Middle East War updates: Despite headway in talks, Iran warns of wider strikes against US

Weekend developments in the Middle East war are expected to have a significant market impact this coming week. The key updates are summarised below.

Despite his top diplomat reporting progress in diplomatic talks, Iran’s Supreme Leader, Mojtaba Khamenei, instructed senior military commanders to prepare for fresh confrontation with the United States (US) and Israel. He also ordered them to broaden Tehran’s options for retaliation.
Khamenei said: “Every level and type of threat must be met with an immediate, effective response, without geographical limitations,”
A diplomatic resolution remains President Donald Trump’s preference, according to US Secretary of State Marco Rubio, who said Washington had not decided to resume strikes on Tehran. Rubio added that the US retains the capabilities needed to accomplish whatever military objective Trump chooses to pursue.
An Iranian delegation was in Qatar for discussions with mediators, according to Iranian Foreign Minister Abbas Araghchi.
Among the conditions, Araghchi said, are the removal of sanctions imposed following the Islamabad memorandum and a reduction in US forces in the region. He added: “We demand the restoration of oil waivers and the release of all our frozen funds, including those held in Qatar,”

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Risk Sentiment: Key Questions

“Risk-On” and “Risk-Off”: What Do They Mean for Financial Markets?

Investors’ willingness to accept risk over a given period is commonly described in financial markets as “risk-on” or “risk off”. Optimism about the outlook characterises a “risk-on” market, encouraging investors to purchase riskier assets. Concern about the future produces a “risk-off” market: investors prefer to ‘play it safe’ by choosing lower-risk assets with more dependable potential returns, even when those returns are relatively modest.

Key Assets That Signal Shifts in Risk Sentiment

A favourable growth outlook generally supports equities and most commodities, apart from gold, during “risk-on” periods. Stronger demand also lifts the currencies of major commodity-exporting countries, while cryptocurrencies advance. By contrast, a “risk-off” environment favours bonds, particularly major government bonds, alongside gold. Safe-haven currencies, including the Japanese yen, Swiss franc and US dollar, also benefit.

Currencies That Benefit From “Risk-On” Sentiment

Commodity-export dependence helps explain why the Australian dollar (AUD), Canadian dollar (CAD), New Zealand dollar (NZD) and minor currencies such as the ruble (RUB) and South African rand (ZAR) typically strengthen in “risk-on” markets. Growth in their economies relies heavily on commodity exports. As investors anticipate stronger economic activity and greater future demand for raw materials, commodity prices tend to increase, supporting these currencies.

Currencies That Benefit From “Risk-Off” Sentiment

During “risk-off” periods, the US dollar (USD), Japanese yen (JPY) and Swiss franc (CHF) are the major currencies that typically appreciate. The dollar benefits from its status as the world’s reserve currency and from crisis-driven purchases of US government debt. Investors regard that debt as safe because the world’s largest economy is considered unlikely to default. Demand for Japanese government bonds supports the yen: domestic investors hold a large share of these bonds and are unlikely to sell them off, even during a crisis. For the Swiss franc, support comes from strict Swiss banking laws that provide investors with greater capital protection.