Oil prices surged towards $90 a barrel as concerns about a potential disruption in the oil supply arose following an unexpected attack by Hamas on Israel. Gold prices also rose, along with the US dollar, as investors sought safe-haven assets.
The price of West Texas Intermediate oil rose above $86 per barrel, while Brent crude reached $89 per barrel as traders prepared for a possible escalation of the conflict, with the US announcing the deployment of warships to the region. There were reports that Iranian security officials may have assisted Hamas in planning the attack on Israel, raising concerns of a potential retaliation against Tehran.
The US dollar strengthened against the euro and the pound, while riskier currencies saw declines. The Japanese yen, a popular choice for investors seeking safety, also gained strength. Additionally, Australian and New Zealand bonds rebounded after an initial drop, while US stock futures experienced a decline.
According to Kyle Rodda, a senior market analyst at Capital.com, the recent events in the region have caused instability, and investors are carefully considering their implications. Typically, these events have a short-term impact on financial markets, and it’s likely that this time will be no different. Investors may be nervous for a couple of days until the risk of further escalation becomes clearer.
The repercussions of the attacks in Israel had a ripple effect in Middle East markets on Sunday, leading to a decline in stock prices. The region’s major stock indices saw significant drops, with Israel’s TA-35 stock index experiencing its largest loss in over three years, plummeting by 6.5%.
It’s worth noting that Iran is both a significant oil producer and a supporter of Hamas. Any potential retaliation against Tehran could pose a threat to the Strait of Hormuz, a crucial passage that Iran has previously threatened to block.
China Reopens
A measure of energy-related stocks in Asia performed well, driven by companies like Santos Ltd. and Woodside Energy Group Ltd. in Australia.
In mainland China, stocks declined as the market reopened after the Golden Week holiday. The morning trading session in Hong Kong was canceled due to a typhoon, and trading will resume in the afternoon. In contrast, stocks rose in Australia. On Friday, the S&P 500 made gains of 1.2%, breaking a four-week losing streak. The Nasdaq 100 saw a significant increase of 1.7%, thanks to the strong performance of large-cap tech companies like Microsoft Corp., Apple Inc., and Nvidia Corp.
Despite the positive data from the Golden Week holiday, confidence in China remained delicate, according to Hao Hong, partner and chief economist at GROW Investment Group. He noted that smaller businesses in China might still be facing challenges because banks are cautious about lending to them.
The latest data revealed that revenue from tourism during the holiday season saw a significant increase compared to the previous year. However, it only managed to slightly surpass the levels seen before the Covid pandemic. This suggests that consumer sentiment in the country remains somewhat subdued, which is affecting China’s economic growth.
The offshore yuan experienced a slight increase in value after the People’s Bank of China once again set the daily exchange rate at a stronger level than what traders had estimated.
Meanwhile, South Korean and Japanese markets are closed due to a holiday, and there is no cash trading of Treasuries currently taking place.
Concerns About Rising Inflation
The increasing oil prices could contribute to the already high global inflation rates, and this has led investors to debate the likelihood of the Federal Reserve raising interest rates again this year.
Guillermo Santos, who serves as the head of strategy at the Spanish private banking firm iCapital, mentioned that if this trend extends to oil-producing countries, especially Saudi Arabia, it could result in higher crude oil prices. This, in turn, could have a negative impact on inflation in the Western countries and might lead to higher interest rates being maintained for a longer period.
In recent days, the yields on 10-year and 30-year Treasury bonds had risen significantly, touching levels last seen in 2007, reaching around 4.9% and 5.1%, respectively. However, they stabilized on Friday as global bond markets experienced a fifth consecutive week of selling. This shift in the bond market occurred after a surprising surge in hiring, with 336,000 jobs being added in September, which was more than double what economists had predicted. The unemployment rate remained unchanged at 3.8%, as reported by the Bureau of Labor Statistics on Friday. This unexpected job growth has led swaps traders to estimate roughly a 50/50 chance of a rate hike by December.
