The markets are shaking!!!

After what happened yesterday, I must provide an update on the financial markets situation.

Oil prices are increasing in early European trading due to growing fears of a full-scale regional war in the Middle East, which could disrupt supplies. Brent crude is up 2.1% at $75.13 a barrel, while WTI rises 2.3% to $71.45 a barrel. Both benchmarks climbed as much as 5% following Iran's missile attack on Israel in retaliation for the killing of Hezbollah's leader last week.

The main uncertainty now is how Israel will respond.

If the situation escalates significantly, it could involve targeting Iranian nuclear facilities and energy infrastructure, which may increase the risk premium priced into oil prices. Additionally, traders will closely watch OPEC+'s Joint Ministerial Monitoring Committee meeting later on Wednesday for more cues on the group's next policy move on oil output.

Iran's attack on Israel has increased the appeal of safe havens, and investors are proceeding cautiously. Classic safe havens like gold, government bonds, and the Swiss franc are surging.

Geopolitical events are difficult to trade, so maintaining a low-risk profile would is a prudent strategy.

In the past, periods of heightened geopolitical tension, such as Russia’s invasion of Ukraine in 2022, led to sharp but short-lived market movements during which investors moved away from risky assets.

Today, in Europe day, there is a lack of macroeconomic data or scheduled corporate announcements to divert attention from Middle East developments.

There are several ECB speakers on the calendar for tomorrow, although a quarter-point rate cut this month seems almost certain following a series of mild inflation readings and hints from ECB boss Christine Lagarde.

Regarding monetary policy, the Fed is likely to attract more attention.

As mentioned in Monday's newsletter, on Friday we will receive the monthly payroll figures, which could determine whether U.S. policymakers opt for a 25- or 50-basis-point rate reduction next month. We will also receive some hints from the private-sector ADP employment report later today.

The U.S. has a lot to keep markets occupied, if the Middle East situation stabilizes, particularly the significant dock worker strike that is halting half of the country's shipments, impacting everything from cars to corn, with an estimated cost of around $5 billion per day.