Gold soared above $5000 per ounce as investors fled risk-sensitive assets in the wake of Iran’s bombing.
Stocks tumbled and the dollar rallied as military strikes intensified across the Middle East, sending oil to its biggest surge in four years and stoking concern that faster inflation could weigh on the global economy.
S&P 500 futures slid 1.1%, with benchmarks in Asia and Europe notching similar declines. Brent crude jumped 9% toward $80 a barrel as the war effectively shut the Strait of Hormuz — a vital artery off Iran’s coast that carries about a fifth of the world’s oil. In Europe, liquefied natural gas surged 50% after Qatar halted output at the world’s biggest export plant.
Safer assets were in demand as investors cut back on risk. Gold approached $5,400 an ounce. The dollar index climbed 0.7%. Meanwhile, Treasury and European bond yields rose as traders scaled back wagers on interest-rate cuts in the US, UK and euro area.
“The endgame remains highly uncertain, ranging from a relatively swift political exit to a broader regional spillover,” said Mathieu Racheter, head of equity strategy at Julius Baer. “In such a fog of war, markets tend to trade probabilities rather than shifting facts.”
Business Briefing
Become a business insider with the latest news.
SIGN UP
Or with:
By signing up, you agree to our Terms of Service and Privacy Policy.
The war in Iran is adding to a list of headwinds for markets already on edge after fears over disruption from artificial intelligence and pressure in private credit have nearly erased this year’s gains in the S&P 500. Investors are now focused on how long the conflict will last and how far hostilities might spread, after President Donald Trump said the campaign could continue for weeks.
While Trump has called on Iran’s leaders to capitulate, the Islamic Republic’s security chief said it has no intention of negotiating with the US. Blasts were heard across Bahrain, the United Arab Emirates and Qatar on Monday as Gulf states intercepted missiles launched by Iran in response to the US-Israeli strikes.
Advertisement
Meanwhile, Aramco halted operations at Saudi Arabia’s largest refinery after a drone strike in the area, according to people familiar with the matter. QatarEnergy’s decision to cease LNG production followed attacks on its Ras Laffan complex.
“It is still very unclear what the duration of the conflict will be and more importantly, how the energy market reacts,” said Andrea Gabellone, head of global equities at KBC Securities. “One positive for the US is that the market has corrected since January, so we are not in overbought territory. It’s fair to say havens should continue to outperform.”
Energy and defense stocks rallied, with Exxon Mobil Corp. shares climbing 5.2% in early trading. British Airways owner IAG SA fell 5.4% amid a widespread disruption to flights in the Middle East.
Investors sold Treasuries after US government debt notched big gains last month. Short-term gauges measuring inflation two years ahead have jumped around 10 basis points in the US, UK and Europe, reflecting the spillover from higher energy prices.
Advertisement
For Geoff Yu, senior macro strategist at BNY, Monday’s rise in US yields came as no big surprise given the elevated levels at which bonds were trading. The 10-year rate was at 3.99%, five basis points higher for the day.
Points of Focus
“Markets were well-positioned for risk aversion, even if the original drivers were not geopolitics,” Yu said. “We stress that the situation remains volatile. A ‘day-by-day’ approach will probably take precedence for now.”
Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management, said the main questions traders are looking out for are how long the disruption lasts, developments in the Strait of Hormuz, any impact on oil infrastructure and whether Iran and the US can reach a negotiated settlement.
“Most geopolitical events have limited long-term impact on asset markets,” Bhayani said. “There is already a premium in oil of circa $7-$10 before today’s trading. Only in an extended conflict, with oil prices over $100, would it materially impact the global economy.”
Read more on The Dallas Morning News
