Israel strikes Iran in major escalation: How the markets are reacting

by Anand Krishnamoorthy and Julien Ponthus

Crude oil jumped the most in more than three years, stocks slid and haven assets including government bonds and gold rose after Israel attacked Iran’s nuclear program sites in a major escalation of tensions in the Middle East.

Oil surged as much as 13%, the biggest intraday jump since March 2022, before paring gains. Contracts for the S&P 500 index retreated 1.3%. European equities fell 1.1% and Asian stocks dropped the most in two months. Gold rose 0.7% and Treasuries advanced, with the 10-year yield falling two basis points to 4.34%. 

The dollar rebounded from Thursday’s three-year low, rising 0.3% as the greenback was buoyed by a shift toward safer currencies.

“We brace for a volatile day, we’ll probably be closing in the red,” said Vincent Juvyns, chief investment strategist at ING. “Typical safe havens should rise, like the dollar, treasuries and gold.”

The airstrikes against Iran’s nuclear program and ballistic-missile sites renewed a standoff between the two adversaries that risks spiraling into a wider conflict. While the market reaction was strongest in crude oil, moves in other pockets of the market suggested that investors are watching how long the tensions will last and whether the situation escalates.

“We are seeing classical risk-off moves,” said Matthew Haupt, portfolio manager at Wilson Asset Management. “What we are watching now for is the speed and scale of the response from Tehran. That will shape the duration of the current moves. Quite often these moves fade after the initial shocks.”

Israel said the operation will continue for “as many days” as it takes to remove the threat and Iran vowed to respond “harshly.” Israel Defense Forces says Iran launched more than 100 drones toward Israel in the last few hours.

The move came after repeated warnings by Israeli Prime Minister Benjamin Netanyahu about striking Iran and crippling its nuclear program. Iran had previously said it would inaugurate a new uranium-enrichment facility in response to censure by the UN atomic watchdog over its nuclear program.

The Israeli currency fell as much as 3.4% against the dollar to its weakest level since April. The oil futures curve strengthened on concerns that Israel’s latest strike on Iran could have severe and long-lasting repercussions.

The attack is coming at a time when global financial markets had recovered from a slump in April caused by Trump’s tariffs. An index of global stocks touched a record Thursday, gaining more than 20% from a low hit in April.

“Short term it will be used as an excuse or a catalyst by investors for some profit taking after a very strong come-back of risk assets,” said Vincent Mortier, chief investment officer at Amundi SA. “Price reaction of historical safe havens has been minimal. We believe the events of last night will remain localized and will not degenerate into something more global.”

Stocks

• The Stoxx Europe 600 fell 1.1% as of 8:08 a.m. London time
• S&P 500 futures fell 1.3%
• Nasdaq 100 futures fell 1.4%
• Futures on the Dow Jones Industrial Average fell 1.2%
• The MSCI Asia Pacific Index fell 1%
• The MSCI Emerging Markets Index fell 1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.3% to $1.1551
• The Japanese yen fell 0.1% to 143.66 per dollar
• The offshore yuan fell 0.1% to 7.1828 per dollar
• The British pound fell 0.5% to $1.3545

Cryptocurrencies

• Bitcoin fell 1.3% to $104,623.01
• Ether fell 4.3% to $2,526.46

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.34%
• Germany’s 10-year yield declined one basis point to 2.47%
• Britain’s 10-year yield was little changed at 4.48%

Commodities

• Brent crude rose 5.6% to $73.24 a barrel
• Spot gold rose 0.7% to $3,410.66 an ounce

This story was produced with the assistance of Bloomberg Automation.

Copyright Bloomberg News