Markets Give Cautious Response as Middle East Tensions Ease

Markets gave a cautious response on Monday as tensions in the Middle East appeared to ease, with oil prices dropping and inflation risks receding. Brent crude fell by 5.2% to $91.73 a barrel, while US crude dropped 5.4% to $84.45.

Sally Auld, group chief economist at NAB, said the developments in the Middle East added credibility to the notion that oil above $100 a barrel induces de-escalatory behavior from both sides.

The decline in oil prices provided relief from inflation fears and reduced the likelihood of rate hikes from the Federal Reserve. The central bank meets on Wednesday, with markets implying around a one-in-three chance of a rate rise.

Analysts at Goldman Sachs noted that investors see the outcome of the July meeting as unusually uncertain due to the Fed's split views and Chair Kevin Warsh's unclear position.