Oil spikes and equities fall following Hamas attack on Israel

Oil jumped more than 5% after Hamas’s surprise attack on Israel raised fears of a wider conflict. Investors shunned traditionally risky assets such as stocks and instead bought gold, bonds and the dollar.

West Texas Intermediate climbed past $87 a barrel and an index of dollar strength added 0.3%. Europe’s Stoxx 600 index fell 0.4% and US futures also declined. Gold advanced 1%.

The Israeli shekel weakened 2%, reaching the lowest in seven years, even after the Bank of Israel unveiled an unprecedented program to support markets. The central bank plans to sell as much as $30 billion in foreign exchange, and extend up to $15 billion through swap mechanisms to support markets.

“The events over the weekend obviously destabilizes the region,” said Kyle Rodda, senior market analyst at Capital.com. “Ultimately, these events tend to have only a short-term impact on financial markets, and it’s probable that this time will be the same. Investors could be jumpy for a couple of days until the risks of escalation have clearly diminished.”

The fallout from the attacks rattled markets in the Middle East on Sunday. Major equities gauges in the region fell, led by a drop in Israel’s benchmark TA-35 stock index, which posted its biggest loss in more than three years. The benchmark edged 0.5% higher on Monday after a 6.5% slump in the previous session.

The violence is casting a pall over the outlook for companies that get a part of their revenue from Israel, threatening to hurt shares of some global generic drugmakers, chipmakers, diamond processors and software-services providers. 

While the latest events aren’t an immediate threat to oil flows, traders are concerned the conflict may become a proxy war. The US said it was dispatching warships and the Wall Street Journal reported that Iranian security officials helped plan the strike.

Iran is both a major oil producer and supporter of Hamas. Any retaliation against Tehran may endanger the passage of vessels through the Strait of Hormuz, a vital conduit that Iran has previously threatened to close.

“Any extension of this to oil-producing countries, Saudi Arabia in the lead, could make the price of crude oil more expensive, with negative inflationary effects for the West and would mean higher rates for longer,” said Guillermo Santos, head of strategy at Spanish private banking firm iCapital.

Trading in US cash Treasuries is closed for a public holiday on Monday. 

Elsewhere, Metro Bank shares jumped 20% after the troubled UK lender clinched a £925 million ($1.1 billion) financing package, a deal that will impose a 40% haircut on some bondholders and see Colombian financier Jaime Gilinski take a controlling interest. 

The agreement buys the British retail and commercial bank some much-needed breathing space after a tumultuous week that saw its share price whipsaw and consulting firm EY approach a number of lenders to submit offers. 

Key events this week:

• China money supply, new yuan loans, Monday
• Bank of England policymaker Catherine Mann speaks, Monday
• World Bank-IMF annual meetings open in Marrakech, Morocco, Monday
• Fed Vice Chair Michael Barr speaks, Monday
• Dallas Fed President Lorie Logan speaks, Monday
• Fed Governor Philip Jefferson speaks, Monday
• Japan balance of payments, Tuesday
• BOE releases minutes of financial policy meeting, Tuesday
• The IMF issues its latest world economic outlook, Tuesday
• US wholesale inventories, Tuesday
• Fed Governor Christopher Waller delivers keynote address, Tuesday
• Minneapolis Fed President Neel Kashkari speaks, Tuesday
• Germany CPI, Wednesday
• NATO defense ministers meeting in Brussels, Wednesday
• Russia Energy Week in Moscow, with officials from OPEC members and others, Wednesday
• US FOMC minutes, PPI, Wednesday
• Fed Governor Michelle Bowman speaks during World Bank-IMF meetings, Wednesday
• Japan machinery orders, PPI, Thursday
• Bank of Japan’s Asahi Noguchi speaks, Thursday
• UK industrial production, Thursday
• ECB publishes account of September policy meeting, Thursday
• BOE’s Huw Pill speaks, Thursday
• US initial jobless claims, CPI, Thursday
• China CPI, PPI, trade, Friday
• G20 finance ministers and central bankers meet as part of IMF gathering, Friday
• ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday
• Eurozone industrial production, Friday
• France CPI, Friday
• BOE’s Andrew Bailey speaks, Friday
• US University of Michigan consumer sentiment, Friday
• Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday
• Philadelphia Fed President Patrick Harker speaks, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.3% as of 9:27 a.m. London time
• S&P 500 futures fell 0.8%
• Nasdaq 100 futures fell 0.9%
• Futures on the Dow Jones Industrial Average fell 0.7%
• The MSCI Asia Pacific Index was unchanged
• The MSCI Emerging Markets Index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.5% to $1.0528
• The Japanese yen rose 0.1% to 149.16 per dollar
• The offshore yuan rose 0.2% to 7.2926 per dollar
• The British pound fell 0.5% to $1.2176

Cryptocurrencies

• Bitcoin fell 0.3% to $27,832.4
• Ether fell 1% to $1,621

Bonds

• The yield on 10-year Treasuries was little changed at 4.80%
• Germany’s 10-year yield declined four basis points to 2.85%
• Britain’s 10-year yield declined two basis points to 4.55%

Commodities

• Brent crude rose 2.5% to $86.69 a barrel
• Spot gold rose 0.9% to $1,850.02 an ounce

This story was produced with the assistance of Bloomberg Automation.

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