Oil jumps, stocks drop on Middle East conflict: Markets wrap

Oil jumped more than 5% after Hamas’s surprise attack on Israel raised fears of a wider conflict. Investors shunned traditionally risky assets such as stocks and instead bought gold, bonds and the dollar.

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 geopolitical uncertainty sent the dollar up against the euro and pound, while the yen — another popular haven – strengthened too. US stock futures fell and those for Treasuries rose before paring gains on concern costlier crude will ultimately fan inflation. Gold gained as much as 1.2%.

“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. The shekel slipped to the weakest in seven years as fighting entered a third day.

The fallout from the 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%.

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.

China reopens

A gauge of Asian stocks was little changed, with energy shares among those rising on the back of elevated oil prices. The S&P 500 had advanced 1.2% Friday, snapping a four-week losing streak.

Equities, however, 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.

Data showed tourism revenue surged on an annual basis during the period, but edged only slightly above its pre-Covid level, suggesting relatively muted consumer sentiment continues to weigh on economic growth.

The offshore yuan edged higher after the People’s Bank of China once again set the daily fixing at a stronger level than traders’ estimates.

South Korean and Japanese markets are shut for a holiday and there is no cash trading of Treasuries.

Inflation worries

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.

Yields on 10-year and 30-year Treasuries calmed on Friday after touching 2007 highs near 4.9% and 5.1%, respectively as global bonds sold off for a fifth straight week. An unexpected surge in US hiring left swaps traders pricing in a roughly 50-50 chance of a rate hike by December.

The US nonfarm payrolls report showed employers quickened the pace of hiring, with 336,000 jobs being added in September — more than double economists’ estimates. The unemployment rate held steady at 3.8%, data from the Bureau of Labor Statistics showed Friday.

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:

Stocks

• S&P 500 futures fell 0.7% as of 6:30 a.m. London time. The S&P 500 rose 1.2% on Friday
• Nasdaq 100 futures fell 0.7%. The Nasdaq 100 rose 1.7%
• China’s Shanghai Composite Index fell 0.5%
• Australia’s S&P/ASX 200 rose 0.2%
• Hong Kong’s Hang Seng futures rose 1.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro fell 0.3% to $1.0553
• The Japanese yen was little changed at 149.21 per dollar
• The offshore yuan rose 0.2% to 7.2976 per dollar
• The Australian dollar fell 0.6% to $0.6349
• The British pound fell 0.3% to $1.2198

Cryptocurrencies

• Bitcoin was little changed at $27,899.13
• Ether fell 0.3% to $1,632.53

Bonds

• Australia’s 10-year yield declined two basis points to 4.52%

Commodities

• West Texas Intermediate crude rose 3.6% to $85.73 a barrel
• Spot gold rose 0.9% to $1 849.42 an ounce