Israel’s conflict with Iran sends tremors through markets

Israel’s airstrikes on Iran Friday sent reverberations through financial markets.

Oil prices jumped on fears that supply from Iran, the world’s ninth-largest oil producer in 2023, would be disrupted.

Prices of gold, the stalwart shelter in times of crises, rose. Investors flock to the precious metal amid uncertainty because it serves as a stable store of value that is mostly resistant against exogenous shocks, such as inflation or geopolitical conflicts.

And the dollar strengthened, as it is wont to do when the world looks ugly. Recall the dollar smile: The greenback will appreciate when things are really good because investors want in on U.S. risk assets, or when they are really bad because investors want in on the perceived safety of U.S. government bonds.

The fact that the dollar increased in value against other currencies traditionally perceived as safe havens, such as the Swiss franc and Japanese yen, emphasizes the primacy of king dollar, despite rumblings of de-dollarization and concerns over U.S. government debt.

Stocks, the financial risk asset epitomized, fell across markets globally.

Despite the markets giving multiple indications we are entering a period of ugliness — or, at least, volatility — U.S. stocks still appear resilient, and the surge in oil prices only brings us back to where they were about three months ago as prices have been low since, CNBC’s Michael Santoli wrote.

The markets have, indeed, mostly shrugged off Russia’s invasion of Ukraine and the Israel-Hamas war, both of which are still brewing. But with the conflict between Israel and Iran still in its early days, it might pay to be extra cautious in the coming weeks.

Israel strikes Iran
On Sunday, Israel launched a series of airstrikes across Iran. That marks the third day of violence between the two nations. Armed conflict broke out when Israel struck Iran’s nuclear facilities early Friday local time. In retaliation, Iran launched more than 100 drones toward Israeli territory. Those events are likely just the beginning in a rapid cycle of escalation, according to regional analysts.

Stocks retreat globally
U.S. futures rose Sunday night local time. On Friday, fears of a wider conflict in the Middle East sent stocks lower. The S&P 500 lost 1.13%, the Dow Jones Industrial Average fell 1.79% and the Nasdaq Composite retreated 1.3%. Europe’s Stoxx 600 index dropped 0.89%. Travel and airline stocks on both sides of the Atlantic fell as the outlook for international travel grew cloudy and airlines suspended their Tel Aviv flights.

Safe haven assets in demand
Investors piled into safe-haven assets after Israel’s attack on Iran. After weeks of declining, the dollar index, a measurement of the strength of the U.S. dollar against other major currencies, rallied 0.3% on Friday and was up 0.1% as of 7:30 a.m. Singapore time Monday. Spot gold rose 0.38% and gold futures for August delivery were up 0.41% Monday, adding to Friday’s gains of 1.4% and 1.5% respectively.

Prices of oil jump
Oil prices surged as investors feared a disruption to oil supply from Iran, which produced 3.305 million barrels per day in April, according to OPEC’s Monthly Oil Market Report of May. As of Monday morning Singapore time, U.S. crude oil rose 2.22% to $74.62 a barrel, adding to its 7.26% jump on Friday. The global benchmark Brent climbed 2.22% to $75.88 a barrel, following Friday’s 7.02% surge.

[PRO] U.S. stocks still look resilient
Even though stocks fell on the eruption of conflict between Israel and Iran, the market appeared resilient, wrote CNBC’s Michael Santoli. This week, while hostilities between the two Middle East countries will continue weighing on investors’ minds, they should not lose sight of the Federal Reserve’s rate-setting meeting, which concludes Wednesday.