Global Markets React to Escalating Israel-Hamas Conflict: Oil Prices Surge
Market Reactions Amid Conflict
Bangkok: The recent military actions by the US and Israel against Iran have unsettled global markets, leading to a decline of over 1% in U.S. futures and a significant rise in oil prices. Despite this turmoil, defense contractors and oil firms managed to mitigate some losses during Asian trading hours.
Futures for the S&P 500 and Dow Jones Industrial Average dropped by 1.7%.
The price of US benchmark crude surged by 9%, reaching $73 per barrel, while Brent crude saw an increase of nearly 10%, nearing $80 per barrel.
European markets opened significantly lower, with Germany's DAX falling 2.2% to 24,737.47, and France's CAC 40 declining by 1.9% to 8,413.91. The UK's FTSE 100 also slipped by 1% to 10,800.63.
Most Asian markets experienced declines, although Shanghai saw a rise, buoyed by higher oil prices that lifted stocks of companies like CNOOC, China Petroleum & Chemical, and PetroChina to their 10% limit.
The Shanghai Composite index increased by 0.5% to 4,182.59, while Hong Kong's Hang Seng index fell by 2.1% to 26,059.85.
Japan's Nikkei 225 index initially dropped over 2% but closed 1.4% lower at 58,057.24, with defense-related stocks like Mitsubishi Heavy Industries and IHI Corp. showing gains.
Australia's S&P/ASX 200 ended the day flat at 9,200.90.
In India, concerns over potential disruptions to oil access due to the ongoing conflict led to a 2.1% drop in the Sensex.
Taiwan's benchmark index fell by 0.9%, and Singapore's market dropped by 2.3%. In Bangkok, a popular destination for Middle Eastern tourists, the SET index fell by 3.1%.
South Korean markets were closed for a holiday.
Gold prices, often seen as a safe investment during uncertain times, rose by 3.4% to approximately $5,426 per ounce.
The US dollar strengthened, climbing to 157.20 Japanese yen from 156.27 yen, while the euro fell to $1.1708 from $1.1762.
Traders are increasingly concerned that the ongoing conflict will disrupt oil supplies from Iran and other Middle Eastern countries. Recent attacks on vessels in the Strait of Hormuz have already impacted oil exports globally.
Stephen Innes of SPI Asset Management noted, "About one-fifth of global oil and LNG flows pass through the Strait of Hormuz. This is not just any canal; it is the lifeblood of the global energy system."
A prolonged conflict could lead to increased prices for gasoline and other fuels, potentially affecting the global economy by raising overall production costs.
Disruptions in oil supply from the Middle East would have significant consequences for oil and LNG markets worldwide, as energy is a crucial input for all production.
Iran typically exports around 1.6 million barrels of oil daily, primarily to China. If these exports are hindered, it could further escalate energy prices.
China's strategic oil reserves are a closely guarded secret, but estimates suggest they range between 1.1 billion and 1.2 billion barrels, enough for about 100 days of imports.
The market's reaction to the conflict was somewhat tempered, as the attacks were anticipated due to the substantial buildup of US forces in the region, leading traders to adjust their positions accordingly.
Currently, the focus has shifted from artificial intelligence issues that have dominated the market discourse in recent months.
On Friday, the S&P 500 experienced a 0.4% decline, marking its second losing month in the last ten. The Dow dropped by 1.1%, while the Nasdaq composite fell by 0.9%.
In the bond market, Treasury yields decreased as investors sought safer investment avenues.
Innes remarked, "Markets are fragile and do not require a knockout blow; they just need additional pressure to weigh them down."
Additionally, a report released on Friday indicated that inflation at the wholesale level in the US reached 2.9% last month, significantly higher than the anticipated 1.6%.
This inflationary pressure may compel the Federal Reserve to delay interest rate cuts, which could provide a boost to the economy and investment prices but might exacerbate inflation.