	157.68
Bitcoin	2,000+	3.0%+	68,000+
10-Year Note Yield	0.086	2.17%	4.048%

The U.S. dollar surged on safe-haven demand and strong domestic data, crushing its major peers.

• EUR/USD: The pair plunged, breaking below 1.1650 as the global flight to safety and the surge in oil prices – a negative for the energy-importing Eurozone – weighed heavily on the single currency. Europe is the biggest loser in an energy shock. Support at 1.1600 is the next line of defense.
• GBP/USD: The pound tumbled to an 11-week low near 1.3310. The broad strength of the U.S. dollar is overpowering the pound, which is already under pressure from the BoE’s recent dovish hold and soft UK labor data. Sterling is bouncing dead-cat style to 1.3400 after hitting 1.3310. With UK unemployment rising and growth stalling, the stagflation risks are highest here.
• USD/JPY: The yen weakened significantly, with the pair surging back above 157.50. Despite the risk-off mood, the yen is being pressured by the stronger U.S. dollar and reports that the BoJ may delay its anticipated March rate hike due to the geopolitical turmoil.The combination of “No BOJ Hike” and “High Oil Prices” is toxic for Japan. The next target is 158.00, which might trigger verbal intervention.
• AUD/USD: Risk Proxy. The Aussie is choppy, caught between higher commodity prices (Bullish) and global risk-off (Bearish).

Cryptocurrencies: After a brutal weekend that saw Bitcoin plunge to near $63,000 on the initial news of the strikes, the crypto market staged a recovery. Bitcoin rebounded to around $68,000, tracking the intraday recovery in the Nasdaq and finding support from dip-buyers. U.S. Treasury yields shot higher as the surge in oil prices raised fears of a resurgence in inflation. The benchmark 10-year yield climbed 8.6 basis points to 4.048%, its biggest daily gain since June.

Looking Ahead

Markets are trading on “Headline Risk.” Today’s trading will be dictated by the headlines emanating from the Middle East. The market’s remarkable resilience on Monday will be tested if the conflict escalates further or if there are confirmed disruptions to oil shipments through the Strait of Hormuz. In the absence of major U.S. economic data, investors will also be paying close attention to commentary from Fed officials for clues on how the central bank plans to navigate the crosscurrents of a strong domestic economy and a major geopolitical shock.

What to Watch Today

• Strait of Hormuz Status: Any confirmed attacks on commercial vessels will trigger another leg up in Oil and a leg down in Stocks.
• Eurozone CPI (10:00 GMT): Europe is weak. If inflation is sticky, the ECB is in a bind (Stagflation). A soft print could weaken the Euro further.
• Fed Speakers: Will they acknowledge the inflationary risk of the war? If Williams or Kashkari sound hawkish on “headline inflation” risks, yields could push 4.10%.
• Silver Rebound: Watch $90. Silver was oversold yesterday. A bounce back above $90 would signal the bull trend is intact.