Market Reactions to U.S. and Israeli Strikes on Iran
BANGKOK — The recent military actions by the U.S. and Israel against Iran have stirred global markets, leading to an initial drop of over 1% in U.S. futures prices, while oil prices spiked, although both trends moderated as the trading day progressed.
In Bangkok, by late morning, futures for the S&P 500 and Dow Jones Industrial Average were showing a decline of approximately 0.8%.
Asian markets also showed weakness right from the start. While Japan’s Nikkei 225 index dropped by more than 2% initially, it later settled down to a 1.5% decrease, closing at 57,981.54.
In Hong Kong, the Hang Seng Index fell by 1.6%, reaching 26,215.91, whereas the Shanghai Composite Index remained relatively unchanged at 4,163.01. Taiwan’s index was down 0.6%, and Singapore’s market recorded a 1.9% fall. The SET in Bangkok experienced a decline of 2.1%.
Meanwhile, Australia’s S&P/ASX 200 index saw a minor decrease of 0.3%, settling at 9,173.50. Trading in Korean markets was halted due to a holiday.
Reflecting the market’s uncertainty, gold prices, often viewed as a safe haven, rose by 2.4%, reaching approximately $5,371 an ounce.
Market participants expressed concerns that attacks could disrupt oil supplies, particularly from Iran and the broader Middle East. The Strait of Hormuz, a crucial route for oil transport, complicates global exports.
“About a fifth of the world’s oil and LNG flows pass through the Strait of Hormuz. This is not just any canal; it’s a vital artery for the global energy system,” commented Stephen Innes of SPI Asset Management.
The price of benchmark U.S. crude oil initially surged about 8%, later trading up 5.9% at $71.00 per barrel, while Brent crude rose by 6.2% to $77.38 per barrel.
A sustained conflict could lead to higher prices for fuels and gasoline, impacting the global economy by increasing production costs.
RaboResearch Global Economics & Markets noted that a continuous disruption of oil transport in the region could have profound effects on oil and LNG markets, as energy is integral to all production sectors.
Iran currently exports around 1.6 million barrels of crude oil daily, predominantly to China. If Iran’s exports face interruptions, it may need to source oil elsewhere, which would likely raise energy prices further.
However, analysts like Michael Wrangham from Aberdeen Investments point out that China has substantial oil reserves totaling around 1.5 billion barrels, and bolstered imports from Russia could mitigate the impact of reduced Iranian oil.
Heightened tensions had been expected due to the significant U.S. military buildup in the Middle East, prompting traders to reassess their strategies based on potential risks.
This geopolitical situation has drawn attention away from discussions about artificial intelligence, which had previously dominated market conversations.
On the previous Friday, the S&P 500 declined by 0.4%, marking only the second time in ten months the index finished lower. The Dow Jones Industrial Average dropped 1.1%, while the Nasdaq Composite Index decreased by 0.9%.
In the bond markets, yields fell as investors sought safer investments amid rising uncertainties.
“In fragile markets, you don’t require a major blow; you just need to add another weight to the bar,” Innes remarked.
Additionally, a report released Friday indicated that U.S. wholesale inflation had risen to 2.9% in the past month, significantly exceeding economists’ predictions of 1.6%, which further weighed on overall market sentiment.
This could lead to pressure on the Federal Reserve to hold off on cutting interest rates for an extended period. Lowering rates could nurture economic growth and boost investment prices, yet it also risks intensifying inflation.
In early trading on Monday, the U.S. dollar rose to 156.34 yen from 156.27 yen at the end of the previous week, while the euro slipped to $1.1789 from $1.1762.
