After Hamas launched a surprise attack on Israel over the weekend, generating new concerns about Middle Eastern tensions, oil prices jumped on Monday, while the dollar and yen advanced.
Concerns over the region’s crude supply grew as a result of the crisis, at a time when they were already high due to output curbs by Saudi Arabia and Russia.
Because energy costs are a big contributor to price increases, it has reignited concerns about the impact on inflation, which is presenting new issues for central banks as they strive to dial back interest rate increases to avoid recessions.
The surprise strike and Israel’s subsequent declaration of war had killed over 1,000 people. This has raised concerns about a future conflict expansion including the United States and Iran.
“Key for markets,” according to ANZ Group’s Brian Martin and Daniel Hynes, “is whether the conflict remains contained or spreads to involve other regions, particularly Saudi Arabia.”
“At least for the time being, it appears that markets will believe the issue will be contained in terms of its breadth, length, and effects on the price of oil.” However, more volatility is expected.
Both major contracts climbed by more than 5% in early Asian trading before beginning to fall later in the day.
Nonetheless, SPI Asset Management’s Stephen Innes issued the following warning: “Historical data suggests that oil prices tend to experience persistent advances during the Middle East crisis.”
“Meanwhile, stocks tend to recover and trend higher after a period of volatility.” Gold and Treasury bonds, which initially show gains during such crises, tend to decline from their initial price increases as the situation settles.
“But with Middle East analysts considering this to be a pivotal moment for Israel, the view looks incendiary in any current scenario.”
Investors flocked to the protection of the dollar, which was up versus the pound and euro, as well as the Australian and New Zealand currencies.
The yen, widely regarded as one of the safest currencies, rose versus the dollar, albeit it remained stuck near 11-month lows.
Gold, another important safe haven, gained almost 1%.
Equity markets were uneven, with Shanghai dipping on its first day back after a week off as investors fretted about China’s slowing economy.
Mumbai, Singapore, Manila, Bangkok, and Wellington all suffered losses, however Hong Kong climbed in limited trade after being closed in the morning due to a typhoon.
Sydney and Jakarta both saw advances. Tokyo was closed for the Christmas season.
London gained ground, while Paris and Frankfurt fell.
Despite a rise on Wall Street, traders welcomed data indicating a forecast-busting increase in new jobs but slower pay growth.
The “Goldilocks” results — neither too robust nor too weak — raised hopes that the world’s largest economy will avoid a recession even as the Federal Reserve keeps interest rates high.
Still, there are fears that the bank could raise rates again before the end of the year, as authorities are determined to get inflation under control and keep it at the two percent objective.