NEW YORK/LONDON (Reuters)

Wall Street opened slightly lower while oil and gold rose as Tuesday marked the fifth day of fighting between Israel and Iran, with the risk of a widening conflict dampening risk appetite in a week also packed with key central bank decisions.

US President Donald Trump urged everyone to evacuate Tehran, cut short his visit to the Group of Seven summit in Canada, and said he wanted a “real end” to the nuclear dispute. Israeli Defence Minister Israel Katz said Iran’s leader could face the same fate as deposed Iraqi President Saddam Hussein.

With tensions running high, the Dow Jones Industrial Average fell 0.19 per cent, the S&P 500 fell 0.26 per cent, and the Nasdaq Composite fell 0.36 per cent, following global counterparts lower.

US crude rose 2.26 per cent to US$73.39 a barrel and Brent rose to US$75.09 per barrel, up 2.54 per cent on the day.

Further raising the stakes, the BOJ, Federal Reserve, Bank of England and Swiss National Bank all meet this week.

“Investors are trying to take all this on board. It is very difficult at the moment, I think. And there’s an understandable degree of nervousness. Should I really be holding on to these stocks now at these levels?” Chris Beauchamp, chief market analyst at IG, said.

“Once the central bank parade is out of the way, then we might get a better sense of where they view things.”

Traditional safe-haven assets benefited from the risk-off mood. US Treasuries rose, pushing yields 1.8 basis points lower on the 10-year and 1.6 basis points lower on the 30-year notes. Gold prices edged up 0.14 per cent.

Stocks in Europe sagged, leaving the STOXX 600 down almost one per cent on the day and around its lowest in three weeks, while German government bond yields held steady.

No disruptions to crude supply have been reported yet, although news of a collision between two ships in the Gulf of Oman sent another brief jolt through the oil market overnight.

Analysts said volatility levels in financial markets do not appear to reflect the geopolitical tensions.

The VIX volatility index has risen in the last week, but at around 20.8 is well below April’s highs above 60 and nowhere near the records, above 80, hit during the 2008 financial crisis.

“This is happening at a point in time where we are less sensitive, first of all the fact being that oil prices are still down year to date, and secondly the macro economy is … showing that financial markets are relatively resilient at the moment,” Bjarne Breinholt Thomsen, head of cross asset strategy at Danske Bank, said in a webinar on Tuesday.

FOCUS ON THE FED

The Federal Reserve is expected to keep rates unchanged on Wednesday, but market participants will be closely following comments from chairman Jerome Powell, who Trump has repeatedly criticised for not lowering interest rates.

“One thing that settled the markets earlier this year was the independence of the Fed and the fact they would not be influenced, but data-driven,” said Matt Rubin, chief investment officer at Richmond, Virginia-based Cary Street Partners.

“Jerome Powell is going to continue to express that they are focused on data at this point, and that data does not warrant a cut.”

Policymakers will release new projections for interest rates, which investors will assess to get a sense of how the committee believes the Trump administration’s tariffs could affect growth and inflation.

Traders are pricing in two cuts by the end of the year.

Tariff negotiations between Japan and the United States on the sidelines of the G7 summit fell short of a breakthrough, while a deal with Britain left unresolved the issue of steel and aluminium duties.

The Bank of Japan, the first major central bank to decide on monetary policy this week, left short-term interest rates unchanged at 0.5 per cent as expected. The central bank said it would slow the pace at which it is unwinding its massive holdings of government bonds to avoid disrupting the market.

Weak demand for Japanese government bonds (JGBs) at recent auctions, along with concern about the country’s finances, sent longer-dated borrowing costs spiralling to record highs last month.

The yen weakened 0.12 per cent against the greenback dollar to 144.91.