The recent attack by Hamas on Israel has caused a surge in oil prices, as concerns grow about the impact on crude supplies from the region. This comes at a time when supply worries are already high due to output cuts by Saudi Arabia and Russia.
The crisis has also reignited fears about inflation, with energy costs being a major driver of rising prices. Central banks now face the challenge of balancing interest rate hikes to prevent recessions.
The surprise attack and Israel’s declaration of war in response have resulted in over 1,000 casualties.
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There are growing concerns that the conflict could escalate and involve other nations, such as the United States and Iran. Market analysts are closely watching the situation, particularly its potential impact on Saudi Arabia.
Initial market reactions indicate that the conflict will likely remain contained in scope and duration, with limited oil-price consequences. However, higher volatility can be expected in the coming days.
Historical analysis suggests that oil prices tend to experience sustained gains during the Middle East crises.
While stocks initially suffer from volatility, they eventually recover and trend higher. Safe-haven assets like gold and Treasuries, which see initial gains during such crises, tend to stabilize as the situation calms down.
The risk-off sentiment in the market has led investors to seek refuge in the US dollar, causing it to strengthen against other major currencies.
The yen, known for its safe-haven status, has also gained strength. Gold, another traditional safe-haven asset, has seen a price increase of over one percent.
Equity markets have had a mixed performance, with Shanghai experiencing losses on its first day back after a week-long holiday. Concerns over the Chinese economy continue to weigh on investor sentiment.
Other markets, including Sydney, Singapore, Manila, and Wellington, also saw losses. However, Sydney and Jakarta managed to eke out gains. Tokyo and Hong Kong were closed due to a holiday and a typhoon, respectively.
Despite the mixed performance in equity markets, Wall Street rallied after data revealed a significant increase in new jobs, although wage growth slowed.
These figures, often referred to as “Goldilocks”, indicate a balanced state for the US economy, raising optimism that a recession can be avoided.
However, there are concerns that the Federal Reserve may raise interest rates once more before the year ends, as they aim to keep inflation at their target of two percent.
