Stocks gain, oil declines as Middle East tension eases

Global markets calmed on Monday as traders speculated that diplomatic efforts will help prevent the conflict between Iran and Israel from escalating.   

European stocks inched higher and US equities signaled a rebound on Wall Street after Friday’s 1.5% selloff in the S&P 500. Treasuries slipped along with the dollar. Brent crude dropped below $90 a barrel. Gold advanced to $2,353 an ounce. 

While nerves are still running high given the possibility that Israel might retaliate after Iran fired a barrage of missiles and drones over the weekend, investors took some comfort after the Iranian mission to the United Nations said the issue “can be deemed concluded.” The US and other nations also called for restraint in an effort to head off a full-blown regional war. 

“Market participants are certainly not giving up hope that the past weekend’s events were just a one-off occurrence, while holding their breath for what could happen next,” said Hebe Chen, an analyst at IG Markets.

Markets have been rattled by the threat of a strike and counter-strike cycle in the Middle East, which could push drive energy prices higher at a time when policymakers are still struggling to bring down inflation. Treasuries may lose some of their haven appeal if pressure on oil causes central banks to hold interest rates higher for longer, market participants said. 

For now, traders said the situation seems contained. While unprecedented, the assault caused minimal damage and no fatalities as almost all the projectiles were intercepted. The American, British and French air forces shot down some of them in coordination with the Israelis.

Europe’s version of the VIX Index sank 7%, an indication that worries are subsiding. Israel’s shekel rebounded after a bout of selling, rising as much as 0.9% on Monday. 

Earnings season continues today with Goldman Sachs Group Inc. and Charles Schwab Corp. due to report. With investor positioning looking “very stretched” and indexes not far from all-time highs, it’s unlikely that an upbeat earnings season can keep powering stocks higher, according to JPMorgan Chase & Co. strategists.

“Equities have already had a good run into the results, suggesting that investors are more optimistic than the downbeat earnings projections by sell-side analysts convey,” Mislav Matejka wrote in a note. “We need to see clear earnings acceleration in order to justify current equity valuations, which we fear might not come through.”

Elsewhere, aluminum surged by a record on the London Metal Exchange as traders responded to new US and UK sanctions that banned deliveries of Russian supplies produced after midnight on Friday. 

The restrictions on key industrial metals — aimed at curbing President Vladimir Putin’s ability to fund his war machine — are unlikely to stop Russian sales but inject significant uncertainty into commodities markets that have already been reshaped in the aftermath of Russia’s invasion of Ukraine. 

Key events this week:

• Eurozone industrial production, Monday
• US retail sales, empire manufacturing, business inventories, Monday
• Federal income taxes due in the US, Monday
• IMF and World Bank spring meetings start in Washington, Monday. The main ministerial meetings will be held April 17-19
• Canada CPI, Tuesday
• China property prices, retail sales, industrial production, GDP, Tuesday
• UK jobless claims, unemployment, Tuesday
• New Zealand home sales, CPI, Wednesday
• Eurozone CPI, Wednesday
• UK CPI, Wednesday
• Australia unemployment, Thursday
• Japan CPI, Friday
• India’s elections begin, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.3% as of 9:18 a.m. London time
• S&P 500 futures rose 0.6%
• Nasdaq 100 futures rose 0.6%
• Futures on the Dow Jones Industrial Average rose 0.4%
• The MSCI Asia Pacific Index fell 0.8%
• The MSCI Emerging Markets Index fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro rose 0.2% to $1.0661
• The Japanese yen fell 0.3% to 153.73 per dollar
• The offshore yuan rose 0.1% to 7.2570 per dollar
• The British pound rose 0.3% to $1.2485

Cryptocurrencies

• Bitcoin rose 3.8% to $66,301.38
• Ether rose 6.1% to $3,255.07

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.55%
• Germany’s 10-year yield advanced three basis points to 2.39%
• Britain’s 10-year yield advanced five basis points to 4.18%

Commodities

• Brent crude fell 0.8% to $89.44 a barrel
• Spot gold rose 0.4% to $2,354.71 an ounce

This story was produced with the assistance of Bloomberg Automation.