Oil surged after Hamas’s surprise attack on Israel raised fears of a wider conflict. Investors avoided traditionally risky assets such as stocks and instead bought gold, bonds and the dollar.
(Bloomberg) — Oil surged after Hamas’s surprise attack on Israel raised fears of a wider conflict. Investors avoided traditionally risky assets such as stocks and instead bought gold, bonds and the dollar.
West Texas Intermediate jumped 4% to almost $86 a barrel, spurring a rally among European energy producers. Defense stocks such as BAE Systems Plc and Saab AB also rose. Gold climbed 1% and index of dollar strength added 0.3%. US equity futures retreated and the Stoxx 600 slipped 0.2%.
“Our measures of risk appetite have been already signaling a high degree of risk aversion from institutional investors, which is likely to only get worse,” said Marija Veitmane, senior multi-asset strategist for State Street Global Markets. “Markets are likely to particularly worry about higher oil prices as a further supply squeeze is likely.”
The Israeli shekel weakened 2%, touching the lowest in seven years, even after the Bank of Israel unveiled an unprecedented program to support markets. The central bank plans to sell as much as $30 billion in foreign exchange, and extend up to $15 billion through swap mechanisms to support markets.
Read More: Defense Stocks Gain as Israel Conflict Adds to Geopolitical Risk
Israel’s benchmark TA-35 stock index rose 0.2% after recouping a loss of as much as 1.3% earlier Monday. The measure plunged 6.5% on Sunday. Stock markets across the Middle East fell amid concerns the war might escalate into a broader conflict, with Dubai’s benchmark gauge losing 2.9%.
While the latest events aren’t an immediate threat to oil flows, traders are concerned the conflict may become a proxy war. The US said it was dispatching warships and the Wall Street Journal reported that Iranian security officials helped plan the strike.
Iran is both a major oil producer and supporter of Hamas. Any retaliation against Tehran may endanger the passage of vessels through the Strait of Hormuz, a vital conduit that Iran has previously threatened to close.
Trading in US cash Treasuries is closed for a public holiday on Monday.
Elsewhere, Metro Bank Holdings Plc’s riskiest bonds gained the most on record on Monday after the troubled UK lender clinched a £925 million ($1.1 billion) financing package, a deal that will impose a 40% haircut on some bondholders and see Colombian financier Jaime Gilinski take a controlling interest.
Here’s what investors said about the Middle East conflict:
- Christian Curac, analyst at Fuerst Fugger Privatbank:
“The current attempts at stabilization do not yet seem to be effective, which is why we recommend a more defensive positioning. The market is already oversold, but not yet so strong that a technical counter movement appears necessary.”
- Mabrouk Chetouane, head of global market strategy at Natixis Global Asset Management:
“At this stage, if one takes a cold look at the situation, the weight of Israel and Palestine is insufficient to alter the current drivers of financial markets, which are primarily focused on central bank policies and the incoming earnings season. Investors are getting used to conflicts, to lasting conflicts and to the multiplication of conflict zones.”
- Alexandre Baradez, chief market analyst at IG Markets in Paris:
“This is a classic risk-off positioning towards safe havens. If you add in the conflict to the macro-economic uncertainties in Europe and China, hawkish central banks, already rising oil prices and the upcoming earnings season, there’s really no reason for markets to take an upward trend.”
- Matt Maley, chief market strategist at Miller Tabak:
“If this continues, you add another uncertainty in the market where things are out of whack with what’s going in interest rates and what’s going with the stock market, you do want to be more cautious, a lot more cautious.”
Key events this week:
- China money supply, new yuan loans, Monday
- Bank of England policymaker Catherine Mann speaks, Monday
- World Bank-IMF annual meetings open in Marrakech, Morocco, Monday
- Fed Vice Chair Michael Barr speaks, Monday
- Dallas Fed President Lorie Logan speaks, Monday
- Fed Governor Philip Jefferson speaks, Monday
- Japan balance of payments, Tuesday
- BOE releases minutes of financial policy meeting, Tuesday
- The IMF issues its latest world economic outlook, Tuesday
- US wholesale inventories, Tuesday
- Fed Governor Christopher Waller delivers keynote address, Tuesday
- Minneapolis Fed President Neel Kashkari speaks, Tuesday
- Germany CPI, Wednesday
- NATO defense ministers meeting in Brussels, Wednesday
- Russia Energy Week in Moscow, with officials from OPEC members and others, Wednesday
- US FOMC minutes, PPI, Wednesday
- Fed Governor Michelle Bowman speaks during World Bank-IMF meetings, Wednesday
- Japan machinery orders, PPI, Thursday
- Bank of Japan’s Asahi Noguchi speaks, Thursday
- UK industrial production, Thursday
- ECB publishes account of September policy meeting, Thursday
- BOE’s Huw Pill speaks, Thursday
- US initial jobless claims, CPI, Thursday
- China CPI, PPI, trade, Friday
- G20 finance ministers and central bankers meet as part of IMF gathering, Friday
- ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday
- Eurozone industrial production, Friday
- France CPI, Friday
- BOE’s Andrew Bailey speaks, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday
- Philadelphia Fed President Patrick Harker speaks, Friday
Some of the main moves in markets:
- The Stoxx Europe 600 fell 0.2% as of 12:08 p.m. London time
- S&P 500 futures fell 0.6%
- Nasdaq 100 futures fell 0.8%
- Futures on the Dow Jones Industrial Average fell 0.5%
- The MSCI Asia Pacific Index was unchanged
- The MSCI Emerging Markets Index fell 0.2%
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.5% to $1.0532
- The Japanese yen rose 0.1% to 149.14 per dollar
- The offshore yuan rose 0.2% to 7.2934 per dollar
- The British pound fell 0.6% to $1.2169
- Bitcoin fell 1.5% to $27,500.28
- Ether fell 2.6% to $1,594.51
- The yield on 10-year Treasuries was little changed at 4.80%
- Germany’s 10-year yield was little changed at 2.88%
- Britain’s 10-year yield was little changed at 4.57%
- Brent crude rose 3.5% to $87.55 a barrel
- Spot gold rose 0.9% to $1,849.84 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar, Jan-Patrick Barnert, Cecile Gutscher and Sujata Rao.
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