Last week was highlighted not only by central bank meetings and the U.S. labor market report but also by rising geopolitical tensions in the Middle East.
This time, the tension was stoked by Iran's promise to retaliate against Israel for the assassination of Hamas leader Ismail Haniyeh and Hezbollah's military commander-in-chief.
Fears of an escalation of the conflict pushed XAUUSD to new highs and increased oil prices. However, as of a day ago, the situation has cooled down a bit, at least in the markets.
Could it all be settled after all?
A cease-fire is unlikely, considering that governments continue to urge their citizens to leave Lebanon urgently due to the deteriorating situation in the region.
Tehran is likely to "take the move," but experts do not believe this will lead to a major war in the Middle East. And the reason for this optimism is simple: neither side wants it.
The Israeli economy has already been under pressure since last October. Another war could worsen the situation, causing more skilled professionals to leave and living standards to fall.
Nor is Iran financially strong enough to get involved in a major war. Finally, if the conflict were to spill over into Lebanon, it would damage infrastructure and aggravate the crisis.
So, should the markets be worried?
Unfortunately, rational thinking does not always prevail. In other words, while the facts suggest that a major war in the Middle East is unlikely, the reality could be different.
In a worst-case scenario, we could see a risk-off, which would strengthen the dollar, raise US Treasury bond prices, and rally energy company stocks.
Gold could also rise, with Goldman Sachs analysts maintaining their forecast for the commodity to reach $2,700 per ounce (+10% from current levels).
Geopolitical tensions could also drive speculation in defense stocks and logistics giants. So it would be a good idea to add these companies to the watch list just in case.
The impact of another escalation in the region will last for a period of time, depending on the scale. The effect could be short-lived if it doesn't affect crucial supply channels.
In short, there is no precise scenario of what will happen. Therefore, betting on one of them could be risky, with the potential for big rewards or significant losses.