After Hamas launched an unexpected attack on Israel over the weekend, causing fresh concerns about Middle East hostilities, oil prices increased on Monday, along with the dollar and the yen.
At a time when supply concerns were already high due to Saudi Arabia and Russia’s output curbs, the scenario increased worries about petroleum supplies from the region.
Energy costs are a major contributor to price increases, so it has also rekindled concerns about the impact on inflation. As central banks aim to scale back interest rate increases to prevent recessions, this presents a new set of challenges.
More than 1,000 people have died as a result of the unexpected attack and Israel’s subsequent declaration of war. This has sparked worries that the battle could become more widespread and involve Iran and the United States.
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According to Brian Martin and Daniel Hynes of ANZ Group, the question of whether the violence stays localised or escalates to include other regions, particularly Saudi Arabia, will be crucial for markets.
Markets appear to be assuming, at least initially, that the situation’s scope, length, and effects on the price of oil will remain constrained. However, increased volatility is to be expected.
Early Asian trading saw both major contracts rise by more than 5% before declining later in the day.
Stephen Innes of SPI Asset Management, meanwhile, issued the following caution: “Historical data implies that oil prices tend to experience persistent advances after the Middle East crisis.
“However, following a brief period of instability, equities often bounce back and trend higher. Safe-haven investments, such as gold and Treasurys, which initially experience gains during such crises, typically see a decline from their price peaks as the situation stabilises.
However, Middle East scholars believe that this is a critical time for Israel, thus any current scenario makes the viewpoint explosive.
Investors also flocked to the protection of the dollar, which was competing with the pound, euro, Australian, and New Zealand dollars due to a markedly risk-off atmosphere.
Although it still hovers around 11-month lows, the yen, one of the safest currencies, gained ground against the dollar.
One percent was earned by gold, another important shelter.
Equity markets were mixed, with Shanghai falling on its first day back from a week-long vacation as investors remained concerned about the faltering Chinese economy.
Losses also occurred in Mumbai, Singapore, Manila, Bangkok, and Wellington; however, Hong Kong had a gain after opening late due to a storm the previous morning.
Gains were made in Sydney and Jakarta. Tokyo was shut for the day.
London grew a little bit, whereas Paris and Frankfurt declined.
The weak performance came despite a rise on Wall Street, where traders cheered data indicating a faster-than-anticipated increase in new employment but a slower rate of wage growth.
The “Goldilocks” results, which are just right—not too strong, nor too weak—boosted confidence that the world’s largest economy can escape a recession even as the Federal Reserve keeps interest rates high.
Even still, there are concerns the bank will raise rates once more before the end of the year because policymakers are determined to control inflation and keep it at their goal level of two percent.
