Morning News: Nervous Markets Await Israel Response, Fed Outlook.

Rae Wee's outlook for the day ahead in European and global markets

On Monday, European stocks looked set to follow the negative trend in Asian equities, led by news of escalating tensions in the Middle East and fears of a wider regional breach.

Last week, rumors of an Iranian attack on Israel triggered panic in the market, and the focus has shifted to Israel's response after Iran launched a surprise attack on Israel with some 300 drones and missiles. [Gold and the US dollar]

Gold and the dollar held firm, even as the yen, once a safe-haven currency, fell to a three-decade low - a reminder that market participants still see the Middle East as a major risk, even as that risk grows, and interest rates are still the main documentary law. [FRX/]

The President of the United States of America, Joe Biden, told the Israeli Prime Minister of Agriculture, Benjamin Netanyahu, that the U.S. will not participate in the counterattack against Iran, which to some extent limits the risk of the Middle East.

However, the Cboe Volatility Index (VIX), known as Wall Street's "fear index," is still hovering near five-month highs.

Oil prices were lower in Asian trading markets, but some analysts said this was because the risk of Iran's so-called repetition had been priced in last week and traders were watching to see if a wider war would actually break out.

Brent crude futures are hovering around $90 a barrel after hitting a roughly six-month high on Friday. So far this year, Brent futures have risen 17%, while U.S. crude futures have risen 19% so far this year.

A further rise in the price of oil to $100 a barrel would be unwelcome news for central bankers fighting rising consumer prices, as last week's hotter-than-expected U.S. Consumer Price Report continues to reverberate around the market.

Later in the day, traders will get a sense of the strength of the U.S. consumer by looking at last month's retail sales data.

This week there will also be a number of Fed speakers to speak, on Tuesday, the Fed's matriarch Jerome Powell (Jerome Powell) speech will become the focus of market attention.

With U.S. inflation exceeding forecasts for the third month in a row, it's hard to imagine the world's most powerful central banker sticking to the dovish tone of the last month.

While the geopolitical backdrop may set the tone for the week, there are plenty of economic events for traders to consider, from China's Q1 growth data to UK consumer prices.

The U.S. earnings season is also underway, but after JPMorgan Chase, Wells Fargo and Citigroup's three major banks disappointed investors with their earnings reports, causing the Wall Street to move lower, the beginning of the earnings season looks lackluster.

Key developments likely to affect Monday's market

- Eurozone industrial production (February)

- U.S. Retail Sales (March)

- Goldman Sachs, Charles Schwab Financial Reports

- Fed's Mary Daley, Lori Logan deliver speeches

(Written by Rae Wee; edited by Christopher Cushing)