Risk sentiment took a hit as oil surged as much as 5 per cent in the wake of Hamas’ surprise attack on Israel, which triggered fears of a supply shock. Gold gained along with the dollar on haven bids.
West Texas Intermediate climbed above $86 a barrel while Brent touched $89 as traders braced for a wider conflict after the US said it was sending warships to the region. The Wall Street Journal reported that Iranian security officials helped Hamas plan its attack on Israel, which risks triggering a retaliation against Tehran.
Rising oil prices could add to already high global inflationary pressures with investors still debating the odds of another rise in interest rates by the Federal Reserve this year.
“Any extension of this to oil-producing countries, Saudi Arabia in the lead, could make the price of crude oil more expensive, with negative inflationary effects for the West and would mean higher rates for longer,” said Guillermo Santos, head of strategy at Spanish private banking firm iCapital.
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Iran is both a big 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.
The dollar gained versus the euro and sterling, while riskier currencies declined. The yen – another favoured refuge for investors – strengthened. Meanwhile, Australian and New Zealand bonds reversed early declines and US stock futures extended losses.
“The events over the weekend obviously destabilise the region; investors have a lot to mull over,” said Kyle Rodda, senior market analyst at Capital.com. “Ultimately, these events tend to have only a short-term impact on financial markets, and it’s probable that this time will be the same. Investors could be jumpy for a couple of days until the risks of escalation have clearly diminished, though.”
The fallout from the Israel attacks reverberated through Middle East markets on Sunday, sending stocks sliding. Major equities gauges in the region fell, led by a drop on Israel’s benchmark TA-35 stock index, which posted its biggest loss in more than three years, sliding 6.5 per cent.
A gauge of Asian stocks was little changed, with energy shares among those rising on the back of elevated oil prices. Shares, however, fell in mainland China as the market reopened after the Golden Week holiday. The morning session in Hong Kong was scrapped due to a typhoon and trading will resume in the afternoon. The S&P 500 had advanced 1.2 per cent Friday, snapping a four-week losing streak. – Bloomberg
