ORLANDO, Florida, March 3 (Reuters) - The equity rout sparked by the deepening Middle East crisis spread on Tuesday as Wall Street finally buckled, with soaring energy prices and widening cracks in most other asset markets forcing investors and policymakers to rethink their outlook.
More on that below. In my column today I look at how the current turmoil has exposed the frailties of the traditional "60-40" investment portfolio. With stocks and bonds both selling off, where is the protection from diversifying?
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. Middle East conflict widens as Israeli, U.S. strikesagain hit Iran; oil soars, shares slide 2. Global energy prices soar as Iran crisis disruptsshipping, oil and gas production 3. Dollar gets its mojo back - but only by default: MikeDolan 4. Bond markets dominated by inflation fear, promptingrate-cut bets to fall 5. Fed faces new inflation, growth risks despite U.S.energy resilienceToday's Key Market Moves
* STOCKS: S&P 500, Nasdaq, Dow lose ~1%, Japan -3%, SouthKorea -7%. Main European indices down 2.5-3.5%, Brazil andMexico -3%. * SECTORS/SHARES: All 11 sectors in the S&P 500 fall, ledby materials -2.7%, industrials -2%. Defense & aerospace stocks-2% from Monday's record high. Micron Technology, Newmont Corp-8%; Best Buy, Target +7%. * FX: Dollar up sharply again, USD/JPY in "interventionzone" near 158.00. EM FX slammed - Brazil real -2% for worst daythis year, Chile's peso -3%. * BONDS: U.S. yields +2 bps, two U.S. rate cuts this yearno longer fully priced. Spanish yields jump 10 bps after Trumpthreatens to cut trade with Spain. * COMMODITIES/METALS: Oil jumps 5%, Brent highest sinceJuly 2024. U.S. diesel highest since November 2023, European LNG+22%. Gold -4%, other precious metals -9%. U.S. copper -2%.Today's Talking Points
* What goes up, must come down
Few corners of world markets are escaping the selloff now gathering force. Pockets that might have been insulated by solid underlying fundamentals or seen as reasonable diversification options are being hammered just as hard as anything else.
South Korean equities, gold and silver were among the biggest losers on Tuesday. It's no coincidence that they were among the biggest gainers recently - gold and silver at the end of last year, and the KOSPI up 50% in the first two months of this year. In the scramble for liquidity, assets that rose most on waves of frenzied speculation have most room to fall.
* Kevin help us now
Two quarter-point rate cuts from the Fed this year are no longer fully priced into the 2026 U.S. rate futures strip. Right now, investors are viewing the negative energy supply shock and surging prices as an inflation threat rather than a growth risk, and are pricing the Fed accordingly.
With inflation already comfortably above the Fed's target, it could not be a more challenging environment for Kevin Warsh, President Donald Trump's Fed chair nominee, who is expected to succeed Jerome Powell in May. Might the Fed's first move under Warsh's leadership be a rate hike?
* Private credit still a problem
While events in the Middle East have a chokehold on global asset prices, the problems brewing under the hood of the private credit market haven't gone away. If anything, the surge in redemptions from Blackstone's flagship private credit fund shows they are intensifying.
Shares in Blackstone tumbled 5% on Tuesday, and shares in rivals KKR and Apollo also fell. They've all lost around 30% this year, and are down 45-50% from their all-time highs. The geopolitical turmoil has accelerated the scramble for cash and liquidity, snowballing the selling.
What could move markets tomorrow?
* Developments in the Middle East, especially regardingenergy supply disruptions * Australia GDP (Q4) * Japan services PMI (February) * China "official" manufacturing, services PMIs (February) * Japan consumer confidence (February) * Bank of Japan Governor Kazuo Ueda speaks * UK services PMI (February) * European Central Bank Vice President Luis de Guindos andboard member Piero Cipollone speak at separate events * Euro zone services PMI (February) * Bank of Canada Governor Tiff Macklem speaks * U.S. PMI (February) * U.S. services ISM (February) * U.S. ADP private sector employment (February)Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever; Editing by Nia Williams)
