US stock market: Wall Street set to open over 1% lower as US-Iran conflict fuels risk-off mood

The US stock market is liekly to open with sharp cuts in Monday's trading session, March 2, as the futures of three key averages, including the S&P 500, Dow Jones Industrial Average, and Nasdaq, are trading lower by 1%, 1.1%, and 1.4%, respectively, in pre-market trade, amid ongoing conflict in the Middle East drives investors away from risky assets.

The US and Israel attacked Iran over the weekend, reportedly killing Iran's Supreme Leader and several other military officials, reflecting another full-blown war in the region.

The attacks came just a day after the US and Iran held their third round of nuclear talks, which did not lead to a breakthrough. US President Donald Trump had earlier warned that “bad things” would happen if Iran did not agree to a deal over the future of its nuclear program.

The latest strikes opened a stunning new chapter in US intervention in Iran, marking the second time in eight months that the Trump administration has attacked the country.

Hours after the attack, Iran retaliated by targeting US military installations around the Gulf, with the conflict now entering its third day. Latest reports suggest that Saudi Aramco halted operations at the Ras Tanura refinery in Saudi Arabia after a drone strike in the area.

In reaction to heightened tensions, all major markets in the Asian region came under severe pressure, with Japan’s Nikkei 225 slipping 1.35% and the Hong Kong Hang Seng Index falling 2.14%, while the Kospi and Nifty 50 closed 1% lower.

Rising geopolitical tensions generally push risk assets out of investors’ favour as they seek refuge in safe-haven assets such as gold and silver.

Crude oil prices saw a massive jump

The ongoing tensions triggered a massive rise in crude oil prices, with both Brent and WTI rising 13% and 12.3%, respectively, to their day’s highs. Concerns also mounted over the potential for escalation and possible disruptions to the Strait of Hormuz, through which nearly 20% of global oil flows and over 40% of India’s crude imports transit.

Iran is the fourth-largest oil producer in OPEC, producing just over 3 million barrels per day in January. The country shares a coastline along the Strait of Hormuz, one of the world’s most critical chokepoints for global oil trade.

Meanwhile, Trump said Iran’s new leadership was looking to resume negotiations, but Iran’s security chief, Ali Larijani, reportedly said Tehran had no plans to engage in talks with the US, indicating that tensions in the region are likely to continue.

Earlier, Trump also said the conflict could stretch on for another four weeks, according to media reports.

Airline stocks fall in pre-market trade; defence stocks up

Sectors that were hit the most in pre-market trading in the US included airlines, as several carriers halted flights, with Delta Airlines and United Airlines tumbling 6% each in pre-market trading. Big banks such as Bank of America and Citigroup slid over 2% each.

Meanwhile, defence stocks got a boost, with Lockheed Martin and RTX Corporation gaining 7% each, while Kratos rose 10% and AeroVironment was up 13% in pre-market trade. Oil companies Occidental Petroleum and ConocoPhillips added over 6% each, while crude-price-sensitive cruise stocks Carnival and Royal Caribbean slid 6% each.

(With inputs from Reuters)

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