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U.S. index futures have shifted into a total defensive posture following the further escalation of the war in the Middle East. Small-cap stocks in the Russell 2000 index are leading the losses (US2000: -2.7%; a two-week low), followed closely by the tech-heavy Nasdaq (US100: -2%), the S&P 500 (US500: -1.6%), and the Dow (US30: -1.2%).
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The sharp declines result from Iranian attacks targeting key oil and gas infrastructure in Persian Gulf countries, driving commodity prices higher. Brent crude is rebounding today by 3.8%, reaching nearly $107 per barrel. Pressure was further intensified by Iran’s declaration that it does not intend to negotiate the security of the Strait of Hormuz during military operations.
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According to CBS, the United States is preparing for a potential ground assault on Iran. Senior military commanders have reportedly requested the necessary authorizations to prepare for an eventual operation. Additionally, the U.S. is accelerating Marine deployments to the Middle East (with potentially 2,200 Marines arriving next week).
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The rising risk of a prolonged energy price shock is boosting inflation expectations and fueling bets on hawkish monetary policy. The futures market is currently pricing in a U.S. interest rate hike for December (until yesterday, the base-case scenario did not anticipate any hikes in 2026).
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The Dollar Index is rebounding by 0.25%, recovering losses following a relatively balanced FOMC meeting. The strength of this "flight to the dollar" is best illustrated by a symmetrical capital outflow from "risk-on" currencies (AUDUSD: -0.9%, NZDUSD: -0.6%) and from traditional safe havens (USDJPY: +0.9%). The USD is facing resistance only from the oil-supported Canadian dollar (USDCAD: -0.2%) and the Swiss franc (USDCHF: -0.05%). EURUSD is correcting by 0.15% to 1.156.
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The rush to the dollar is also driving a sell-off in precious metals. Gold is diving an additional 2.4% to $4,525 per ounce, its lowest level since early February. Silver is performing even worse, sliding 5% to $67. Platinum (-1.2%) and palladium (-2%) are also in the red. Furthermore, the prospect of an economic slowdown is weighing on industrial metals (COPPER: -2.6%).
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