Introduction: Oil jumps as Middle East conflict shakes markets
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The oil price has jumped over 3% this morning as financial markets are rattled by the Israel-Hamas war:
Brent crude has jumped back to $89 per barrel this morning, recovering a chunk of last week’s losses, on fears that the surprise Hamas attack on Israel could escalate further, lifting tensions across the Middle East and hitting output from leading oil producers.
The risk of sanctions and oil supply shocks in the Middle East has driven up both gold and crude prices, reports Kyle Rodda, senior financial market analyst at Capital.com
Rodda adds:
The human impacts are far more consequential than anything happening in the markets, especially regarding the growing civilian casualties that have already occurred and are likely to increase as tensions escalate.
For those with open positions in the market, there could be ongoing volatility as the situation unfolds. Crude prices could be one barometer of the situation as instability in the region increases, impacting trilateral talks between Israel, the US, and Saudi Arabia and relations between the West and Iran.
Hedge fund manager Pierre Andurand, argues that the oil market could tighten over time, but there is little immediate threat to supplies.
Writing in X (formerly Twitter), Andurand explained:
Many people asked me if the Hamas attacks on Israel will have an impact on oil prices. As the Levant is not a large oil producing region, it is unlikely to impact oil supply in the short term. And therefore one should not expect a large oil price spike in the coming days. But it could eventually have an impact on supply and prices.
Global oil inventories are low, and the Saudi and Russian production cuts will lead to more inventories draws over the next few months. The market will eventually have to beg for more Saudi supply, which I believe, will not happen sub $110 Brent.
Many people asked me if the Hamas attacks on Israel will have an impact on oil prices. As the Levant is not a large oil producing region, it is unlikely to impact oil supply in the short term. And therefore one should not expect a large oil price spike in the coming days. But it…
— Pierre Andurand 🇺🇦🌻🇫🇷🇪🇺 (@AndurandPierre) October 7, 2023
The US dollar has also strengthened, as risk sentiment weakens and investors rush into safe havens.
Wall Street is set to open lower, with the Dow Jones industrial average set to fall around 0.7%.
FUTURES RIGHT NOW
S&P 500 DOWN 0.8% 📉
NASDAQ 100 DOWN 0.7% 📉
DOW JONES DOWN 0.7% 📉
VIX UP 7% 📈— 𝕏BT ビットコイン (@DogeXBT) October 9, 2023
The agenda
-
10.45am BST: Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel awarded
-
11am BST: Ireland’s industrial production for August
-
1pm BST: Mexico’s inflation rate for September
Key events
Jim Reid of Deutsche Bank points out that Hamas’s attack on Israel on Saturday morning came 50 years after the 1973 Arab–Israeli War, telling clients:
Markets will spend a fair amount of time in the early part of this week trying to understand the implications of the most serious cross-border attack on Israel in decades early on Saturday morning. It was 50 years ago on Friday that the Yom Kippur War started after a surprise attack on Israel so there are some parallels. This war cast a shadow over the rest of the 1970s so although we’re a long way from that, it’s a reminder that geopolitical risk is elevated at the moment with the Ukraine conflict, the US/China tensions and now those resurfacing in the Middle East. How Saudi Arabia, Iran, and the US get drawn into this will be key.
Geopolitical risk doesn’t tend to linger long in markets but there are many second order impacts that could come through in the weeks, months and years ahead from this weekends’ developments.
So far this morning Brent oil is +3.68%, having been around +5% a little earlier in the session. To put this in some context it was down over -11% last week. Israel’s stock market was down -6.5% yesterday. With the US bond market closed for Columbus Day it’s not going to be the most liquid day of trading.
The Tel Aviv stock market has opened 1% higher, having fallen over 6% yesterday.
This follows the Bank of Israel’s pledge sell up to $30bn in foreign exchange to stabilise the shekel (see 7.46am).
🔴 TEL AVIV SHARE INDICES OPEN 1.0% HIGHER AFTER BANK OF ISRAEL SAYS THEY’LL PROVIDE $15 BLN OF LIQUIDITY TO MARKETS AND SELL $30 BLN OF FOREX.
— Breaking Market News (@financialjuice) October 9, 2023
Weapons maker BAE System is leading the FTSE 100 risers in early trading, up over 4%.
It’s followed by oil producers BP (2%) and Shell (+1.5%), and gold and silver producer Fresnillo (+1.4%).
Airline shares fall
Shares in airlines are falling sharply at the start of trading in London.
IAG, which owns British Airways, have dropped 5%, while Wizz Air are down 7% and easyJet are down 3.8%.
Across Europe, the travel and leisure sector is down 1.1%.
Several airlines have suspended flight services with Tel Aviv until safety conditions improve, while the rising oil price will also push up costs for airlines.
Israel’s dollar-denominated government bonds have dropped sharply in early European trading, Reuters reports.
They add:
Israel’s 2060-maturing bond was last down 3.7 cents, which, if maintained, would be its biggest daily drop since the start of 2021, according to LSEG data.
Here’s Victoria Scholar, head of investment at interactive investor, on the situation in the markets this morning:
“Oil prices are staging gains up by around 3.5% driven by the escalation of violence between the Palestinian Islamist group, Hamas and Israel. Israeli prime minister Benjamin Netanyahu said there’s a ‘long and difficult war’ ahead.
It comes after oil suffered its worst weekly slide since March, reversing some of the sharp rally seen between June until the peak in late September. While Israel and Palestine are not oil producers themselves, the Middle East is a key region in terms of global oil output. The Israeli authorities have alleged that Iran, a supporter of Hamas and a key oil exporter, had some involvement in the violence.
However, US Secretary of State Antony Blinken told CNN, ‘we have not yet seen evidence that Iran directed or was behind this particular attack.’ Any indication of significant involvement from Iran could negatively impact its oil exports and in turn lead to higher prices. Meanwhile OPEC+ policy is expected to remain unchanged despite the geopolitical uncertainty with Saudi Arabia and Russia sticking to their voluntary production cuts, also providing support for the oil market.
As the war enters its third day, risk-off sentiment is gripping markets, lifting safe-haven assets like gold, silver, treasuries, the US dollar, and the Japanese yen. Meanwhile investors are selling riskier equities with US futures pointing to a weaker open. The Israeli shekel is also depreciating, touching its weakest level against the US dollar since 2016.”
Stock markets across the Middle East fell yesterday, led by a 6%+ drop in Tel Aviv, as investors across the region reacted to the Israel-Hamas war.
Bloomberg has the details:
The fallout from Saturday’s surprise attack on Israel by the Palestinian group Hamas reverberated through Middle East markets, sending stocks sliding and setting the tone for what’s likely to be a volatile week.
Major equities gauges in the region fell Sunday, led by a 6.4% drop on Israel’s benchmark TA-35 stock index, its biggest loss in more than three years. The Tadawul All Share Index in Riyadh fell 1.6% while stocks in Qatar and Kuwait also weakened.
The EGX30 gauge in Cairo slumped 2.6% after an Egyptian policeman opened fire on a group of Israeli tourists, killing two of them, in the Mediterranean city of Alexandria.
The Bank of Israel to sell up to $30bn to support shekel
Israel’s shekel fell to a near eight-year low in early trading, prompting the country’s central bank to step in to support the currency.
The Bank of Israel said it will sell up to $30bn of foreign currency in the open market to maintain stability.
According to Reuters, this is the central bank’s first ever sale of foreign exchange
The Bank of Israel says:
The Bank will operate in the market during the coming period in order to moderate volatility in the shekel exchange rate and to provide the necessary liquidity for the continued proper functioning of the markets.
In addition to the $30 billion program, and as necessary, the Bank will provide liquidity to the market through SWAP mechanisms in the market of up to $15 billion.
The move appeared to quickly calm the market, with the shekel recovering some of its early losses.
It is now trading at 3.89 to the dollar, up from 3.8388 on Friday night, having hit 3.921 earlier today, the weakest since early 2016
Reuters adds:
The shekel was already weak, down 10% versus the U.S currency so far in 2023, largely due to the government’s judicial overhaul plan that has sharply curtailed foreign investment.
Introduction: Oil jumps as Middle East conflict shakes markets
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The oil price has jumped over 3% this morning as financial markets are rattled by the Israel-Hamas war:
Brent crude has jumped back to $89 per barrel this morning, recovering a chunk of last week’s losses, on fears that the surprise Hamas attack on Israel could escalate further, lifting tensions across the Middle East and hitting output from leading oil producers.
The risk of sanctions and oil supply shocks in the Middle East has driven up both gold and crude prices, reports Kyle Rodda, senior financial market analyst at Capital.com
Rodda adds:
The human impacts are far more consequential than anything happening in the markets, especially regarding the growing civilian casualties that have already occurred and are likely to increase as tensions escalate.
For those with open positions in the market, there could be ongoing volatility as the situation unfolds. Crude prices could be one barometer of the situation as instability in the region increases, impacting trilateral talks between Israel, the US, and Saudi Arabia and relations between the West and Iran.
Hedge fund manager Pierre Andurand, argues that the oil market could tighten over time, but there is little immediate threat to supplies.
Writing in X (formerly Twitter), Andurand explained:
Many people asked me if the Hamas attacks on Israel will have an impact on oil prices. As the Levant is not a large oil producing region, it is unlikely to impact oil supply in the short term. And therefore one should not expect a large oil price spike in the coming days. But it could eventually have an impact on supply and prices.
Global oil inventories are low, and the Saudi and Russian production cuts will lead to more inventories draws over the next few months. The market will eventually have to beg for more Saudi supply, which I believe, will not happen sub $110 Brent.
Many people asked me if the Hamas attacks on Israel will have an impact on oil prices. As the Levant is not a large oil producing region, it is unlikely to impact oil supply in the short term. And therefore one should not expect a large oil price spike in the coming days. But it…
— Pierre Andurand 🇺🇦🌻🇫🇷🇪🇺 (@AndurandPierre) October 7, 2023
The US dollar has also strengthened, as risk sentiment weakens and investors rush into safe havens.
Wall Street is set to open lower, with the Dow Jones industrial average set to fall around 0.7%.
FUTURES RIGHT NOW
S&P 500 DOWN 0.8% 📉
NASDAQ 100 DOWN 0.7% 📉
DOW JONES DOWN 0.7% 📉
VIX UP 7% 📈— 𝕏BT ビットコイン (@DogeXBT) October 9, 2023
The agenda
-
10.45am BST: Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel awarded
-
11am BST: Ireland’s industrial production for August
-
1pm BST: Mexico’s inflation rate for September
