Morning Update

Global news headlines continue to be dominated by rising tensions in the Middle East, which yesterday culminated in Iran firing some 180 missiles into Israel endangering millions of civilians across the country.

While most of the incoming missiles were intercepted – with the assistance of the US and UK – one civilian is believed to have been killed in the West Bank, with damage to a school in central Israel also caused.

The attack follows a further escalation of tensions between Iran and Israel, and yesterday’s developments will no doubt exacerbate this fragile relationship moving forward.

Last week for example, tensions between the two escalated following an Israeli airstrike on a southern district of Beirut which killed Hezbollah’s leader Hassan Nasrallah on Friday.

Following this, Ayatollah Ali Khamenei said that that Nasrallah’s killing “shall not go unavenged”, and yesterday’s attack is understood to be Iran’s response – in part – to last Friday’s airstrike.

Iran’s most recent attack also comes as Israel forces engage in their second day of what the IDF describes as a “limited, localised and targeted” operation in southern Lebanon which aims to target key Hezbollah infrastructure.

Netanyahu has since said that Iran has made a “big mistake” and “will pay for it” warning the regime that “We will stand by the rule we established: whoever attacks us – we will attack”.

As tensions continue to escalate, there has been widespread condemnation of Iran’s attack with members of the international community renewing calls for a ceasefire.

The market has taken a while to re-awaken itself to geo-political risk, probably because there’s been so much of it for so long, sadly it has become a little bit “business as usual”. However, risk assets are trading lower, and in the FX market, Sterling is feeling the effects of this. Having traded well off its recent highs in the last couple of sessions.

Another factor in play is the Federal Reserve. Markets are trying to get ahead of the non-farm payrolls number on Friday to gauge whether rate cuts might continue along a 50bps path at the next couple of meetings.

There was some very minor employment data out of the States yesterday, which might point to the payrolls number on Friday also being strong. If that is the case, markets will have to re-think just how low the Fed might go before the end of the year.