Oil prices and safe-haven bonds rise as a result of the Middle East conflict, but global stocks and Israeli assets fall. This Comes in the Wake of the Strong U.S. Jobs Report, Increasing Expectations for Upcoming Inflation Data,”
“Israeli Government Bonds Drop, Including the 2120 ‘Hundred Year’ Bond Hitting a Record Low. The Shekel Hits Its Lowest Point Since Early 2015, Leading the Central Bank to Offer $30 Billion in Foreign Currency to Stabilize the Situation.”
“The shekel managed to recover some of its losses, settling at 3.9195, and the central bank announced its readiness to provide market liquidity as necessary.”
In response to one of the worst attacks in its history, Israel launched a military campaign in Gaza, which increased regional unease. This has caused oil prices to rise and triggered a ‘risk-off’ sentiment, leading to gains in bond markets and a slight dip in equity markets,” explained Peter Schaffrik, Chief European Macro Strategist at RBC Capital Markets.”
Schaffrik noted that for the conflict to have a more significant or long-term effect on the market, it would likely have to expand beyond the borders of Israel.
“While we empathize with the people directly affected by the situation, the market tends to brush off such events unless they have a broader impact on the economy,” he explained.
The price of Brent crude oil increased by approximately $4 per barrel at one point and was recently trading up by around $2, which is a 2.64% increase, reaching $86.80.
U.S. S&P 500 futures experienced a 0.6% decline, and Europe’s primary stock index remained relatively unchanged.
The careful approach in the market provided some relief for government bonds, especially after they experienced significant selling recently. 10-year Treasury futures gained 13 ticks, although the cash Treasury market remained closed on Monday due to a U.S. holiday.
Germany’s 10-year Bund yield decreased by nearly 5 basis points, falling from the 12-year high it reached last week.
Additionally, the demand for gold increased, causing its price to rise by approximately 1%, reaching $1,850 per ounce.
The situation in the Middle East is occurring during a period of nervousness in the financial markets, where bond yields worldwide have reached multi-year highs.
Several factors have contributed to this, including asset managers who had previously invested heavily in government bonds now selling them, increasing oil prices, a flood of new government and corporate bonds being issued, and investors acknowledging that central banks are likely to maintain high interest rates for an extended period.
The impressive U.S. jobs report released on Friday has reinforced the belief that interest rates will remain elevated for an extended duration. Investors are now focusing on the consumer price data for September, set to be released on Thursday, which could challenge the expectation that the Federal Reserve won’t implement further rate hikes.
