(Bloomberg) — Oil surged more than 5% and investors sought safety in gold, bonds and the dollar after Hamas’s surprise attack on Israel sparked fears of a wider conflict.
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Geopolitical uncertainty sent the greenback up against the euro and pound, while the yen — another popular haven – also strengthened. West Texas Intermediate climbed past $87 a barrel while Brent touched $89 as traders braced for a potential escalation that may trigger a supply shock. The US said it was dispatching warships and the Wall Street Journal reported that Iranian security officials helped plan the strike.
“The events over the weekend obviously destabilizes the region,” 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.”
The Bank of Israel said it will sell as much as $30 billion in foreign exchange, and extend up to $15 billion through swap mechanisms to support markets. A measure of expected volatility in the shekel headed for its biggest jump in more than two decades as the currency slipped to the weakest in seven years.
Europe’s Stoxx 600 index fell 0.2% and US futures also declined. Contracts on US government bonds rose before paring gains on concern costlier crude will ultimately fan inflation. Trading in cash Treasuries is closed for a public holiday on Monday. Gold advanced as much as 1.2%.
The fallout from the attacks reverberated through Middle East markets on Sunday. 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%.
Read More: Israel-Related Stocks Under Pressure After Hamas’ Shock Attack
While the latest events aren’t an immediate threat to oil flows, traders are concerned it may become a proxy war. 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.
Rising oil prices may 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.
Equities fell in mainland China as the market reopened after the Golden Week holiday. Stocks in Hong Kong rose in the afternoon session as trading resumed after a typhoon had shut markets.
While the Chinese holiday data was encouraging, confidence remained fragile, according to Hao Hong, partner and chief economist at GROW Investment Group. “If you are a smaller business in China, you are still probably struggling because banks risk aversion makes it hard to lend to SMEs,” he said on Bloomberg Television.
Key events this week:
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China money supply, new yuan loans, Monday
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Bank of England policymaker Catherine Mann speaks, Monday
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World Bank-IMF annual meetings open in Marrakech, Morocco, Monday
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Fed Vice Chair Michael Barr speaks, Monday
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Dallas Fed President Lorie Logan speaks, Monday
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Fed Governor Philip Jefferson speaks, Monday
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Japan balance of payments, Tuesday
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BOE releases minutes of financial policy meeting, Tuesday
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The IMF issues its latest world economic outlook, Tuesday
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US wholesale inventories, Tuesday
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Fed Governor Christopher Waller delivers keynote address, Tuesday
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Minneapolis Fed President Neel Kashkari speaks, Tuesday
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Germany CPI, Wednesday
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NATO defense ministers meeting in Brussels, Wednesday
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Russia Energy Week in Moscow, with officials from OPEC members and others, Wednesday
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US FOMC minutes, PPI, Wednesday
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Fed Governor Michelle Bowman speaks during World Bank-IMF meetings, Wednesday
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Japan machinery orders, PPI, Thursday
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Bank of Japan’s Asahi Noguchi speaks, Thursday
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UK industrial production, Thursday
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ECB publishes account of September policy meeting, Thursday
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BOE’s Huw Pill speaks, Thursday
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US initial jobless claims, CPI, Thursday
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China CPI, PPI, trade, Friday
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G20 finance ministers and central bankers meet as part of IMF gathering, Friday
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ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday
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Eurozone industrial production, Friday
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France CPI, Friday
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BOE’s Andrew Bailey speaks, Friday
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US University of Michigan consumer sentiment, Friday
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Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday
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Philadelphia Fed President Patrick Harker speaks, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.2% as of 8:09 a.m. London time
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S&P 500 futures fell 0.8%
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Nasdaq 100 futures fell 0.7%
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Futures on the Dow Jones Industrial Average fell 0.7%
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The MSCI Asia Pacific Index was little changed
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The MSCI Emerging Markets Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index rose 0.3%
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The euro fell 0.5% to $1.0534
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The Japanese yen rose 0.1% to 149.15 per dollar
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The offshore yuan rose 0.2% to 7.2983 per dollar
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The British pound fell 0.4% to $1.2182
Cryptocurrencies
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Bitcoin was little changed at $27,900.07
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Ether fell 0.6% to $1,627.29
Bonds
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The yield on 10-year Treasuries was little changed at 4.80%
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Germany’s 10-year yield declined four basis points to 2.84%
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Britain’s 10-year yield declined two basis points to 4.55%
Commodities
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Brent crude rose 3.1% to $87.24 a barrel
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Spot gold rose 0.9% to $1,848.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
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