Oil Soars Amid Middle East Conflict, Gold Gains: Markets Wrap

(Bloomberg) — Oil jumped to head back toward $90 a barrel after Hamas’ surprise attack on Israel triggered fears of a supply shock. Gold gained along with the dollar on haven bids.

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Both West Texas Intermediate and Brent surged more than 5%, days after crude posted its biggest weekly drop since March. The fallout in markets will likely be determined by whether conflict spreads to the rest of the Middle East region, with oil traders also shifting focus to Iran, which is both a major oil producer and supporter of Hamas.

For the conflict to have a lasting and meaningful impact on oil markets, there must be a sustained reduction in supply or transport, Commonwealth Bank of Australia analyst Vivek Dhar said in a note. If not — and as history has shown — the price reaction tends to be temporary. Nevertheless, should Western countries now officially link Iranian intelligence to the Hamas attack, then Iran’s oil supply and exports face imminent downside risks.

Gold rose and the dollar advanced on haven demand, with the greenback seeing gains versus the euro and pound, while riskier currencies slipped. The yen — another favored refuge for investors — strengthened. Meanwhile, earlier gains in Australian and New Zealand bonds have since been erased.

The fallout from the Israel attacks reverberated through Middle East markets on Sunday, sending stocks sliding. Major equities gauges in the region fell, led by a drop on Israel’s benchmark TA-35 stock index, which posted its biggest loss in more than three years, sliding 6.5%.

China Reopens

Shares slipped in mainland China as the market reopened after the Golden Week holiday while the morning session in Hong Kong was scrapped due to a typhoon. Stocks rose in Australia, while futures contracts for US stocks dropped. The S&P 500 had advanced 1.2% Friday, snapping a four-week losing streak. The Nasdaq 100 jumped 1.7% with large-cap tech names, including Microsoft Corp., Apple Inc. and Nvidia Corp., powering the index higher.

While the Golden Week data was encouraging, confidence remained fragile in China, according to Hao Hong, partner and chief economist at GROW Investment Group. “If you are a smaller business in China, you are still probably struggling because banks risk aversion makes it hard to lend to SMEs,” he said on Bloomberg Television.

Data show tourism revenue from the holiday surged on an annual basis, but edged only slightly above its pre-Covid level, suggesting relatively muted consumer sentiment continues to weigh on the country’s economic growth.

The offshore yuan declined after the People’s Bank of China once again set the daily currency fix well below traders’ estimate.

South Korean and Japanese markets are shut for a holiday and there is no cash trading of Treasuries.

Inflation Worries

Rising oil prices could add to already high global inflationary pressures with investors still debating the odds of another rise in interest rates by the Federal Reserve this year.

“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.

Yields on 10-year and 30-year Treasuries calmed on Friday after touching 2007 highs near 4.9% and 5.1%, respectively as global bonds sold off for a fifth straight week. An unexpected surge in hiring left swaps traders pricing in a roughly 50/50 chance of a rate hike by December.

The US nonfarm payrolls report showed employers quickened the pace of hiring, with 336,000 jobs being added in September — more than double economists’ estimates. The unemployment rate held steady at 3.8%, data from the Bureau of Labor Statistics showed Friday.

Key events this week:

China money supply, new yuan loans, Monday
Germany industrial production, 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

S&P 500 futures fell 0.8% as of 10:31 a.m. Tokyo time. The S&P 500 rose 1.2% on Friday
Nasdaq 100 futures fell 0.7%. The Nasdaq 100 rose 1.7%
China’s Shanghai Composite Index fell 0.6%
Australia’s S&P/ASX 200 rose 0.4%
Hong Kong’s Hang Seng futures rose 1.6%

Currencies