Investors struck a cautious tone on Monday, as an escalating conflict between Israel and Iran pushed oil prices higher and raised wider questions about the long-term impact.
As markets reopened following a weekend of strikes between Israel and Iran, investors held back on making big bets in either direction. Chinese stocks swung between gains and losses. European equity futures edged lower. The dollar was little changed, while gold held near a record high.
Brent crude prices soared 5.5 per cent in early trading but quickly pared most of that move. The abrupt swing in the price of oil underscored the wait-and-see approach many investors are taking, as they weigh fears of a spiraling conflict in the Middle East against news closer to home. Oil was up less than 1 per cent in afternoon trading in Asia.
A key question for investors is whether the conflict can be contained, after a weekend of attacks from both sides and a pledge by Israeli prime minister Binyamin Netanyahu to “strike at every site and every target of the Ayatollah regime”.
A major concern is that the conflict disrupts the supply of oil, putting upward pressure on inflation just as many central banks worry about growth.
So far, though, markets haven’t fully gone risk-off. Yields on US treasuries and a range of government bonds in Asia rose, a sign that investors aren’t seeking the protection of low-risk government bonds.
There were also flashes of optimism in stocks: Japan’s Nikkei 225 jumped 1.1 per cent, while Korea’s Kospi was on course for its highest close since January 2022.
“The market is putting on a surprisingly brave face given uncertainty over the question of what comes next regarding the Israel-Iran conflict,” said Tim Waterer, chief market analyst at KCM Trade.
The Israeli shekel gained more than 1 per cent against the dollar after four days of losses.
The conflict adds complications to what was already set to be a busy week. The US Federal Reserve and the Bank of Japan are among a raft of central banks set to announce interest rate decisions, while a meeting of the Group of Seven leaders also threatens to add volatility.
Japanese equities were helped by a rally in defence stocks after reports that Japan and the EU would meet to discuss cooperation measures for the defence industry.
Retail sales in China rose 6.4 per cent in May, a much faster expansion than the estimated 4.9 per cent. That figure came alongside a raft of data from the world’s second largest economy, which painted a mixed picture. But the surprise lifted sentiment, and helped Chinese stocks in Hong Kong wipe out their morning losses. - Bloomberg
